Global Cement News

China: China Pioneer Cement, the sole shareholder of Shandong Shanshui Cement, has removed Li Maohuan, Yu Yuchuan, Zhao Liping and Chen Zhongsheng as directors of Shandong Shanshui. In their place Liu Yiu Keung, Stephen, Yen Ching Wai, Chong Cha Hwa and Liu Dequan have been appointed as directors.

The publication of LafargeHolcim’s annual financial results for 2016 this week starts to give us a review of the year as a whole for the multinational cement producers. Of the larger producers, CNBM, Anhui Conch and Votorantim are expected to make their releases in April 2016, so we’ll focus here on the available data from LafargeHolcim, HeidelbergCement, Cemex and BuzziUnicem, with UltraTech Cement included for some regional variety.

Graph 1: Sales revenue from multinational cement producers in 2015 and 2016 (Euro millions). Source: Company financial reports.

As can be seen in Graph 1 currency exchange effects have caused problems for producers’ sales revenues, with LafargeHolcim, HeidelbergCement and Cemex all reporting falling sales on a direct comparison. Subsequently like-for-like adjustments have cropped up repeatedly on balance sheets to try and present a more investor-friendly picture, although even this has still seen LafargeHolcim and HeidelbergCement report small declines. In this sense it’s a little unfair to include India’s UtraTech Cement, given that the bulk of its business is in just one country. Operating in just one country though has its own risks, one of which we’ll discuss below.

Unsurprisingly, given the poor sales, the focus for the multinationals has generally been on earnings measures such as operating earnings before interest, taxation, depreciation and amortisation (EBITDA). Here, LafargeHolcim and Cemex have done far better as they have streamlined their businesses. For example, LafargeHolcim’s operating EBITDA rose by 12.9% year-on-year to Euro4.895bn in 2016.

Graph 2: Cement sales volumes from multinational cement producers in 2015 and 2016 (Mt). Source: Company financial reports.

Graph 2 looks at cement sales volumes. Most of the producers have made small gains or losses in 2016 with the stark exception of LafargeHolcim. Its cement sales fell by 12.9% to 233Mt in 2016. More alarmingly, for the fourth quarter of 2016 LafargeHolcim blamed an increased rate of declining cement sales volumes on demonetisation in India, tough trading conditions in Indonesia and a unusually good year (in 2015) to compare itself against in the US.

On that point about India, UltraTech may not have released any sales volumes figures but other larger Indian producers have experienced problems with the government’s decision to remove certain banknotes from circulation in November 2016. A report by HDFC Securities this week suggests that cement volumes fell by 13% year-on-year in January 2017 following a 9% decline in December 2016. The country may be facing its first decline in cement sales volumes since 2001. This is squarely down to government policy.

On a regional basis probably the most worrying theme has been an apparent slowdown in the US towards the end of the year. As mentioned above LafargeHolcim has blamed it on a good previous year and Cemex concurred. Buzzi Unicem also reported the same trend but didn’t attribute it to anything in paticular. President Donald Trump’s push for US$1tr investment on infrastructure in the US should help to reverse this along with anything that happens with his Mexican border wall plans.

The other area to pay attention to is Indonesia. Both LafargeHolcim and HeidelbergCement reported tough trading here prompted by production overcapacity. Locally, Semen Indonesia said this week that its sales revenue fell by 3% to US$1.95bn in 2016 and it still has new cement plants to be commissioned in 2017.

The overall picture for 2016 from these cement producers appears to be one of companies treading water and making savings as their sales were battered. As mentioned previously (The global cement industry in 2016, Global Cement Magazine, December 2016) the geographic spread of assets the multinationals own doesn’t seem to be protecting them from world events as well as they once did. On the plus side northern Europe seemed to pick up or at least hold steady in 2016 but various political shocks such as the UK departure from the European Union and elections in France and Germany may scupper this. In a similar vein India remains one of the key markets but government policy has potentially dented its growth this year. In the US cement volumes may be slowing but Donald Trump is riding to the rescue! With this continued high level of potentially disruptive events cement producers are probably hoping for a quiet year in 2017.

Turkey: Mehmet Göçmen has been appointed as the new chief executive officer of Sabancı Holding, the owner of several Turkish cement companies including Çimsa and Akçansa. He replaces Zafer Kurtul, who will vacate his position from 30 March 2017. Göçmen currently serves as Sabancı Holding Energy Group Head.

Göçmen graduated from the Department of Industrial Engineering at the Middle East Technical University in 1981. He also holds an MS degree from the Department of Industrial Engineering at Syracuse University in the US. He worked in executive positions between 1983 and 1995 at Steel Wire & Rope Industry, at Lafarge between 1996 and 2003 and he was appointed as General Manager of Akçansa in 2003. He has served as Human Resources Group Head, Cement Group Head and Energy Group Head at Sabancı Holding since 2008.

A couple of news stories from Australia this week give us a reason to look at the country’s cement industry. All the main producers have now released their preliminary reports for the second half of 2016, with the exception of LafargeHolcim, one of the joint owners of Cement Australia. Essentially, the picture is mixed from two of the three main producers - Adelaide Brighton and Boral - with falling sales revenues but growing sales in the east. In mid-2016 the Australian Industry Group Construction Outlook survey predicted that the infrastructure, commercial and residential sectors would start to recover in the second half of 2016 leading to an upturn in 2017, although falling mining and heavy engineering construction was expected to continue to contrast in 2016.

The local market is split in clinker production terms with most of the producers (relatively) concentrated in the south and east of the country. Cement Australia leads in cement production capacity with 2.8Mt/yr or 42% of the country's production base from two integrated plants. Adelaide Brighton then comes next with 2.3Mt/yr or 35% from three plants and Boral follows with 1.5Mt/yr from one plant since the closure of clinker production at its Waum Ponds Plant in Victoria in 2012. The cement grinding plant situation is more varied with Adelaide Brighton's Northern Cement plant in the Northern Territory and BGC Cement plant in Western Australia amongst the country's 12 units, according to Global Cement Directory 2017 data. This total also includes a few slag cement grinding plants such as the Australian Steel Mill Services' plant and the Cement Australia-Ecocem plant that are both in Port Kembla.

Adelaide Brighton reported that its sales volumes of cement were down in 2016 due to major declines in Western Australia and the Northern Territory. Here, volumes had fallen by around 20% year-on-year. Unfortunately, a revival in southern and eastern Australia in the second half of the year wasn’t enough to stem the tide of poor sales. Power supply issues in Southern Australia also caused disruptions at both the company’s own plants and at those of its customers, leading to reduced sales. The cement producer also said that its import volumes had fallen by 2Mt due to lower sales in Western Australia and the Northern Territory and that import costs had increased due to a drop in the value of the Australian Dollar. Adelaide Brighton's reliance on imports is interesting given that this week Semen Padang, a subsidiary of Semen Indonesia, announced that it had started exporting cement to Australia.

Meanwhile, Boral Australia said that its cement revenue had fallen by 3% year-on-year to US$95.3m for its first half to 31 December 2016. However, cement sales volumes grew by 3% driven by higher direct sales. It also noted that competition and energy costs had increased in the period. HeidelbergCement, the other joint owner of Cement Australia, along with LafargeHolcim, said that its operations in Australia had delivered solid development due to strong residential construction demand and strong demand on the East Coast that compensated for a weaker mining sector. LafargeHolcim confirmed this in its half-year report adding that road infrastructure projects had also helped. It also noted that benefits to its adjusted operating earnings before interest, taxation, depreciation and amortisation (EBITDA) had been accrued through energy savings and lower clinker import costs.

LafargeHolcim's financial results for 2016 are due later this week on 2 March 2017. Potentially they have big implications for the Australian cement market given the rumours that were swirling around a year ago about a potential divestment. Although the signs so far suggest that its subsidiary Cement Australia did okay in 2016, pressure elsewhere in the group might prompt a sale of its share. We discussed this issue in December 2015 but since then Adelaide Brighton publicly said it was working on an acquisition plan, including strategy on how to cope with any potential competition issues. All eyes will be on LafargeHolcim later in the week.

Belgium: Henk Mariën, the managing director and owner of Arodo, has died. He passed away suddenly on 9 February 2017. Mariën built the company that designs and builds bagging machines, palletisers and shrink covers leaving behind an international presence in the business and a workforce of over 100 staff. The company intends to continue his mission and continue to build Arodo’s future.