Global Cement News

Indonesia: PT Semen Gresik, Indonesia's largest cement producer, plans to spend US$400m-US$500m to expand its operation into Vietnam and Myanmar by the end of 2012, according to its general director Dwi Soetjipto.

Semen Gresik intends to finance 20% of the expansion with internal cash and the remainder with external sources, possibly from a global bonds issue. In case any negotiations conclude by the end of 2012, Semen Gresik would likely issue bonds in 2013, Dwi added.

The company has been assessing potential local partners for a joint venture for a plant in Myanmar to produce around 600,000t/yr, in which Semen Gresik will contribute US$150m. However, Dwi Soetjipto declined to discuss Vietnamese expansion plans in detail, hinting at an acquisition.

Semen Gresik reported total assets of US$2.25bn at the end of March 2012. The firm's revenues in the first quarter of 2012, rose by 20% year-on-year to US$458m. Its cement sales fell at 4.94Mt in Jan-Mar period, making up 39.3% of Indonesia's market share. Semen Gresik predicts that its cement sales will reach 22.5Mt/yr in 2012, up from 19.72Mt/yr in 2011. Revenues are expected to rise 15% year-on-year to US$1.93bn.

China: Shares in China Resources Cement Holdings fell by as much as 5% on the Hong Kong stock-exchange today after the cement maker warned of a sharp fall in first-half earnings. Its losses demonstrate that weaknesses in the world's second-largest economy are starting to hit corporate profits. An increasing number of companies are feeling the pinch of a slowdown in consumer demand and the economy as a whole.

China's central bank cut its policy rates in June 2012 for the first time since the onset of the global financial crisis because economic data for April and May 2012 suggested that growth was weakening more than previously thought.

Yesterday, Gansu Qilianshan Cement, a small Shanghai-listed cement producer, forecast that its net profit would decrease by at least 50% year-on-year in the first half of 2012. In the first half of 2011 it made a net profit of US$38.9m.

Australia: Boral, Australia's leading building materials supplier, has downgraded its overall profit forecast for the second time in two months, saying earnings could be as much as US$75.5m lower than it expected in February 2012. The downgrade comes with predictions that the group will announce asset writedowns when it delivers its full-year result in August 2012.

It is now expected that Boral will post a net profit before significant items for the current financial year in the range of US$100-110m. The company has continued to blame the profit downgrades on bad weather and weak conditions in the property and construction market and said that an early maintenance shutdown at Waurn Ponds Cement Works in Victoria was also weighing on earnings.

India: The announcement last week that 11 Indian cement producers face a combined US$1.1bn penalty for a price-fixing cartel will cast a long shadow over the country's increasingly vulnerable-looking cement industry.

For years the Indian cement industry has been beset by suspicions of over-capacity despite a constant stream of new capacity. Now the Competition Commission of India (CCI) thinks that it has got to the heart of the paradox by accusing manufacturers of limiting production amid high demand and colluding to artificially raise prices.

The amount that the CCI has fined the companies, 50% of their net profits for the two fiscal years to 31 March 2011, is quite astonishing. If enforced in its entirety the fine effectively negates a large portion of the sector's profits for an entire fiscal year. This is clearly not a slap-on-the-wrist from the CCI.

In the 1990s and early 2000s a similar cartel case involving European (and specifically German) cement producers led to fines in the order of hundreds of thousands of US Dollars. The industry has since cleaned up its act considerably as a result. Indian producers would be foolish not to follow suit. What are the likely effects in the Indian case?

Removing the cartel that the CCI purports to have found would reduce prices, which are inflated by an oft-quoted 25% median in a cartel. This is clearly good news for consumers and potentially the development of the Indian economy in general. The obvious losers in this situation would be the producers, which would see a reduction in profitability. Some of the smaller producers would find such a situation very challenging, with the risk of going bust or being absorbed into larger companies.

Another possibility is that the accusations will spread along the value chain. Shortly after the announcement of the fine, the Builders' Association of India (BAI), announced that it wants the fine increased to accommodate compensation claims from contractors and consumers that it feels are out-of-pocket as a result of the cartel. Many will feel aggrieved now that they 'know' the cement companies were profiteering - sorting out claims from affected parties could be a long and costly exercise.

The effects of the fine could also extend to outside of India. Indian cement producers, very good customers of the Chinese and European cement plant manufacturers in recent years, will have to deal with lower revenues. This will clearly dampen their enthusiasm to contract further capacity and may cause knock-on-effects for Sinoma, KHD, Polysuis and other major suppliers. The cement industries of neighbouring countries, like Pakistan, may also be affected.

Whatever happens in the Indian cement industry as a result of the CCI's fine, the authority, only formed in 2009, has shown that it is serious about taking on corruption in India. In the long run that can only help develop the potential of the country.

"The first thing for any new competition regulator is to go out and find the cement cartel. My experience of this subject is, it is always there, somewhere," wrote Richard Whish, a Professor of Law at King's College London in 2001. "The only countries in which I had been unable to find the cement cartel is where there is a national state-owned monopoly for cement."

Germany: Dipl.-Ing. Otto Jung will retire from Gebr. Pfeiffer SE on 30 June 2012 after nearly 40 years with the company. Dr.-Ing. Robert Schnatz will take over Jung's technical responsibilities on the executive board.

Jung started his career as a development and project engineer. In 1988, he became head of the projects and sales department processing and then in 1996 he was appointed to the Executive Board of Gebr. Pfeiffer SE, a position he held for 16 years. During this time a number of innovateive new projects were launched for the cement industry.