Global Cement News

It's official: the big boys are heading to India this week.

First Lafarge head Bruno Lafont announced broad expansion plans in the subcontinent. Then a Holcim presentation emerged from earlier in 2012 projecting that the company expects India's overall construction market to take the global third position after China and the US by 2020.

With the Indian construction share set to rise from US$360bn in 2010 to US$840bn in 2020 that's one massive market share up for grabs. Throw in some interpretation from India's 2011 census and the signs are that its population could overtake China's by 2030. Sounds like an absolutely perfect opportunity for your average embattled European cement corporation!

Except that there's no such thing as a sure bet. As we covered previously, Indian cement consumption fell for the first time in 20 years in August 2011. The cause was put down to political problems holding up infrastructure in key states. In March 2012 we've had two stories that have impacted upon the local industry. First the Railway Board of India hiked the freight rates by 24%. Then the Union Budget for 2012-13 increased the excise and service tax. Clearly everybody wants a piece of the 'inevitable' bonanza. If anything impedes India's growth in the next decade there may be bargains going for cement on the export market.

Elsewhere this week we have stories on the potential cost of a proposed air pollution ruling upon two plants in the US state of Montana, more information on a revival in the Gulf Cooperation Council region and more capacity growth in Indonesia.

Denmark: Carsten R Lund will be appointed new Group Executive Vice President of FLSmidth and a member of the Group Executive Management in July 2012. He will replace Christian Jepsen, who will be joining Alcoa, one of FLSmidth's global mining customers. Lund will be heading the new global Bulk Materials Division that was formed as part of the new FLSmidth Group structure announced in February 2012.

Lund, age 49, is a Danish citizen, Executive MBA and Mechanical Engineer (BSc.), who has been employed by the FLSmidth Group for 24 years in varying managerial positions. Most recently, Lund has headed the implementation of a major business system program for the entire FLSmidth group as program director. Prior to that, he was CEO of FLSmidth Airtech from 2007-2011 and responsible for growing and developing FLSmidth's Air Pollution Control business to become a major global player.

China: Analysts expect the profitability of China's leading cement producers to weaken in 2012 due to slowing demand and falling prices.

SWS Research analyst Ye Rong expects the earnings of China's second-biggest cement producer, Anhui Conch Cement, to plummet by half in the first quarter, because the Yangtze River Delta, where most of Anhui Conch's sales are based, has seen cement price drops of 5% to 20% since the Lunar New Year, on 23 January 2012. Citic Securities forecasts the Hong Kong-listed firm's net profit will drop by 40% in the first quarter.

The net profit of Anhui Conch soared by 88.1% to US$1.84bn in 2011, while revenue surged by 41% to US$7.71bn. The state-owned enterprise's results for 2011 were in line with market expectations, wrote Luo Yang in a Nomura report. However, Anhui Conch's profit margin was likely to deteriorate in 2012, due to downward pressure on selling prices, rising costs and decelerating productivity, Luo wrote. "Under severe overcapacity, the company is subject to higher price risk in comparison with most of its peers."

Anhui Conch chairman Guo Wensan said the industry would face unfavourable factors in 2012, such as a slowdown in investment growth, regulation of the real-estate sector and rising energy prices. Anhui Conch plans a capital expenditure of US$1.27bn in 2012 less than the US$1.44bn in 2011.

In an exception to this trend, mainland China's biggest cement producer, China National Building Materials, announced it expected net profit to jump more than 100% from 2011. However, JP Morgan expects prices and profit per tonne for most mainland cement producers in 2012 to be up to 10% lower than 2011, and has trimmed its earning estimates for most listed cement companies. The growth in the mainland's cement consumption would be 5% to 8% in 2012, against 11% in 2011, the China Cement Association said.

The net profit of China National Materials (Sinoma) rose by 32.78% to US$231m in 2011, while turnover grew by 14% to US$8.04bn. The Hong Kong-listed firm's cement sales surged by 40% to US$3.21bn in 2011, while sales of its hi-tech materials increased by 7.7% to US$981m and its cement equipment business dipped by 0.1% to US$3.85bn.

Sinoma's net profit in 2011 was 10% below market consensus and 11% below Nomura's estimate. This was mainly due to much lower top-line growth and a disappointing margin performance. The state-owned firm's biggest business sector, cement equipment, suffered a small drop in 2011, because China's fixed-asset investment in cement fell by 8.3% in 2011, Luo wrote. "We expect it to further decrease by 15% in 2012." Sinoma's cement prices were under significant downward pressure, especially in Xinjiang province, due to worsening overcapacity, Luo warned.

Philippines: Holcim Philippines expects a modest growth rate of 5-6% in 2012 as it attempts to recover from a steep drop in net profit in 2011, according to its chief operations officer Roland van Wijen.

The Philippine subsidiary of Switzerland-based Holcim Ltd posted a net profit of US$47m in 2011, down by 47.1% from US$90m in 2010 because of weak demand and higher production costs. Sales revenues dropped 9% to US$496m due to a surge in prices of coal and electricity, the biggest cost components in cement production.

"Last year was a challenging year for us because reduced government spending meant that there was less structure built, which has a direct correlation to cement consumption. Also, the (operational cost) has been increasing which had a marked effect on our bottom line. Those are the elements we are recovering from," Van Wijnen said at the launch of Holcim's new CSR project. He added that the company is currently cutting production cost by stepping up the use of waste materials as an alternative to coal.

Holcim Philippines currently has a market share of one third of the cement industry and at present the company has no plans of expanding its market share. "We will go there when our customers want us to go. Right, now, the market has an over-capacity so significantly increasing our market share will not contribute to growth," Van Wijnen said.

Van Wijnen said the company's growth would be greatly driven by more projects that would be approved under the government's Public-Private Partnership (PPP) scheme. The company is pursuing opportunities for supplying winning bidders in the PPP projects. Van Wijnen said the company is optimistic that both the government and the private sector would increase infrastructure spending this year.

With a workforce of over 1700, Holcim Philippines operates four plants in La Union, Bulacan, Misamis Oriental and Davao. In January 2012 Holcim reopened its cement plant in Calaca, Batangas, to take advantage of an anticipated surge in demand for new buildings and infrastructure in Metro Luzon.

Indonesia: Indonesia's second-largest cement producer, PT Indocement ,has announced that its recent expansion drive will increase production to up to 30Mt/yr by 2017, up by almost 50% from the 2012 target of 20.6Mt/yr.

One of these projects is the construction of a cement mill in Citeureup, West Java, with an expected production capacity of 1.9Mt/yr. The mill is scheduled for completion in 2013.

Besides the new cement mill, the company is in the final planning stage of constructing a cement factory with a capacity of 4.4Mt/yr at an existing location (brownfield), also in Citeureup. Additionally the company is conducting final studies for the construction of two new cement factories (greenfield) in Central Java and outside Java, each of which will have capacities of up to 2.5Mt/yr.

Finance director Tju Lie Sukanto said the company would fund the expansion projects partly with US$757m of internal cash. He added that this year's market conditions, such as the continuing strong residential-market trends, thanks to an expanding middle class, would further facilitate the company in reaching its growth targets.