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A pessimist's guide to the cement industry in 2016
Written by David Perilli, Global Cement
06 January 2016
We're going to start 2016 with a list of some of the worst things that could happen to the global cement industry this year. The idea is taken from Bloomberg Business who ran 'A Pessimist's Guide to the World in 2016' in mid-December 2015. For some of these suggestions there will be both winners and losers. Remember: forewarned is forearmed.
Continuing low oil prices hit Russia and other petro-propped economies
Cheaper fossil fuels should mean cheaper energy bills for cement producers. However, that saving must be compared to the overall cost to the global cement industry of poor construction markets in Russia and other economies that rely on oil. For example, Russian construction output fell by 4.5% to US$81bn in 2014 according to PMR. It is possible that the fuels bill saving worldwide is greater than the contraction of certain construction markets. If it is though, is this a price that the cement industry is willing to pay?
China enters a recession
The long-expected Chinese 'hard landing' seems closer than ever, as economic growth slows. It hasn't happened yet (according to official figures at least) but the 7% drop in Chinese markets on 4 January 2015 gives observers the jitters. The financial reverberations from a full Chinese financial crash would be felt around the world, derailing emerging economies due to reducing demand for exports and commodities. Naturally, construction markets would suffer. This would add to the woes currently being experienced by Brazil, Russia and South Africa. The other worry for the cement industry specifically might be the complications from a desperate Chinese industry trying to flood the outside world with even more of its products and services, including lots of cement.
Climate change impacts cement plants
Normally when it comes to climate change the cement industry worries about the effects of carbon taxation and pollution controls. However, media reporting about flooding in the UK in late December 2015 and strong El Niño effects elsewhere makes a pessimist wonder about the effects of hotter and wetter weather upon the infrastructure of the industry. The cost to repair the flooded Cemex UK South Ferriby cement plant in 2014 was rumoured to run to Euro14m and production stopped for a whole year. Costs like these are something the industry could do without.
International sanctions remain in place for Iran
Hoping that lifting economic sanctions from Iran will boost the fortunes of multinational cement producers and equipment manufacturers may be wishful thinking. Yet if the sanctions stay in place due to deteriorating relations between Iran and Saudi Arabia then nobody can discover what opportunities there might be in the world's fourth largest cement producing nation. Of course Iran's geographical neighbours across the Gulf (and in Pakistan) might be hoping that the sanctions stay in place for a very long time indeed.
Sub-Saharan Africa builds production capacity too fast
Multinationals and local cement producers alike are scrambling to build cement plants in sub-Saharan Africa. Demand for cement and low per capita consumption suggest that it is a clear investment opportunity as development kicks in. However, we have already reported on scraps between local cement associations and importers from other continents. If the cement producers build capacity faster than these countries develop, then a crash can't be too far fround the corner and everybody loses.
The UK leads an exodus from the European Union
For the cement industry a UK exit, to be voted on later in 2016, from the European Union (EU) isn't necessarily a bad things. What would be negative though is a badly handled exit process as vast swathes of trade legislation is renegotiated. What a 'Brexit' might initiate are further exits from the EU, leading to further trade disruption on a larger scale. None of this would aid Europe's economic recovery in the short term.
US Presidential elections slow the construction market
Irish bookmaker Paddy Power is currently placing odds of 9/2 for Donald Trump to be elected the next US president in late 2016. He's the second favourite candidate after Hillary Clinton despite not even having been nominated as the Republican party's presidential candidate yet. Whoever becomes the next president, the political uncertainty that occurs as the election progresses may impact upon the US construction market. It would be unfortunate to discover that the sector is weaker than expected if, say, the election rhetoric turns nasty.
Next week: reasons to be cheerful.
Happy New Year from Global Cement!
Lucky Cement wins quality standard award 06 January 2016
Pakistan: Lucky Cement Limited has received the Quality Standard Award 2015. The awards were held by The Consumers Eye Pakistan (TCEP) to encourage local manufacturers that are maintaining quality standards and have ISO/PSQCA certification in manufacturing standardised products.
Lucky Cement holds the largest share of cement exports from Pakistan and complies with PSQCA standards along with a range of international standards including those of India, Sri Lanka, Nigeria, South Africa and Tanzania. The company uses various methods like dry testing, wet chemical methods, compressive testing and X-Ray diffraction to ensure that product quality is maintained consistently.
"In a highly competitive local and international market, it is imperative for Lucky Cement to maintain its superior quality, while at the same time comply with the requirements of the potential markets," said Amin Ganny, Chief Operating Officer of Lucky Cement Limited.
Lafarge plans to exit India operations 06 January 2016
India: Lafarge India has submitted a revised proposal to the Competition Commission of India (CCI) to sell its entire 11Mt/yr assets in India.
The decision comes after the company's plan to sell its 5.15Mt/yr cement capacity in Chhattisgarh and Jharkhand to Birla Corporation for US$749m ran into trouble. Investment bankers said that Birla Corporation was facing challenges in securing limestone mining rights for the two units.
In order to approve the LafargeHolcim merger in India, the CCI had asked Lafarge India to sell its 5.15Mt/yr of capacity in eastern India by 31 December 2015. In August 2015, Birla Corporation agreed to buy the proposed assets along with brands Concreto and PSC and mineral rights over adequate reserves of limestone. The deal was conditional on Birla Corp being able to secure mining rights that Lafarge had.
"Lafarge India has sought an extension of its deadline from the CCI to complete its divestment," said an unnamed investment banker. "Lafarge India has now put the entire company on the block, as the sale of the entire company will include transfer of mining rights."
Estanda completes cement ball mill commissioning 06 January 2016
Saudi Arabia: Estanda has successfully completed the commissioning of a cement ball mill for a cement manufacturing company in Saudi Arabia.
The project was carried out on cement mill line 2, which operates in parallel with the cement mill line 1, which had already been renovated and updated by Estanda in 2013.
The renovation of the cement mill affected all interior steel components of the mill involved in the grinding process; inlet headwall liners, lifting liners of the 1st ball mill chamber, the intermediate diaphragm, the 2nd chamber classifying liners and the outlet diaphragm. The designs and materials were according to Estanda technical specifications. An improvement in productivity of more than 15%, wearing reduction on the steel components prompting less maintenance and greater profitability were achieved.
Tianrui provides loan for Shanshui bond interest repayment 05 January 2016
China: Shanshui Cement's largest shareholder, Tianrui Group, has provided a US$9.3m loan to the company for interest repayment of the onshore bond of its Shandong subsidiary, Shandong Shanshui Cement Group, which defaulted in November 2015.
The loan facility is unsecured, interest free and has no fixed repayment terms, and has been remitted to the bank account designated for the bond's repayment, according to Shanshui. It didn't mention when the company could also repay the principal of the bonds, which amounted to US$307m, or whether Tianrui will provide further funding. Shanshui defaulted on the bond payment and triggered a cross default of the company's other debt after a shareholder struggle. Shanshui's board, which is now controlled by Tianrui, still faces a mounting management dispute over its Shandong subsidiary with Shanshui's founder and second-largest shareholder, the Zhang family.