Global Cement News

India: Petron Engineering Construction has received work order from Shree Cement in Bewar, Rajasthan. The order includes civil construction work, reinforcement and steel work of a ball mill structure for a contract value of US$1.79m.

Rwanda: Rwanda's only cement manufacturer, Cimerwa, has inaugurated its new US$170m, 500,000t/yr capacity cement plant in Muganza, Rusizi. Its current plant produces 100,000t/yr.

Increasing production capacity makes it possible for the plant to export up to 30% of its total production to other countries, such as the Democratic Republic of Congo and Burundi. This is expected to drive sustainable economic development and poverty reduction. Exporting cement to neighbouring countries means that Rwanda will be able to reduce its trade deficit gap with at least an additional US$92m/yr in foreign revenues, according to the National Bank of Rwanda (BNR).

Rwanda's current cement demand is estimated at about 450,000t/yr. However, demand across the borders in the Democratic Republic of Congo and Burundi is more than 900,000t/yr.

Legodi Busisiwe, the CEO of Cimerwa, said that the new plant would play a critical role in enhancing competitiveness of the local construction sector through reduced logistical costs. "The new plant seeks to bring on board high quality products that will help boost capacity of the country's infrastructure," he said.

The new plant comes at a time when the Government is trying to narrow the country's trade deficit gap by boosting its exports to the tune of at least 28%/yr. The country's trade deficit improved by 6% from US$723m in 2014 to US$6.78bn during the first five months of 2015. There is hope that cement exports could further narrow this gap.

There is hope among market players that increasing cement production will reduce the high prices of Cimerwa cement in the country. Ephraim Karekezi, a Kigali-based engineer, believes that the new plant will help bring down cement prices. "The cost of construction is high simply because of high prices of raw materials, including cement. Therefore, the new cement plant offers sector players the green light in addressing the question of affordability and propelling the sector towards economic excellence," said Karekezi.

In early 2014 the top of the global cement producer charts looked very different to how it does today. The big four multinationals, Lafarge, Holcim, HeidelbergCement and Cemex, were clearly out in front and ahead of the rest of the global top 10. While there was discrepancy in their sizes, the largest, Lafarge (224Mt/yr) had just over twice the cement capacity of fourth-placed Cemex (95Mt/yr), with Holcim (218Mt/yr) and HeidelbergCement (122Mt/yr) between these extremes.¹ With an impressive 659Mt/yr of capacity between them, these four accounted for just shy of half of global cement capacity outside of China.

However, as those with even a passing interest in the cement sector will know, this is no longer the case. The merger between Lafarge and Holcim and the subsequent acquisition of Italcementi by HeidelbergCement has stretched out the range of the top producers significantly. Today LafargeHolcim has around 340Mt/yr of installed capacity and HeidelbergCement 200Mt/yr. Meanwhile Cemex is still 'stuck in the 90s,' with a capacity of around 92Mt/yr following the sale of its Croatian cement assets last week. The Mexican 'giant' is now almost a quarter of the size of LafargeHolcim. What does this mean for the world's number three (excluding Chinese producers) and what might the future hold?

Well... the old adage goes that you have to move forward to stand still. However, Cemex has not moved forward over the past two years, meaning that is hasn't kept up the pace with its immediate rivals. It hasn't been able to, hemmed in by the debt that it took on from its poorly-timed acquisition of Rinker in 2007. Indeed, Cemex is looking to contract further, with aims to shed a further Euro600 - 1100m of non-core assets in 2015.² Against improved positions at LafargeHolcim and HeidelbergCement, Cemex increasingly looks like an 'Americas specialist' rather than a full-blown multinational. A stake in Cemex LatAm Holdings is up for sale, but the sale of more cement plants may also be on the way. This is all being done to improve Cemex's investment grade rating from B-plus, four grades below investment grade.

If Cemex does have to shed further physical assets on the ground, it is very unlikely that it would chose to do so in the Americas, where it is a very major player. It is number one in Mexico, third in the US and well-postitioned in numerous growth markets in Central America. If push comes to shove, it is far more likely that it would sell assets that are further from home. These are in Europe, the Middle East and the Far East.

Cemex has 43% of its production capacity outside the Americas. Certain assets, such as those in Thailand, Bangladesh and the Philippines, may be appealing to CRH, which is already set to acquire LafargeHolcim divestments there and is known to be considering other purchases in the region.³ Cemex also owns several cement plants in better-performing EU economies like Germany and the UK. In Germany, the company has already completed a small downsizing exercise by selling its Kollenbach plant to Holcim (LafargeHolcim). Meanwhile, Cemex UK is a major player in the UK, where the Competition Commission has recently been very keen to increase the number of producers. Elsewhere, Cemex's share in Assuit Cement in Egypt could provide much needed revenue, as could its small stake in the Emirati markets.

Thinking more radically, and in keeping with the current trend of mega-mergers and large-scale acquisitions, could Cemex find itself the target of the next global cement mega-merger / acquisition? Certainly, its strength in Central and South America completely complements HeidelbergCement's lack of coverage here, making a future 'HeidelbergCemex' a potential winner.

The other option, if/when Cemex regains its investment rating, would be for Cemex to acquire or merge with a company further down the list of global cement produers. Africa is an obvious target, with rapid growth and a lack of Cemex assets at present. A foreigner buying up Dangote is probably out of the question, but PPC would be an interesting target, as would increasingly isolated Brazilian producers that could help shore up Cemex's South American position.

If the past 18 months in the global cement industry have shown anything, it is that we should expect the unexpected. It will be very interesting to see how all players, both large and small, will react to the recent goings on in the rest of 2015 and beyond.

1. 1. Saunders A.; 'Top 75 Cement Producers,' in Global Cement Magazine – December 2013. Epsom, UK, December 2013.

1. 2. Reuters website, 'Mexico's Cemex could sell part of business to pay down debt: CEO,' 10 February 2015. http://www.reuters.com/article/2015/02/11/us-mexico-cemex-idUSKBN0LF05320150211.

1. 3. Global Cement website, 'CRH investment spend set to pass Euro7bn with South Korea cement deal,' 12 June 2015, http://www.globalcement.com/news/item/3721-crh-investment-spend-set-to-pass-euro7bn-with-south-korea-cement-deal.

Pakistan: A memorandum of understanding has been signed between the Punjab Government and Chinese cement producer Yantai Baoqiao Jinhong to establish a US$350m cement plant in Salt Range.

New Zealand: Fletcher Building has reported a gain in its 2015 fiscal year earnings before one-time charges, as strong growth in its biggest market of New Zealand offset a weaker performance in Australia and the rest of the world.

Operating earnings, excluding one-time items, rose by 5% to US$653m in the year that ended on 30 June 2015. Net profit fell by 20% to US$270m after US$150m of one-time charges for plant closures and impairments. Fletcher's US$150m of one-time charges included a US$78m impairment of goodwill relating to its Forman, Stramit, Tasman Insulation and Humes businesses. There were site closure costs of US$65m related to the Crane Copper Tube business and Iplex Australia. Operating earnings before one-time items in New Zealand rose by 24%, accounting for 69% of the group total, while in Australia earnings fell by 30% and by 7% for the rest of the world.

The heavy building products, which includes New Zealand cement, concrete pipes and quarry products, Australian concrete and quarry products, plastic pipes and steel and is Fletcher's biggest division, recorded a 6% decline in gross revenue to US$2.1bn. Operating earnings dropped by 17% to US$177m, as weaker trading in Australia offset gains in New Zealand. A US$8m loss from plastic pipes reflected a drop in demand from the coal seam gas sector and increased competition in Australia. Light building products, which takes in New Zealand and Australian building materials and roofing tiles, had little changed gross revenue at US$1.3bn, while operating earnings before one-time items rose by 2% to US$118m. New Zealand distribution revenue rose by 6% to US$1.76bn and earnings gained 29% to US$108m, with most of the growth coming from building supplies. In Australia, distribution revenue fell by 11% to US$826m and operating earnings before one-time items rose 6% to US$18m. Construction revenue jumped by 21% to US$1.58bn and earnings before items rose by 32% to US$140m.

In other news, Fletcher has conditionally agreed to sell the operations of Rocla Quarry Products to Hanson Construction Materials in a deal valued at about US$149m. The company expects a pre-tax gain of about US$73.5m from the sale, which requires Australian regulatory approval.