As the consequences of a market competitiveness investigation and the LafargeHolcim mega-merger continue to play out in the UK cement industry, Edwin Trout of the Cement Industry Suppliers’ Forum (CISF) looks at these and other aspects of the UK cement sector over the past 12 months. Over the past couple of years the UK cement market has recovered, the market fundamentals remain sound and most forecasts are positive.
July 2015 saw the conclusion of the mega-merger between Holcim and Lafarge, to create the world’s biggest cement maker LafargeHolcim. CRH of Ireland purchased the disposals required by the competition authorities in markets where the two existing businesses significantly overlapped.
The UK was one such market, in which combining Holcim’s Aggregate Industries and Lafarge’s share of the joint venture LafargeTarmac would create an unacceptable dominance. Anglo American agreed to sell its share in the LafargeTarmac joint-venture, allowing Lafarge to dispose of the entire UK business to CRH. This was subject to the retention of assets that LafargeTarmac had previously been required by the Competition and Markets Authority to sell. The merger went ahead and LafargeHolcim was launched on 15 July 2015.
Aggregate Industries became the UK’s newest cement maker, taking control of the retained works at Cauldon and Cookstown. The acquisition of UK cement production facilities was described by the company’s spokesman as ‘a significant strategic opportunity.’ Given the strength of the Lafarge brand, Aggregate Industries decided to continue with the Lafarge Cement name for its bulk business, although bagged products might be renamed in the future. 250 employees transferred to Aggregate Industries, and Joe Hudson, also formerly of LafargeTarmac, was appointed as the managing director of the new cement division.
Just days later, on 31 July 2015, the sale of LafargeTarmac was completed - with the exception of Cauldon and Cookstown. Since 1 August 2015 the successor business, now reduced in size due to Competition and Markets Authority (CMA) requirements, has been known simply as ‘Tarmac - A CRH company.’ According to its own announcement, the firm’s new branding combines the heritage and innovation associated with the Tarmac name and the unique identity of the Blue Circle Logo it inherited from Lafarge. Tarmac employs a workforce of 7000 at 330 sites across the country.
Hanson disposals
The same CMA judgement that had earlier required LafargeTarmac to sell at least one of its cement plants had also ordered the break-up of the monopoly in the supply of ground granulated blast-furnace slag. The primary requirement was that Hanson sell one of its grinding plants: in August 2015 it sold its Regen facilities at Scunthorpe to Francis Flower.
Preceding this forced disposal, parent company HeidelbergCement had taken the commercial decision to sell its Hanson Building Products Division in order to concentrate on its core businesses of cement, aggregates and ready-mixed concrete. An agreement was reached with an American affiliate of Lone Star Funds to sell for Euro1.2bn. The deal was completed in March 2015. The company’s name changed to Forterra in October 2015. Forterra will float on the London Stock Exchange in summer 2016.
Breedon’s surprise move
In November 2015 Breedon Aggregates made the surprise announcement that it had entered into a conditional agreement with Cortolina Investments to acquire Hope Construction Materials (HCM). It aims to build a major integrated cement, aggregates and concrete producer to rival its multinational competitors. HCM’s chairman, Amit Bhatia, is to join the new board and HCM’s holding company, Abicad, will gain an 18.4% stake in the enlarged business. The deal remains subject to the approval of the CMA and is likely to require the disposal of between 17 and 26 ready-mixed concrete plants. Completion is expected in summer 2016.
Other CMA measures
The remaining measures from the CMA’s review are: 1. The prohibition of generic price announcements and; 2. New restrictions on disclosure of market data, including cement production and sales volumes. Draft orders prohibiting generic announcements were issued for consultation at the end of 2015. Comments on the proposed order to restrict disclosure were due by 11 March 2016.
The order, accompanied by the final undertakings offered by Mineral Products Association (MPA), concerns the use of an independent third party for the collection of data submitted by producers. Comments on these were due by 29 March 2016 and the undertakings have since been agreed.
Major investments
Hanson and HCM have been the major investors in plant upgrades over the past couple of years and have remained so in recent months. Hanson installed a new drive at Purfleet over the winter of 2014 - 15. The new integrated drive system there is now saving around Euro112,000 in electricity costs and 771t of CO2 emissions. The project, carried out by Siemens, used variable-speed drive technology to reduce both energy use and noise levels. Hanson also fitted a new clinker cooler at its Ketton plant.
A major investment has been ongoing for some time at HCM and while the installation of a flagship fuel handing system has largely been completed, other work remained in 2015. In May 2015 Höganäs Bjuf installed a kiln lining comprising its Magnus 87AF refractory bricks.
Both Hanson and HCM have invested in bagging and distribution facilities - Hanson at the Padeswood plant and HCM at Hope.
HCM has also opened new rail-fed depots in an effort to expand its market. In February 2016 it also announced the launch of its own range of bagged cements and will now sell under its own brand rather than through a third party. The cement, transported by rail from Derbyshire, is to be bagged at a new plant in Dagenham, Greater London, ready for onward distribution throughout the south.
Railway distribution
HCM and DB Schenker Rail UK signed a five-year contract for the transport of aggregates from Dowlow Quarry to ten locations across the country. The agreement also included the transport of coal twice a week from south Wales to HCM’s Derbyshire plant along with plans for three new distribution depots: in Southampton, Dagenham and at the Olympic Park in east London. This adds to similar expansion projects in 2015, with facilities in Walsall, and the long-term lease of 48 railway wagons for the distribution of over 1Mt of cement to the company’s other depots.
Tarmac, likewise, is expanding its use of rail-freight from an existing base of 9Mt/yr of material. In January the company, in an effort to expand nationally, awarded a number of five-year contracts to create new strategic hubs. Four companies will deliver rail-freight services:
- Colas Rail for cement from Dunbar (with a new fleet of wagons from both Colas and VTG and a new locomotive named Dunbar in March);
- GB Rail Freight for aggregates from Dry Rigg, Swinden and Thrislington quarries;
- Freightliner for cement and lime from Tunstead;
- DB Schenker for aggregates in the West Country, and Mountsorrel granite in Leicestershire.
In May 2015, the MPA and the Rail Freight Group set out plans to develop the industry’s use of the railways. With 60 minerals trains a day, reliance on the railways in the construction sector had been rising for a decade. It has increased over the year and forecasts suggest that further growth of 2.5%/yr can be expected.
Import terminals
Thanks to better integrated transport networks, the UK has required fewer production sites. Import facilities – dominated in recent years by CRH’s expansion, through the acquisition firstly of Morrisey, Dudman, Southern Cement and Tarmac – have been established by other operators including two other Irish producers. In March, Quinn Cement (NI) Ltd signed a ten-year agreement with Warrenpoint Harbour Authority for a £2.5m investment in five new cement silos and the creation of 20 new jobs. Quinn has since added two silos to its terminal at Crown Wharf, Rochester, bringing storage capacity for its English operations up to 7,400t Ecocem of Dublin has also just established an import terminal in England, with a new facility at Runcorn that opened on 23 March. A second terminal in the south east is scheduled for construction in late 2016. In the south west, the Victoria Group has been granted conditional approval by Plymouth City Council to build a new storage and distribution terminal on the city’s waterfront. Victoria says its plan will enable it to ship and store the cement in six silos, which will have a combined capacity of 12,000t.
Fuel processing plant
Due to the added attention to developing infrastructure, there has been minimal new investment in alternative fuel facilities. Apart from Saxlund’s installation of the fuel handling system at HCM, the main project has been the waste processing plant for Cemex. After a lengthy planning process, Suez UK built and commissioned its plant at Malpass Farm, Rugby. With its existing sister plant at Landor Street, Birmingham, the new plant has a Climafuel production capacity of 250,000t/yr. It will supply Cemex for the next 25 years, in the longest such agreement that exists outside the Private Finance Initiative (PFI) system. The Rugby Solid Recovered Fuel facility opened on 18 September 2015.
The market
Although the figures for building materials production and those that indicate market demand are not closely synchronised, for they relate to different points in the construction cycle, they do agree in indicating that the rate of growth over the past two years or more has slowed in the second half of the year. Public infrastructure projects have emerged as the most active segment of the market, overtaking housing as the engine room of growth, though political pressure is likely to keep private housing on the agenda for some time to come.
Office of National Statistics
In the third quarter of 2015, UK construction output fell by 2.2%, the first negative figure in three years. In the fourth quarter of 2015, construction output fell by 0.1% (with monthly totals: +0.2% in Oct, -0.5% in Nov). New orders fell by 0.5% though these are 1.4% higher than Q4 in the previous year.
These figures, supported by those from Eurostat, have prompted David Kern, British Chambers of Commerce chief economist, to argue that “the construction sector is now in recession,” (Jan 16). Construction market analyser Glenigan has reported that project starts in the fourth quarter of 2015 were 20% lower than in the same period a year earlier, blaming poor weather and claiming that new construction activity is in “the worst period of decline since crashing in 2009” (Feb 16). According to Eurostat the market was down 4.8% in August (when the UK had one of Europe’s worst monthly decreases) and down 4.1% in September. Other indicators, such as from the monthly Construction Purchasing Managers’ Index from Markit, on behalf of the Chartered Institute of Purchasing and Supply (Figure 2) indicated a more optimistic view of results.
Markit | CIPS Purchasing Managers’ Index | Notes |
May 15 | 55.9 | |
June 15 | 58.1 | |
July 15 | 57.1 | |
August 15 | 57.3 | |
September 15 | 55.8 | |
October 15 | 58.3 | Construction output has risen in each of the preceding 26 months. |
November 15 | 55.3 | Lowest figure since mid-2013, though still positive. |
December 15 | 57.8 | |
January 16 | 55 | Weakest expansion of UK Construction output for nine months. |
February 16 | 54.2 | |
March 16 | 54.2 | |
April 16 | 52 |
Above - Figure 2: The monthly Construction Purchasing Managers’ Index from Markit shows a more optimistic outlook for the UK cement market.
Closer to the interests of the cement industry are the returns from the MPA and the commentary from its parent group the Construction Products Association (CPA). Sales data from mineral products companies were generally positive for 2015, suggesting a less pessimistic picture for construction than the official data reflect. Reports from the CPA suggest continued, albeit slowing, growth and are accompanied by an optimistic forecast for 2016 supported by eleven consecutive quarters of rising construction activity. The fourth quarter of 2015 saw private housing, commercial and infrastructure as thriving sectors while public housing, repair and maintenance was weak.
In October 2015, 77% of heavyside firms reported increasing investment in plant and equipment. In January 2016, manufacturers anticipated growing sales for the year, reporting beneficial exchange rates and lower energy costs. Forecasts from market research agency Leading Edge in March were more positive, predicting that construction output in Great Britain would reach an all-time high of Euro177.78bn, growing by 3.3% year-on-year compared with 2015.
Prices
A survey of bulilding cost consultants suggested in January that after two years of price increases for construction materials and labour, the rate of inflation is levelling off. However, cement appears to have been less subject to inflation than other materials, such as bricks. Although actual price information is restricted, government price indices indicate a pattern of stability in 2015 and (provisionally) a slight decline so far in 2016.
2015 | 2016 | |||||||
June | July | August | September | October | November | December | January | February |
118.2 | 119.4 | 119.4 | 119 | 119 | 119 | 119 | 118.5 P | 118.6 P |
Above - Figure 3: Indexed cement prices.
Environmental
The MPA remains committed to seeking sustainability and finding a balance between environmental regulation and commercial viability. An MPA report, on behalf of the CBI Minerals Group, was issued in February. The report highlighted the significance of minerals extraction – including cement – to the British economy, underpinning Euro309.55bn or 16% of gross value. Mineral extraction remains the least popular form of development according to a survey in January 2015. In February 2015, the MPA published its fourth Annual Mineral Planning Survey that drew attention to the problem of declining raw material reserves. In October 2015 a report from the World Bank and Ecofys, entitled ‘State and Trend of Carbon Pricing 2015’, raised a warning, suggesting that while other factors also have to be considered, the impact of carbon pricing on the cement industry cannot be ignored.
Environmental performance
MPA Cement published the latest of its sustainable development reports in December 2015. It demonstrated how the British cement industry has responded to the challenge of supplying responsibly sourced materials while being aware of carbon costs. The report focuses on the continued reduction of dust and gaseous emissions, the increased use of waste-derived fuels and the net consumption of waste and by-products without any disposal of cement kiln dust to landfill. Similar achievements have since been announced by the MPA’s British Lime Association: 86% reduction in SO2 emissions, 49% fall in waste to landfill, NOx down by 48%, dust emissions by 46% and CO2, 29%.
Targets
At the COP21 Paris conference in December 2015, the global cement industry released a set of action plans aimed at reducing carbon emissions by 1Gt in the years to 2030, the WBSCD has announced. The Low Carbon Technology Partnerships initiative is a business collaboration to scale up the development and deployment of low carbon technologies, and has the support of chief executives at 16 of the major global cement groups.
Carbon capture and storage
The UK government controversially cancelled its Euro1.32bn competition to develop a prototype carbon capture and storage plant six months before it was due to be awarded. The Autumn Statement confirmed the ring-fenced fund was no longer available. Two projects, based at Drax and Peterhead, had been in the running, though Drax had already suffered from the withdrawal of one of its private sector investors. The Carbon Capture & Storage (CCS) Association criticised the decision for ‘moving the goalposts,’ describing it as ‘devastating’. Consequently, plans for the proposed Euro2.63bn White Rose plant were shelved when the Capture Power consortium – comprising GE and BOC – disbanded, arguing the project was no longer viable without the government funding. The decision to prematurely abandon the carbon capture scheme was itself then investigated by the National Audit Office. The project’s cancellation has serious ramifications for the cement industry as manufacturers will now need to fund their own carbon capture schemes.
Low-carbon cementitious materials
The closure or conversion of many coal-fired power stations raised questions of supply of fly ash to cement suppliers, especially after the shortages of the previous year. In January 2016, the UK Quality Ash Association released statistics on the production of coal ash for 1999 - 2014, highlighting trends in both the supply and use of fly ash and furnace bottom ash. The report concluded than consumption of fly ash has increased from 50% of production at the turn of the century, to 70%, while furnace bottom ash is running at 100% of output. With 5Mt of fly ash produced, supply exceeds demand and around 40% remains surplus. Uses are increasingly diversified, with over 50% used for construction materials: in the manufacture of cement, as Type 1 and II additions, and for the production of blocks and grouts.
With the closure of coal-fired power stations effective or imminent, however, the future level of supply must presumably be lower. As a result, research is in progress to commercialise the re-use of stockpiled or lagoon ash. Likewise the precarious position of the UK steel industry, with several plants sold or closed in recent months, will likely have an adverse effect on the future production of ground granulated blast furnace slag (GGBS) and provide an opening for greater levels of imports.
Health and safety
Health and safety remains a major concern for the British cement industry. Though there were no fatal accidents on cement operations in 2015, a contractor died in October while working in one of Tarmac’s quarries in Northumberland and both Cemex and Hanson Packed Products were fined recently for failings at their cement plants. Hanson was fined Euro986,385 in December and ordered to pay costs after the death of an employee at its Dagenham cement bagging plant in 2013. The worker died after being drawn into the powered roller of an in-feed conveyor. Courts heard that fixed guards should have surrounded the roller and that an HSE investigation had found that a critical guard had not been in place around the machinery for several days. In January 2016, the court apportioned blame to both Cemex and Cape Industrial Services Ltd for their failure to co-ordinate and plan high-level working to a higher standard, after a scaffolder fell from a 131m high cyclone tower at Rugby cement works in January 2012. A second man was also injured and has been unable to work since. The companies were fined Euro920,626 and Euro789,108 respectively.
Hanson suffered a mishap on 7 February 2016, when storm force winds damaged the 92m stack at Ketton, blowing a 30t steel section down to a lower platform and causing considerable damage. No one was in the vicinity and there were no injuries, but the kiln was shut down immediately for assessment and repair, and remained off-line for a while.
Fortunately the record is otherwise far more favourable. In November, Cemex won the MPA’s John Crabbe Trophy: the association’s highest honour for health and safety. In awarding this accolade, the jury drew attention to excellent practice in four key areas: leadership training; embedding health and well-being as a core value; ‘stepping in’ to prevent unsafe behaviour; and firm management of contractors. More recently Hanson’s GGBS plant at Port Talbot won the UK prize at HeidelbergCement’s inaugural ‘safe work, healthy life’ awards in March 2016.
Much of the cement industry’s (and the wider construction sector’s) health and safety efforts over the past couple of years have been directed toward reducing cyclists’ deaths – especially in London – by improving practices and technology in the delivery fleets. Initiatives include driver training, road-user awareness courses, enhanced vehicle design, and the fitting of assistive technology. Hanson, a ‘CLOCS Champion’, was one of the companies supporting the Construction Logistics & Cyclist Safety stand at the London Bike Show, helping cyclists realise the risks presented by blinds spots around heavy goods vehicles. Cemex has perhaps the highest profile in this area, and in October 2015 the company was recognised by the Chartered Institute of Logistics and Transport, winning its annual award for Excellence in Vulnerable Road Users Safety. The award was sponsored by Transport for London and highlights the safety initiatives undertaken by Cemex since 2004. Besides the on-going awareness campaign for cyclists, the company’s fleet has been fitted with additional mirrors, proximity sensors and vehicle-mounted cameras.
Last summer both Cemex and Tarmac trialled the new Mercedes-Benz Econic cab, which has been designed to provide drivers with a wider field of vision than standard and so reduce the risk of hitting cyclists and pedestrians. The design includes a deep panoramic windcreen, a fully glazed floor-to-ceiling kerbside door and a low driving position to facilitate eye-to-eye contact with other road users. Crucially, the payload is four tonnes greater than previous high-visibility designs and therefore more economic to run.
The Safer Lorries Scheme first proposed by TfL in 2014, which aimed to ban from the capital those heavy goods vehicles not fitted with specified safety equipment, went out to consultation. That completed, TfL announced the scheme’s launch in September 2015. A further proposal in January would enforce the use of panoramic windows, such as those of the Econic design trialled by Cemex and Tarmac.
Another best-practice initiative adopted by the cement makers is the Fleet Operators Recognition Scheme (FORS). Cemex has extended its participation to cover subcontractors and so by the end of 2015, 169 drivers in Cemex Logistics – which includes aggregates, asphalt and building products, as well as bulk cement – were FORS-registered or accredited
Concluding remark
At the time of writing, the industry’s ‘next big thing’ is Breedon Aggregates’ proposed acquisition of Hope Construction Materials, but that appears insignificant when set against that other uncertainty of the summer of 2016: the outcome of the EU referendum and its consequences for – among many others – cement making in the UK.