Analysis
Search Cement News
Pakistan powers forward
Written by David Perilli, Global Cement
11 January 2017
The All Pakistan Cement Manufacturers Association (APCMA) struck a triumphant note this week as it announced that its industry has over 26Mt/yr of capacity upgrades in the pipeline. Its chairman Sayeed Saigol concluded in a press release that the country’s growth trend required ‘massive’ investment and that its producers were working on it.
Graph 1 – Local and export cement despatches in Pakistan, 2008 – 2016. Data source: APCMA.
Graph 1 shows how the local industry has changed since 2009. At this time exports hit a high of over 11Mt, constituting 34% of all cement despatches at the time. Since then though exports have fallen to below 6Mt or 14% of despatches, as local despatches have started to increase. Although local despatches have risen each year, the growth rate was below 1% in 2011. In 2016 it was over 14%.
Much has changed since 2010. At this time production capacity hit a high of 45Mt/yr in the 2009 – 2010 Pakistan financial year, according to APCMA data, but then utilisation sunk to below 73%, its lowest rate in over a decade. Pakistan’s cement producers sought a way out by exporting their cement. Export volumes subsequently exploded to a high of nearly 11Mt in 2008 – 2009 from next to nothing at the turn of the millennium.
The effects of this had particular repercussions in eastern and southern Africa as local producers suffered against seaborne imports. In 2012 the outgoing chief of South Africa’s PPC summarised the problem by saying that imports were not a threat to African expansion, provided that a cement plant was not built within 200km of a port. Rightly or wrongly cement from Pakistan was vilified by the African press and then legislated against. South Africa even implementing anti-dumping duties to howls of derision from Pakistan.
Funnily enough though the APCMA has recommended that Pakistan’s government do exactly the same thing against imports of cement from Iran. Industry scare stories about Iranian cement being sold illegally in Pakistan have circulated since at least 2012. Iran’s nuclear deal in 2015 must have worried the local industry, as the prize for Iran was the lifting of international sanctions making it easier for one of the world’s largest cement producers to start exporting its product. However, president-elect Trump’s disdain for the Iran deal may put those worries to rest if the deal is ‘cancelled’.
Back to the present, the Pakistan cement industry appears to be booming. One motor is the China–Pakistan Economic Corridor, a collection of infrastructure projects worth US$54bn. There is some disagreement at this point about how the usage levels of cement breakdown, with the chief executive of Thatta Cement placing it at 60% for infrastructure and 40% for housing but with other commentators placing it at 70% for housing and 30% for infrastructure. If the latter is true then Pakistan’s cement producers may receive an even bigger payday. The emphasis on housing shouldn’t be underestimated though as the country’s production capacity per capita, below 200kg/capita, is low by international standards. Either way, things are looking good for the local producers.
Piggy bank politics – effects of Indian demonetisation on the cement industry
Written by David Perilli, Global Cement
04 January 2017
A few days ago my family faced a financial crisis caused by demonetisation. The family piggy bank holds a number of one-pound sterling coins. However, the Bank of England is set to introduce a new 12-sided one-pound coin in March 2017 and withdraw the old type circular coin by the end of October 2017. Unfortunately the piggy bank in question is of the variety that can only be opened by smashing it. There followed various attempts to extract the coins via the narrow opening.
Now just imagine if a country of over 1.25bn inhabitants and a gross domestic product of US$8.7tr faced a similar problem. Well, you don’t have to imagine it because India’s demonetisation plan to remove 500 and 1000 rupee banknotes from circulation started in November 2016. Some commentators reckoned that the banknotes represented nearly 85% of its currency by value. Indian citizens then had until the end of December 2016 to take the old bank notes to a bank to have them exchanged. The government has said that the plan was conceived to cut corruption, increase tax revenue and reduce cash hoarding. However, critics have attacked the policy for unduly penalising the poorest members of society as they struggle to move from using cash to electronic methods.
That’s the background. Global Cement is interested in cement markets. Although its early days yet some reactions and data are starting to emerge. Ambuja Cement launched a marketing campaign in December 2016 to help its customers cope with a cashless business environment. The initiative has included working with a bank to operate a helpline assisting people in opening bank accounts as well as putting out the message in various media including sending one million text messages. Clearly, at least one of India’s major cement producers is taking the problems caused by demonetisation seriously.
Alongside this, various reports have trickled out since November 2016 trying to work out the effects of the financial transition on the cement industry. Firstly, the India Cements reported in mid-November 2016 in a financial report that demonetisation had not impacted its cement sales. Deutsche Bank Markets Research then predicted that the policy would reduce cement demand by up to 20% for the last few months of 2016 and then reduce growth by 3% in the first three months of 2017. Its analysts reckoned that the residential sector would suffer the most and that although infrastructure spending might offset this a little, reduced taxation from a punctured property market would also adversely affect infrastructure funding. A report in the Hindu newspaper in early December 2016 feared that cement demand might be reduced by up to 50% in November 2016. It also raised the concerns of the managing director of Shiva Cement who said that contractors were finding it difficult to buy raw materials and pay wages.
Now in early January 2017 the India Ratings and Research credit ratings agency released a research note predicting that cement production growth was likely to fall to 4% for the 2017 financial year ending on 31 March 2017 from a previous estimate of 6%. It reported that production growth rose by only 0.5% year-on-year in November 2016 following a growth rate of 4.3% from April to November 2016 and rates of 5.5% and 6.2% in September and November 2016 respectively. It added that the housing sector constitutes around 65% of cement demand and that this share is likely to fall.
After a strong start to the year the Indian cement industry was looking forward to a growth rate above 5% in its 2016 - 2017 financial year. The figures aren’t out yet and the year isn’t finished but it is looking likely that demonetisation, a direct government policy, has smashed demand for cement in India in the short term.
Global Cement would be interested to hear from any readers in India for their comments on demonetisation and its effect on the cement industry – This email address is being protected from spambots. You need JavaScript enabled to view it.
2016 in cement
Written by David Perilli, Global Cement
21 December 2016
As a companion to the trends based article in the December 2016 issue of Global Cement Magazine, here are some of the major news stories from the industry in 2016. Remember this is just one view of the year's events. If you think we've missed anything important let us know via LinkedIn, Twitter or This email address is being protected from spambots. You need JavaScript enabled to view it..
HeidelbergCement buys Italcementi
Undeniably the big story of the year, HeidelbergCement has gradually acquired Italcementi throughout 2016. Notably, unlike the merger of Lafarge and Holcim, the cement producer has not held a party to mark the occasion. Instead each major step of the process has been reported upon incrementally in press releases and other sources throughout the year. The enlarged HeidelbergCement appears to be in a better market position than LafargeHolcim but it will be watched carefully in 2017 for signs of weakness.
LafargeHolcim faces accusations over conduct in Syria
The general theme for LafargeHolcim in 2016 has been one of divestments to shore up its balance sheet. However, one news story could potentially sum up its decline for the wider public. In June 2016 French newspaper Le Monde alleged that Lafarge had struck deals with armed groups in Syria, including so-called Islamic State (IS), to protect its assets in 2013 and 2014. LafargeHolcim didn’t deny the claims directly in June. Then in response to a legal challenge on the issue mounted in November 2016 its language tightened to statements condoning terrorism whilst still allowing some wriggle room. As almost all of the international groups in Syria are opposed to IS, should these allegations prove to be true it will not look good for the world’s largest cement producer.
China and India balance sector restructuring with production growth
Both China and India seem to have turned a corner in 2016 with growing cement production and a generally more upbeat feeling for the industries. Both have also seen some high profile consolidations or mergers underway which will hopefully cut inefficiencies. China’s focus on its ‘One Belt, One Road’ appears to be delivering foreign contracts as CBMI’s recent flurry of orders in Africa attests although Sinoma’s equipment arm was losing money in the first half of 2016. Meanwhile, India may have damaged its own growth in the short term through its demonetisation policy to take high value Indian rupee currency notes out of circulation. In November 2016 cement demand was believed to have dropped by up to half as the real estate sector struggled to adapt. The pain is anticipated to carry on until the end of March 2017.
US industry growth stuck in the slow lane
The US cement industry has failed to take off yet again in 2016 with growth lagging below 5%. The United States Geological Survey (USGS) has reported that clinker production has risen by 1% in the first ten months of 2016 and that it fell in the third quarter of the year. In response, the Portland Cement Association (PCA) lowered its forecasts for both 2016 and 2017. One unknown here has been the election of President-elect Donald Trump and the uncertainty over what his policies might bring. If he ‘goes large,’ as he said he wants to, on infrastructure then the cement industry will benefit. Yet, knock-on effects from other potential policies like restricting migrant labour might have unpredictable consequences upon the general construction industry.
African expansion follows the money
International cement producers have prospered at the expense of local ones in 2016. The big shock this year was when Nigeria’s Dangote announced that it was scaling back its expansion plans in response to problems in Nigeria principally with the devaluation of the Naira. Since then it has also faced local problems in Ghana, Ethiopia and Tanzania. Its sub-Saharan competitor PPC has also had problems too. By contrast, foreign investors from outside the continent, led by China, have scented opportunity and opened their wallets.
Changes in store for the European Union Emissions Trading Scheme
A late entry to this roundup is the proposed amendment to the European Union (EU) Emissions Trading Scheme (ETS). This may entail the introduction of a Border Adjustment Measure (BAM) with the loss of free allowances for the cement sector in Phase IV. Cembureau, the European Cement Association, has slammed the changes as ‘discriminatory’ and raised concerns over how this would affect competitiveness. In opposition the environmental campaign group Sandbag has defended the changes as ones that could put a stop to the ‘cement sector’s windfall profits from the ETS.’
High growth shifts to Philippines and other territories
Indonesia may be lurching towards production overcapacity, but fear not, the Philippines have arrived on the scene to provide high double-digit growth on the back of the Duterte Infrastructure Plan. The Cement Manufacturers Association of the Philippines (CEMAP) has said that cement sales have risen by 10.1% year-on-year to 20.1Mt in the first three quarters of 2016 and lots of new plants and upgrade projects are underway. The other place drawing attention in the second half of the year has been Pakistan with cement sales jumping in response to projects being built by the China-Pakistan Economic Corridor.
Global Cement Weekly will return on 4 January 2016
Predicting the future of cement markets
Written by David Perilli, Global Cement
14 December 2016
This week the US Portland Cement Association (PCA) revised down its forecast for the rise in cement consumption in 2016 to 2.7% from 4%. It also lowered its prediction for 2017, blaming political uncertainty around the presidential election, inflation and slower construction activity. Global Cement Magazine editorial director Robert McCaffrey pointed out on LinkedIn that he was surprised by the revision down in 2017 given the rhetoric by president-elect Donald Trump to invest in large infrastructure projects.
Clearly the PCA is playing it cautious as a politically unknown entity, Trump, slides from campaign trail promises to executive power delivery. Backing them up are the latest figures from the United States Geological Survey (USGS) that show that both cement production and shipments fell slightly in the third quarter of 2016. In the quarter before the election in November 2016 the cement market slowed down. The hard bit is working out why. As we pointed out in a review of the US cement industry in the May 2016 issue of Global Cement Magazine the PCA had previously downgraded its forecast in 2016 due to economic uncertainty despite strong fundamentals for the construction industry. Then, as now, the great hope for the US cement industry was infrastructure spending down the pipeline, at that time the Fixing America’s Surface Transportation Act. At this point it doesn’t seem to have had much of an effect.
Industrial and economic forecasters aren’t the only ones who have a hard time of it in 2016. Political pollsters have also been caught out. Surprises came from the UK’s decision to leave the European Union and the election of Trump. Neither result was widely expected in the media. As explained above, should Trump make good on his building plans then if any cement company based its plans on a forecast dependent on a Hilary Clinton win then it may have lost money.
The power of forecasts has even greater potential effects in developing markets where the corresponding financial risks and rewards are higher. After all, why would any cement company invest tens of millions of US dollars for a cement grinding plant or hundreds of millions for an integrated plant unless there was some whiff of a return on investment?
This then leads to the problems Dangote has reportedly been having with its plant in Tanzania. Amidst a flurry of local media speculation in late November 2016 about why its Mtwara plant had a temporary production shutdown, Dangote’s country chief clarified that it was due to technical problems. It then emerged this week that Dangote’s owner Aliko Dangote met with President John Magufuli to agree a gas supply agreement to the plant. The point here being that even if the market conditions and demographics seems conducive to profit, as is the case in Tanzania, if the local government changes any incentives agreed at the planning stage then everything can change. At this point forecasts based on data become moot.
There’s a great quote from the US pollster Nate Silver that goes, “The key to making a good forecast is not in limiting yourself to quantitative information.” In terms of election campaigns run at a time of upheaval that might mean listening to people more than looking at polling data. In terms of a cement company operating in Africa that might mean fostering links with the local government to ensure no sudden policy changes catch you off-guard. And in the US that might just mean cement company analysts have to follow Donald Trump’s Twitter account.
Update on the Philippines
Written by David Perilli, Global Cement
07 December 2016
Construction firm DMCI Holdings announced plans this week to enter the Philippine cement market. The company intends to build one cement plant on Semirara and three cement grinding plants elsewhere – at Batangas, Iloilo and Zamboanga – to give it a national presence. DMCI’s managing director Victor Limlingan admitted to local press that his company was taking a gamble on spending US$368m in this way.
It has staked its money on the Duterte Infrastructure Plan, a scheme from the new administration that was elected in June 2016 to target US$165bn (!) towards infrastructure spending until the early 2020s. Even if a portion of this money makes it from political hyperbole to the diggers then it is likely to mean a sustained construction boom for an economy that is already growing at around 6%/yr. DCMI’s excitement was almost palpable in mid-November 2016 when it put out a press release calling for potential partners to help it benefit from the rush when it comes. Although the company did add that all the discussions were at the exploratory stage at this time because it was still awaiting bidding documents.
DMCI’s project joins six plants in various stages of planning and construction from San Miguel, Northern Cement, Eagle Cement and LafargeHolcim. In addition four existing plants are carrying out upgrades to increase their production capacity. Clearly, things are looking up for the local cement industry. DMCI follows San Miguel which announced that it was going to spend US$1bn on building five cement plants around the country in mid-2015.
In line with this kind of investment the Cement Manufacturers Association of the Philippines (CEMAP) said that cement sales had risen by 10.1% year-on-year to 20.1Mt in the first three quarters of 2016. This follows annual sales growth of 8.7% to 21.3Mt in 2014 and of 14.3% to 24Mt in 2015. CEMAP’s data for 2015 also shows that local demand overtook the country’s kiln capacity in 2014. Subsequently imports peaked to 314,000t in 2014, the highest level since 2002.
The country’s second largest producer Republic Cement, a joint venture between CRH and Aboitiz, reported sales growth similar to CEMAP’s one for the first three months of the year. LafargeHolcim, the largest producer, didn’t reveal any figures in its third quarter report but it marked the Philippines as one of its key contributors in the quarter. By contrast, Cemex noted lower growth in its third quarter report at 4% for the nine months to September 2016. It also said that the government transition following the election had slowed cement consumption, especially from infrastructure projects.
The Philippine cement industry is in the enviable position of being in a boom. The kind of problems it has to cope with includes provincial cement shortages, lobbying to increase usage of blended cements, scrutiny of prices by the government and a rise in technical smuggling. Once the new plants and upgrades start becoming operational the true nature of the market should become more apparent. At present it looks likely that DCMI gamble may turn out to be a wise one. The next question will be how many more companies want a piece of the piece too?