Displaying items by tag: Cemex
Back in the May 2016 issue of Global Cement Magazine we asked key people at the Portland Cement Association how they thought the US presidential election might affect the local cement industry. Wisely, for an advocacy organisation with offices in Washington DC, no one would be drawn, citing a lack of information. At that point it was still unclear who was going to be on the final ticket. However, we all missed a trick because one candidate, Donald Trump, had been talking about building ‘a border fence like you have never seen before’ since at least mid-2014. And that fence could potentially require a lot of cement.
Researchers at market analysts Bernstein’s sent a note to clients last week ahead of the Republican National Convention looking at the implications of if Donald Trump became president of the US and actually set out to build his 40ft high concrete wall between the US and Mexico. The result would be a 2.4Mt boost in demand for cement from cement producers near to the border. In terms of market demand Bernstein concluded that this would add over 1% to cement demand in both 2018 and 2019, a healthy ‘shot in the arm’ to the already pepped-up US cement industry, which is currently growing at around 5%/yr.
Map 1: Map of cement and ready-mix concrete plants near to the US - Mexico border. Source: Bernstein Materials Blast. Note – Bernstein does not show the Capitol Cement plant in San Antonio.
Needless to say, Bernstein’s calculations pile-drive assumptions into assumptions, atop of Trump’s political rhetoric. It bases its calculations on a border wall similar to the Israeli West Bank barrier built out of precast concrete panels. It also tries to model how much concrete and cement would be required depending on the differing height’s Trump has trumpeted at his rallies.
The kicker to this tongue-in-cheek analysis is that the construction company that stands to benefit the most from this infrastructure project is Mexican!
Cemex has significantly more cement plants and ready-mix concrete plants than any other company within a 200-mile zone either side of the border. Looking at integrated cement plants alone, it has six plants in the regions near to the proposed wall from the east and west coasts. Its nearest competitors, CalPortland with four plants and Grupo Cementos de Chihuahua with three plants, are more regionally based in the western US and Chihuahua state in Mexico. Clearly Cemex didn’t rate the chances of Donald Trump’s wall actually happening when it agreed to sell its Odessa cement plant to Grupo Cementos de Chihuahua in May 2016.
All of this goes to show that, wherever you stand on the Donald Trump presidency bid, if you manufacture cement near the US-Mexican border you might be working overtime if he (a) actually becomes president, (b) actually manages to start building his wall and (c) actually decides to make it using cement. Yet before anybody starts popping champagne corks consider this: there might also be unintended consequences for the cement sector. Restricting current legal and illegal migration trends from Mexico to the US might have a greater negative effect on the US cement industry, and the overall economy, than ordering one large infrastructure project. Working that one out is harder than a guesstimate of how much cement a border wall might consume. Probably best not to ask at this stage who might actually pay for the Great Wall of Donald Trump.
Philippines: Cemex Philippines plans to build a US$300m cement plant with a production capacity of 1.5Mt/yr. The plant will be in operation in the second half of 2019, according to Reuters. Company president and chief executive Pedro Jose Palomino made the announcement amid the company’s initial public offering on the Philippine Stock Exchange.
UK: Firefighters were called to an incident at the Cemex South Ferriby cement plant on 17 July 2016. A spokesman for Humberside Fire and Rescue Service told the Scunthorpe Telegraph that a fire involved a fuel leak from a pipeline which spread to cables, pipework and a disused control room within the kiln room. Fire damage was reported to the pipework, cables and one wall of the control room. The remainder of the building was damaged by smoke.
Mexico: The International Finance Corporation (IFC) has granted Cemex a loan of Euro106m to support the cement producer’s sustainable investment programs in emerging markets. The IFC will grant Cemex funding for projects designed to enhance environmental performance that were completed in 2014 and 2015 as well as on-going during 2016, which are part of the capital expenditure plan previously communicated by Cemex. Approximately 60% of the funds will be allocated for projects related to the reduction of Cemex’s greenhouse gas emissions, while the remainder of the funds will be allocated to cover improvements to Cemex’s overall air emission controls.
“IFC’s financing to Cemex sustainable programs is part of our commitment to invest in critical climate-smart solutions across emerging markets,” said Liz Bronder, IFC Director for Latin America and the Caribbean. “We are encouraged by Cemex’s innovative initiatives and look forward to the company’s leadership expanding the climate change agenda among global key players”.
The IFC is joining Cemex’s facilities agreement dated 29 September 2014, as amended and restated maturing in 2020. This transaction increases the currently outstanding commitments under this credit agreement by approximately Euro106m and diversifies Cemex’s sources of funding.
Puerto Rico: The US Department of Labor’s Mine Safety and Health Administration (MSHA) has fined Cemex Puerto Rico US$291,722 in penalties relating to 119 citations and orders issued for safety violations at the company’s Ponce Cement Plant and Cantera Canas mines. The cement producer must now implement enhanced safety measures at its three MSHA-regulated facilities in Puerto Rico.
The MSHA issued the citations and orders for a wide variety of violations, including obstructed and unsafe travel ways and workplaces, safety defects on mobile equipment and machinery, and unguarded machine parts. The settlement was approved on 7 June 2016.
In the settlement Cemex agrees to hire an independent external safety consultant knowledgeable about surface mining and cement plant operations to conduct annual, wall-to-wall employee safety audits of these three facilities over the next four years. It will also arrange for the MSHA’s Educational Field and Small Mine Services to teach a mine safety course and cement plant safety course to safety directors, assistant safety directors, area supervisors and foremen.
India/Switzerland/UK: The five bidders that gave their final bids for Lafarge India’s 11Mt/yr cement business have been called to London, UK for the final leg of discussions, which started on 7 July 2016. Multinational bidders, including Mexico’s Cemex and China’s Anhui Conch, are believed to have bid aggressively. Domestic bidders Ajay Piramal Group, Nirma and Sajjan Jindal-led JSW Cement also submitted bids earlier in the week.
The bids are in the range of Euro1.19-1.33bn, which implies an enterprise value of US$108-121/t, comparable to UltraTech’s recent acquisition of JP Group’s cement assets for US$116/t.
“This discussion in London could take three to four days to finalise,” said a banker familiar with the development. “The winner will be decided not just on the price quoted for assets but also other conditions for the bid,” he said. Once the winning bid is decided, an exclusivity agreement will be signed with the bidder and it will take around three months to complete the deal.
Colombia: Cement producers are reacting to a boom in infrastructure projects in Colombia by increasing production and upgrading existing production capacity. Demand for ordinary Portland cement is expected to grow in the short-term due to the government's 4G roads programme and the growth of the housing sector. Current expansion projects in the country include Cementos Argos’ new 1.4Mt/yr plant at Sogamoso in Boyaca and Cemex’s 1Mt/yr cement plant at Maceo in Antioquia.
World: A new report released by the Carbon Disclosure Project (CDP) has highlighted the potential costs of future CO2 emissions and water supply constraints for 12 of the top global cement producers. CDP’s research shows that, even at a US$10/t CO2 price, US$4.5bn could be wiped off profits, with the least efficient companies most at risk.
By compiling questionnaire responses, the report ranks 12 cement producers for performance across five key areas – emissions, energy and material management, carbon cost exposure, water resilience and carbon regulation supportiveness. It found that LafargeHolcim, Shree Cement and CRH were the least CO2- and resource-intensive producers, with Italcementi, Cementir and Taiheiyo Cement the most highly intensive. Several major Chinese and other regional players failed to respond.
CDP found that many of the major cement companies have emissions targets that are set to expire in the next few years. It argues that, with the Paris Agreement driving towards net zero emissions by the middle of the century, cement companies have a ‘historic opportunity to set targets that can ‘future-proof’ their businesses.’
Tarek Soliman, Senior Analyst, Investor Research at CDP said, “This is the first piece of major research to break down how major players in the cement industry are meeting the challenge of reducing emissions in line with the science called for by the Paris Agreement. Cement will be a crucial building block as the Paris Agreement is put into effect, as it accounts for 5% of the world’s man-made emissions. The results couldn’t be clearer for companies and investors: a tipping point for cement companies is not far away.”
“As carbon-related regulatory measures inevitably tighten and the carbon price signal strengthens, investors will expect both strategic and rapid changes from cement companies, including better use of currently available options as well as investment in longer–term ones, whether this be in areas such as low-carbon product development or the deployment of carbon capture, use and storage.”
Mexico: Cemex has closed the sale of its operations in Bangladesh and Thailand to Siam City Cement for approximately US$53m. The proceeds obtained from this transaction will be used mainly for debt reduction and for general corporate purposes. The deal was announced in March 2016.
Cemex took a major step towards cutting its debts last week when it announced the sale of selected assets in the US for US$400m. Two cement plants in Odessa, Texas and Lyons, Colorado were included in the deal along with three cement terminals and businesses in El Paso, Texas and Las Cruces, New Mexico. Grupo Cementos de Chihuahua (GCC) was announced as the buyer.
Together the two plants being sold hold a cement production capacity of 1.5Mt/yr giving a rough cost of US$267/t for the assets. This compares to the cost of US$170/t that the European Cement Association (CEMBUREAU) estimates is required to build new capacity. Back in August 2015 when Taiheiyo Cement’s Californian subsidiary CalPortland purchased Martin Marietta Materials’ two cement plants in the state it paid US$181/t. Summit Materials paid far more at US$375/t in July 2015 when it purchased Lafarge’s cement plant in Davenport, Iowa, although that deal included seven cement terminals and a swap of a terminal. Other sales in 2014 to Martin Marietta Materials and Cementos Argos also hit values of around US$450/t involving lots of other assets including cement grinding plants and ready mix concrete plants.
Back on Cemex, the current sale to GCC maintains its position as the third largest cement producer in the US after the HeidelbergCement acquisition of Italcementi completes in July 2016 subject to Federal Trade Commission approval. However, it holds it with a reduced presence. Its cement production capacity will fall to 13Mt/yr from 14.5Mt/yr. It loses cement production presence in Colorado although it may retain distribution if it holds on to its terminal in Florence. In Texas it retains the Balcones cement plant near San Antonio and up to nine cement terminals depending on which ones it sells to GCC.
Selling assets in the US must be a tough decision for Cemex given that a quarter of its net sales came from the country in 2015. This was its single biggest territory for sales. This share has increased in the first quarter of 2016 as the US market for construction materials has continued to pick up.
Withdrawing from western Texas with its reliance on the oil industry makes sense. The plant it has retained in that state, the Balcones plant, is within the so-called Texas Triangle and so can hopefully continue to benefit from Texas’ demographic trends for continued housing starts and suchlike. Colorado is one of the middling US states in terms of population and likely to be a lower priority than other locations. The sales will see Cemex retrench its cement production base in southern and eastern parts of the country with the exception of the Victorville plant in California.
We’ve been watching Cemex keenly as other multinational cement producers have merged and laid out plans to merge in recent years. Saddled by debts, Cemex has appeared unable to either buy more assets itself and has remained distant from any talk of merger activity itself. The sales announcements in the US reinforce the image of a company taking action to relieve itself of its debts in 2016 following sales in Thailand, Bangladesh and the Philippines, and amended credit agreements and more borrowing. However, sales of cement plants in west Texas and Colorado outside of the strong markets in the US don’t quite suggest a company that has really committed yet to reducing its debt burden. Cemex continues to walk a tightrope between keeping the creditors at bay and riding the recovery in the US construction market.
This article was updated on 14 June 2016 with amended production capacity data for the Odessa cement plant