Displaying items by tag: China

It’s the end of the year so it’s time to look at trends in the sector news over the last 12 months. It’s also the end of a decade, so for a wider perspective check out the feature in the December 2019 issue of Global Cement Magazine. The map of shifting production capacity and the table of falling CO₂ emissions per tonne are awesome and inspiring in their own way. They also point towards the successes and dangers facing the industry in the next decade.

Back on 2019 here are some of the main themes of the year in the industry news. This is a selective list but if we missed anything crucial let us know.

European multinationals retreat

LafargeHolcim left the Philippines, Malaysia and Indonesia, HeidelbergCement sold up in Ukraine and reduced its stake in Morocco and CRH is reportedly making plans to leave the Philippines and India, if local media speculation can be believed. To be fair to HeidelbergCement it has also instigated some key acquisitions here and there, but there definitely has been a feel of the multinationals cutting their losses in certain places and retreating that bit closer to their heartlands.

CRH’s chief executive officer Albert Manifold summed it up an earnings meeting when he said, “…you're faced with a capital allocation decision of investing in Europe or North America where you've got stability, certainty, overlap, capability, versus going for something a bit more exotic. The returns you need to generate to justify that higher level of risk are extraordinary and we just don't see it.”

The battle for the European Green Deal

One battle that’s happening right now is the lobbying behind the scenes for so-called energy-intensive industries in Europe as part of the forthcoming European Green Deal. The cement industry is very aware that it is walking a tightrope on this one. The European Union (EU) Emissions Trading Scheme (ETS) CO₂ price started to bite in 2019, hitting a high of Euro28/t in August 2019 and plant closures have been blamed on it. The rhetoric from Ursula von der Leyen, the new president of the European Commission, has been bullish on climate legislation and the agitation of Greta Thunberg internationally and groups like Extinction Rebellion has kept the issue in the press. Cembureau, the European Cement Association, is keen to promote the industry’s sustainability credentials but it is concerned that aspects of the proposed deal will create ‘uncertainty and risks.’ Get it wrong and problems like the incoming ban on refuse-derived fuel (RDF) imports into the Netherlands may proliferate. What the Green Deal ends up as could influence the European cement industry for decades.

The managed march of China

Last’s week article on a price spike in Henan province illustrated the tension in China between markets and government intervention. It looks like this was driven by an increase in infrastructure spending with cement sales starting to rise. Cement production growth has also picked up in most provinces in the first three quarters of 2019. This follows a slow fall in cement sales over the last five years as state measures such as consolidation and peak shifting have been implemented. The government dominates the Chinese market and this extends west, as waste importers have previously found out to their cost.

Meanwhile, the Chinese industry has continued to grow internationally. Rather than buying existing assets it has tended to build its own plants, often in joint ventures with junior local partners. LafargeHolcim may have left Indonesia in 2018 but perhaps the real story was Anhui Conch's becoming the country's third biggest producer by local capacity. Coupled with the Chinese dominance in the supplier market this has meant that most new plant projects around the world are either being built by a Chinese company or supplied by one.

India consolidates but watches dust levels

Consolidation has been the continued theme in the world's second largest cement industry, with the auction for Emami Cement and UltraTech Cement’s acquisition of Century Textiles and Industries. Notably, UltraTech Cement has decided to focus its attention on only India despite the overseas assets it acquired previously. Growth in cement sales in the second half of 2019 has slowed and capacity utilisation rates remain low. Indian press reports that CRH is considering selling up. Together with the country's low per capita cement consumption this suggests a continued trend for consolidation for the time being.

Environmental regulations may also play a part in rationalising the local industry, as has already happened in China. The Indian government considered banning petcoke imports in 2018 in an attempt to decrease air pollution. Later, in mid-2019, a pilot emissions trading scheme (ETS) for particulate matter (PM) was launched in Surat, Gujarat. At the same time the state pollution boards have been getting tough with producers for breaching their limits.

Steady growth in the US

The US market has been a dependable one over the last year, generally propping up the balance sheets of the multinational producers. Cement shipments grew in the first eight months of the year with increases reported in the North-Eastern and Southern regions. Imports also mounted as the US-China trade war benefitted Turkey and Mexico at the expense of China. Alongside this a modest trade in cement plants has been going on with upgrades also underway. Ed Sullivan at the Portland Cement Association forecasts slowing growth in the early 2020s but he doesn’t think a recession is coming anytime soon.

Mixed picture in Latin America

There have been winners and losers south of the Rio Grande in 2019. Mexico was struggling with lower government infrastructure spending hitting cement sales volumes in the first half of the year although US threats to block exports haven’t come to pass so far. Far to the south Argentina’s economy has been holding the cement industry back leading to a 7% fall in cement sales in the first 11 months of the year. Both of these countries’ travails pale in comparison to Venezuela’s estimated capacity utilisation of just 12.5%. There have been bright spots in the region though with Brazil’s gradual return to growth in 2019. The November 2019 figures suggest sales growth of just under 4% for the year. Peru, meanwhile, continues to shine with continued production and sales growth.

North and south divide in Africa and the Middle East

The divide between the Middle East and North African (MENA) and Sub-Saharan regions has grown starker as more MENA countries have become cement exporters, particularly in North Africa. The economy in Turkey has held back the industry there and the sector has pivoted to exports, Egypt remains beset by overcapacity and Saudi Arabian producers have continued to renew their clinker export licences.

South of the Sahara key countries, including Nigeria, Kenya and South Africa, have suffered from poor sales due to a variety of reasons, including competition and the local economies. Other countries with smaller cement industries have continued to propose and build new plants as the race to reduce the price of cement in the interior drives change.

Changes in shipping regulations

One of the warning signs that flashed up at the CemProspects conference this year was the uncertainty surrounding the new International Maritime Organistaion (IMO) 2020 environmental regulations for shipping. A meeting of commodity traders for fuels for the cement industry would be expected to be wary of this kind of thing. Their job is to minimise the risk of fluctuating fuel prices for their employers after all. Yet, given that the global cement industry produces too much cement, this has implications for the clinker and cement traders too. This could potentially affect the price of fuels, input materials and clinker if shipping patterns change. Ultimately, IMO 2020 comes down to enforcement but already ship operators have to decide whether and when to act.

Do androids dream of working in cement plants?

There’s a been a steady drip of digitisation stories in the sector news this year, from LafargeHolcim’s Industry 4.0 plan to Cemex’s various initiatives and more. At present the question appears to be: how far can Industry 4.0 / internet of things style developments go in a heavy industrial setting like cement? Will it just manage discrete parts of the process such as logistics and mills or could it end up controlling larger parts of the process? Work by companies like Petuum show that autonomous plant operation is happening but it’s still very uncertain whether the machines will replace us all in the 2020s.

On that cheery note - enjoy the winter break if you have one.

Global Cement Weekly will return on 8 January 2020

China: Cement or asphalt roads will connect every settlement in China by 31 December 2019, according to an announcement by the Ministry of Transport. Sichaun province is the last part of the country to receive fully paved roads, which were yet to reach one town and one village as of 15 December 2019. Xinhua’s China Economic Information Service has reported that China has invested US$87.5bn in the construction of 6.34 million km of auxiliary roads since it began construction of the system in 2003.

Switzerland: Maerz has reported the successful installation of two Maerz PFR lime kilns with a capacity of 200t/day and 300t/day at Daesung MDI in South Korea, which was commissioned on 19 October 2019. The company also installed a 150t/day E2 two-shaft lime kiln at Easternbulk Lime Products Private Ltd in July 2019. Three further new plants with Maerz kilns are scheduled to enter operation in 2020 in China, Mexico and Russia and a second kiln will increase production of petcoke at Caleras’ San Juan plant in Argentina beginning in mid-2020.

Nigeria: Chinese-owned FabCom has unveiled a new fibre cement board at a ceremony celebrating the fifth anniversary of its presence in Nigeria. The Sun has reported that the company will manufacture 5Mm²/yr at its fibre cement board plant in Ambuja, which will be operational before 1 January 2021. FabCom managing director Liuxing Wang praised the product’s environmental friendliness, noting its durability, sound insulation, fire and water resistance and multi-use workability. FabCom’s investments in Nigeria total US$190m and have created 200,000 jobs, the company says.

In case you’ve missed it there’s been a boom in cement demand in China during the current quarter. Henan province saw a run on cement prices in November 2019 that the local press described as ‘crazy.’ Some companies were issuing price adjustments twice a day, according to the China Cement Association. The article on the CCA’s website also includes a video showing dozens of cement trucks queuing at a mill with the caption ‘all the plants are like this, don’t ask the price any more.’

The CCA’s blamed the situation in Henan on pollution controls on production and a rebound in cement demand. Weather-based pollution controls enacted in late October 2019 shut-down or limited production at 66 of the province’s 72 clinker production lines. Builders were then forced to source cement from neighbouring Shanxi, Hebei and Shaanxi provinces. At the same time demand for cement from real estate and infrastructure sectors picked up in the fourth quarter of 2019. Following advice from the local cement manufacturers’ association, the provincial government relaxed the rules on peak shifting that normally run from November to February in a bid to control the situation. Cement prices in Henan hit a high in mid-to-late November 2019 and have since subsided somewhat.

Nationally, Chinese cement prices hit a high in late November 2019 beating the highest level in 2018 and also setting the highest price since 2011. The key regions driving the increase have been in central and south China, including Guangxi, Guangdong and Henan. One more thing to note here is that peak shifting or seasonal shutdown of production capacity has different dates in different provinces. So, potentially, the situation could repeat itself if unexpected demand continues and provincial governments fail to monitor the situation.

Recently a couple of economic indicators in China have suggested a recovery in infrastructure spending in recent months, supporting increased cement demand. Data from Wind quoted by the Financial Times newspaper suggests that the cement price rose by 15% since September 2019 in large cities. Reinforced steel (rebar) and aggregates prices have increased similarly. At the same time the South China Post newspaper has reported a growth in the Purchasing Managers’ Index (PMI), an indicator of manufacturing activity that could also point to renewed infrastructure spending. Central government is also reported to be taking measures to support provincial infrastructure development.

If true then this may be creating some pretty direct lessons in economic interventionism. The Chinese government appears to be stimulating demand for cement via infrastructure growth while restricting production at the same time. Cement prices have reacted in a ‘crazy’ fashion. The real tension here is between two conflicting desires: protecting the economy and protecting the environment. The state planners may be grappling with this one for a while.

China: KHD has reported NO_x emissions consistently below 50mg/Nm³ at Tianrui’s 2.0Mt/yr Weihui integrated cement plant in Henan province, where its Pyroredox gasifying reactor has been installed between the kiln inlet chamber and preheater calciner. The NO_x reduction after several months of operation was 66%, while reagent usage fell by 78% compared to with the plant’s selective non-catalytic reducer without a Pyroredox fitted. No extra power or fuel was used and production was unaffected. The Pyroredox requires two to four weeks’ downtime for its installation and is now operational at multiple cement plants across China.

Cemex pushed ahead yesterday and announced that it had sold the Kosmos Cement Company to Eagle Materials for around US$665m. It owns a 75% stake in the company, with Italy’s Buzzi Unicem owning the remaining share, giving it roughly US$449m once the deal completes. Proceeds from the sale will go towards debt reduction and general corporate purposes. The sale inventory includes a 1.7Mt/yr integrated cement plant in Louisville, Kentucky as well as seven distribution terminals and raw material reserves.

The decision to sell assets makes sense given Cemex’s financial results so far in 2019. It reported falling sales, cement volumes and earnings in the first nine months of the year although much of this was down to poor market conditions in Mexico. However, the US, along with Europe, was one of its stronger territories with rising sales. Earnings were impaired in the US, possibly due to bad weather in the southeast and competition in Florida, but infrastructure and residential development were reported to be promising.

Graph 1: Portland & Blended Cement shipments in 2018 and 2019. Source: United States Geological Survey (USGS).

Graph 2: Change in imports of hydraulic cement & clinker to the US in 2018 and 2019 from selected countries. Source: USGS.

United States Geological Survey (USGS) data also supports a picture of a growing US market. Shipments of Ordinary Portland Cement and blended cements grew by 2.4% year-on-year to 66.9Mt for the first eight months of 2019 from 65.4Mt in the same period in 2018. By region growth can be seen in the North-East, South and imports. Declines were reported in the West and Midwest. The states of Alabama, Kentucky, Tennessee – the area where the Kosmos plant is located – saw shipments grow by 4% to 4.77Mt from 4.58Mt. It is worth noting that Louisville is in the north of Kentucky near the border with Indiana, where shipments also grew.

The Portland Cement Association’s (PCA) fall forecast may also have helped Cemex’s decision. Ed Sullivan, PCA Senior Vice President and Chief Economist, said that he expected cement consumption in the US to continue growing in 2019 and 2020 but with a slowing trend into 2021 following general gross domestic product (GDP) predictions. The PCA’s view is that pent-up demand following the recession in 2008 was gone and the economy was gradually weakening. Crucially though it didn’t think a recession was impending. In this scenario Cemex might be taking a medium-term view with regards to the Kosmos Cement Company.

Another more general interesting data point from the USGS was the change in import origins to the US. Imports grew by 11.3% to 66.9Mt in January to August 2019. The top five importing countries and their overall share remained the same but there was some movement between them. Turkish and Mexican imports surged at the expensive of Chinese ones as can be seen in Graph 2. The go-to explanation for this would be the on-going US - China trade war. Cemex is a Mexican company with a strong presence in both the US and Mexico. This change in the make-up of the import market in the US may also have informed its decision to sell Kosmos Cement as it looked at the macro scale.

More generally the US market is looking buoyant in the short to medium term. Plants are being sold like Kosmos Cement to Eagle Cement and the Keystone cement plant in Bath, Pennsylvania to HeidelbergCement and a major upgrade project is underway on the new production line at the Mitchell plant in Indiana. In Cemex’s case, as ever with asset sales, the seller sometimes has to make the hard decision of whether to divest a plant in a growing region to help the business in other places that might not be doing so well. The growth of America’s largest locally owned producer, Eagle Cement, may also give cheer to the US’ current ‘America First’ administration.

China: Cemex’s corporate venture capital subsidiary Cemex Ventures is preparing to enter the Chinese market offering innovations for the construction industry. It wants to build relationships with startups in order to do this and it has signed deals with local companies Glodon, a digital platform service provider in construction industry based in Beijing, and Interdream Ventures, a venture capital firm that focuses on the digitalisation of construction and decoration industry.

"This type of alliance between two segments that fit together, is key to finding new successful business models, and operate in the Chinese market. Glodon and Interdream Ventures also have a complete vision of the entire value chain and are good partners to drive the construction revolution,” said Juan Nieto, a representative of Cemex Ventures Asia.

Cemex Ventures is the corporate venture capital wing of Cemex that was launched in 2017. It invests in startups with potential in the construction industry and works with entrepreneurs, universities and other stakeholders.

Taiwan: Taiwan Cement’s profit has risen so far in 2019 due to stable cement prices and falling coal prices. Its net profit increased by 11.1% year-on-year to US$214m in the first nine months of 2019, according to the Taipei Times newspaper. However, its sales revenue fell by 3.5% to US$2.87bn. The cement producer says it has a production capacity of 102Mt/yr following the formation of a joint venture in Turkey and an acquisition in Portugal in 2018.

The company reported higher labour, transportation and raw material costs in China in the third quarter of 2019. Its expenses were also inflated by environmental upgrades. Company president John Li said, that despite falling prices in Guizhou province, demand in regional markets, including Guangdong, Guangxi and Jiangsu provinces was expected to remain beneficial.

Semen Indonesia’s third quarter results this week give us a reason to look at one of the world’s largest cement producing countries, Indonesia. As the local market leader, Semen Indonesia’s financial results have been positive so far in 2019 following its acquisition of Holcim Indonesia at the start of the year. Analysts at Fitch noted that gross margins for Semen Indonesia and its rival Indocement grew in the first half of 2019 as coal prices fell and cement sales prices rose.

Sales volumes, however tell a story of local production overcapacity and a move to exports. Domestic sales volumes fell by 2.05% year-on-year to 48.8Mt in the first nine months of 2019. Cement and clinker exports nearly compensated for this by rising by 15.4% to 4.8Mt. This is brisk growth but slower than the explosion of exports in 2018. Semen Indonesia’s local sales from its company before the acquisition fell faster than the national rate at 4.9% to 18.7Mt. The new sales from Solusi Bangun, the new name for Holcim Indonesia, partially alleviated this. It’s been a similar story for HeidelbergCement’s Indocement. Its sales revenue and income have risen so far in 2019. At the mid-year mark its sales volumes fell by 2.3% year-on-year to 29.4Mt.

Graph 1: Indonesian cement sales, January – September 2019. Source: Semen Indonesia.

Geographically, Indonesia Cement Association (ASI) data shows that over half of the country’s sales volumes (56%) were in Java in the first half of 2018. This was followed by Sumatra (22%), Sulawesi (8%), Kalimantan (also known as Indonesian Borneo, 6%), Bali-Nusa Tenggara (6%) and Maluku-Papua (2%). By cement type the market is dominated by bagged cement sales. It constituted 74% of sales in September 2019. The main producers have been keen to point out growth in bulk sales as its share has increased over the last decade.

Graph 2: Indonesian cement sales by type, 2010 – 2019. Source: Semen Indonesia/Indonesia Cement Association.

Previously the main story from the Indonesian market has been one of overcapacity and this has continued. It had a utilisation rate of 70% in 2018 from production volumes of 75.1Mt and a capacity of 110Mt, according to ASI data. This was likely to have been a major consideration in LafargeHolcim’s decision to leave the country and South-East Asia (see GCW379) with no end in sight to the situation in the short to medium term. At the end of 2018 it felt like consolidation was in progress following this sale and the reported sale of Semen Panasia. So far though this has been all and perhaps the upturn in the second quarter might buy the producers more time.

As mentioned at the start, another aspect of the Indonesian market deserving comment is that it is one of the first countries with a large cement sector where a Chinese company has made a significant entry. Conch Cement Indonesia, a subsidiary of China’s Anhui Conch, became the third largest producer following the acquisition of Holcim Indonesia. Semen Indonesia and Indocement control 70% of local installed capacity across both integrated and grinding plants with 51Mt/yr and 25.5Mt/yr respectively.

Conch Cement Indonesia is the next biggest with 8.7Mt from three integrated plants and a grinding unit. It’s in a tranche of three smaller producers locally, along with Semen Merah Putih and Semen Bosowa. Fitch also picked up on this in a research report on the cement sector published in August 2019. It pointed out that, although Holcim Indonesia and Indocement had gained pricing power through their leading market share, this is being eroded by local producers owned by Chinese companies.

Depending on how you look at it, Indonesia has the ‘fortune’ to be only the second largest producer in South-East Asia, after Vietnam. China, the world’s largest producer, is not too far away either. As can be seen above this can be a mixed blessing for local producers as the market changes. Overcapacity abounds, a major multinational has moved out, a local firm has consolidated the market as a result and Chinese influence grows steadily. Indonesia could well be an example of things to come for other markets.