Displaying items by tag: Export

Pakistan: Cement sales rose by 12% year-on-year to 22.2Mt in the last six months of 2017 from 19.8Mt in the same period in 2016. Data from the All Pakistan Cement Manufacturers' Association (APCMA) shows that domestic consumption rose by 17.4 % to 19.8Mt from 16.9Mt, according to the Express Tribune newspaper. However, exports continued to decline in the period by 17.3% to 2.9Mt from 2.4Mt. Exports fell in most parts of the country, particularly in the south, despite increases from plants in Punjab and Khyber-Pakhtunkhwa. The APCMA has blamed this on high industry costs, foreign imports and local legislation.

FLSmidth revealed this week that Cooperativa Boliviana de Cemento, Industrias y Servicios (COBOCE) has ordered a cement mill for its Irpa Irpa plant near Cochabamba. The Danish engineering firm was pleased to note that with the sale it has now delivered mills to three of the country’s five producers. Other recent orders include supplying an OK 36-4 mill to Sociedad Boliviana de Cemento’s (SOBOCE) Viacha cement plant, announced in early 2016, and a sale of a complete integrated production line at Sucre to Fábrica Nacional de Cemento (FANCESA) in late 2016.

These order reveal slow but steady growth in the local industry in recent years. However, a slowdown so far in 2017 suggests that the market is changing. National Institute of Statistics of Bolivia (INE) data shows that sales in the local market broke down in 2016 into a 42% sales share for SOBOCE, 25% for FANCESA, 19% for COBOCE, 8% for Yura and 6% for Itacamba. This changed somewhat in the first quarter of 2017 with a reduction in the sales of SOBOCE and Yura. Sales in the country are concentrated in the departments of Chuquisca, La Paz and Cochabamba, which held 70% of cement sales in 2016.

Graph 1: Cement production and sales in Bolivia, 2012 – 2017. Source: National Institute of Statistics of Bolivia.

Annual cement sales in Bolivia have been growing consistently since 2001. Financial services company Pacific Credit Rating placed average annual sales growth at 7.72% from 1998 to 2016. In 2016 sales reached 3.7Mt. Graph 1 shows a continuation of this trend although the first half of 2017 has been weaker than 2016. COBOCE blamed the reverse in 2017 on reduced local government spending on infrastructure projects and poor weather. The producer was expecting sales to grow by 6 – 8% as a whole for 2017. However, on the basis of the figures for July and August 2017 this is not looking likely. Sales for the two months dropped by 2.5% year-on-year to 0.64Mt. A representative of FANCESA later blamed the market change on a reduction in sales supporting the construction of tall buildings in the country’s key markets as customers switched to buying ‘random’ volumes.

Sure enough local producers have started to complain about foreign exporters damaging their trade. A union head in Chuquisaca called for cement and clinker imports by Yura from Peru to be banned and concerns have been raised about concessions offered to Itacamba, a joint venture between Spain’s Cementos Molins, Brazil’s Votorantim Cement and Camba Cement. President Evo Morales inaugurated this company’s new plant in Yacuses, Santa Cruz in early 2017. The niggles about foreign exports to Bolivia seem counter-intuitive given that the country is landlocked and it has the world’s highest capital city above sea level. Usually, markets with nearby ports are most at risk from clinker and cement imports. Yet, Itacamba was planning exports to Argentina in November so the import and export markets via road and river links can’t be discounted.

Cement sales may be down so far in 2017 but overall the wider economy appears to be in rude health. After a strong decade of growth the national Gross Domestic Product (GDP) growth rate has fallen each year since 2014, but it was still 4.3% in 2016, one of the highest in South America. If that kind of growth persists it seems unlikely that the cement industry will have trouble for long.

Arabian Cement Company had some choice words for a contractor this week when it blamed it in a bourse statement for a delay for a new mill at its Rabigh plant. The project has been pushed back to the third quarter of 2018 from the fourth quarter of 2017. The second phase of the plan, to build a new clinker production line, has also been placed under review.

The contractor may have given Arabian Cement an excuse to put a question mark over its new line, but the market reality has been stark. Also this week, Saudi Cement Company reported that its net profit had fallen by 51.5% year-on-year, to US$92.3m in the first nine months of 2017 compared to US$190.4m in the previous period. It blamed falling sales.

Graph 1: Cement sales (Mt) by quarter in Saudi Arabia, 2015 to September 2017. Source: Yamama Cement.

As Graph 1 shows, cement sales volumes in Saudi Arabia have been dropping since 2015. Sales fell by 5.3% year-on-year to 10.5Mt in the third quarter of 2017 from 10.9Mt in the same period in 2016. Year to date figures show a worse trend with a drop of 17.4% to 35.2Mt in the first nine months of 2017 compared to 42.7Mt in the same period in 2016. This decline has accelerated compared to a decrease of 5.4% from 45.1Mt in 2015 for the first three quarters.

Analyst Al Rajhi Capital provided some context to this situation in its September 2017 report on the August 2017 sales figures. It reported particularly steep declines in cement sales volumes of over 35% for Northern Cement, Najran cement and Hail Cement for the first eight months of the year. However, some producers - including City, Qassim, Yanbu and Al Safwa - did manage modest gains. Overall though the financial services company did not expect any pickup for the second half of 2017.

Last time this column covered the kingdom’s cement industry in early 2016 it asked when the government was going to relieve the export ban. Cement production was high, inventory was pilling up and infrastructure spending was falling. The ban was subsequently lifted but commentators worried that it would be too restrictive to have much effect due to tariffs and volume restrictions. A steady stream of cement producers has applied for export licences since then, but exports have not alleviated the situation. With inventory remaining high for the producers, current export policy failing to help and the local construction market subdued, it is unlikely that anything is going to change soon for the local cement industry. In fact it may even get worse if the government decides to revise its energy price policy later in 2017 or in early 2018, adding to the input cost burden of the producers.

Talk of market consolidation in this kind of market environment seems inevitable. This is exactly what happened earlier in the month when Jihad Al Rashid, the head of the Saudi National Committee for Cement Companies, said to local press that the local market only needed four large cement producers rather than the 17 companies it has at present. The question at this stage seems to be when, rather than if, will this process start.

After a couple of weeks looking at the capacity-rich cement markets of Angola and Vietnam, we turn our attention this week to some of those countries on the receiving end of overcapacity.

Costa Rica is an unlikely place to start but it came to our attention this week due to a short but significant news item. In summary, the amount of cement imported into Costa Rica increased by a factor of 10 between 2014 and 2016, from around 10,000t to over 100,000t. This is around 5% of its 2Mt/yr domesitic capacity, so the change is already fairly big news. The fact that an incredible 97% of this came from just one country, China, makes the story far more interesting as it shows the effects that Chinese overcapacity can have on smaller markets.

But when we look at how the value of the cement imports has changed over time, we see an even more dynamic shift. While the amount of cement imported into the country increased by nearly 10-fold, the value of the same imports only increased by around half as much between 2014 and 2016. If these figures can be taken at face value, the implication is stark. Taking the very low base as effectively ‘zero,’ each tonne of cement imported must cost around half as much as it used to.

Digging a little deeper and the picture gets more complicated. While they have fallen, Costa Rican cement prices have not fallen by 50% and why the sudden deluge of imports anyway? In 2015 the country changed its rules on cement imports to facilitate more flexible imports and lower prices for consumers. It did this by changing a regulation relating to how long cement can be stored, previously set at just 45 days, with the aim of allowing cement to come from further afield and, crucially, in bulk rather than bags.

The effects on price were immediate. Previously as high as US$13/bag (50kg) in December 2014, fairly high by global standards, Sinocem, the first Chinese importer, immediately sold its first shipment at US$10/bag. This effect of lower prices has now forced the average sales prices down to around US$10/bag across the country by 2017. This is good for consumers but not necessarily the local plants.

Back in 2015, the two local integrated plants operated by Cemex and Holcim warned that cement quality would suffer if cement bags were not used within 45 days. This apparently self-serving ‘warning’ went unheeded by the Ministry of Economy, Industry and Trade (MEIC), which pointed out that other countries in South America, as well as the European Union and United States, had no analogous short use-by dates for cement bags.

The rule remains in place, although discontent rumbles on. Indeed LafargeHolcim noted in its third quarter results for 2016 that ‘Costa Rica was adversely affected by increased foreign imports.’  This may well be a little bit of posturing and it doesn’t square with the fact that Costa Rica exported three times more cement that it imported in 2016. Of total exports of 0.34Mt, over 95% went to neighbouring Nicaragua, which has a single 0.6Mt/yr wet process plant owned by Cemex. It seems that the two Costa Rican plants have found a way to keep a little bit of the Chinese producers’ margin for themselves.

Of course, Chinese cement overcapacity doesn’t only affect the Central American market. It has been rippling all around the Pacific Rim. In July 2017, this column looked at the decision by Cementos Bío Bío to stop making clinker at its Talcahuano plant in Chile. It now favours grinding imported clinker from Asia. Before that, Holcim New Zealand closed its Westport cement plant in 2016, finally admitting that domestic clinker was not viable.

In the grand scheme of things, this all makes sense. The market has forced those operating on thin margins to adjust. Ultimately, the end consumer is likely to benefit from lower prices, at least for as long as reliable low-cost imports can be secured. What happens, however, if China actually gets round to curtailing its rampant cement capacity, or simply decides to charge more for its cement? Flexible imports, the main aim of the Costa Rican rule change, may then prove vital, as long as there is more than one international supplier of cement.

Two of Japan's largest cement producers have reported reduced domestic cement sales in the country this week. First, Taiheiyo Cement revised its forecast for its 2017 financial year, ending on 31 March 2017, bringing its estimated net sales down by 2.3%. Then, Ube Group reported that its cement sales had fallen by 7.2% year-on-year to US$1.05bn in the first half of its financial year. Both producers blamed poor weak demand locally, but Ube also cited a poor export market.

Graph 1: Domestic and export cement sales in Japan, 2006 - 2015. Source: Japanese Cement Association.

This last point is interesting because it differs from the latest data released by the Japanese Cement Association (JCA). As can be seen in Graph 1 JCA figures show that exports of cement have been rising since 2013. So far this trend looks likely to continue in 2016. Ube's different experience may arise from its market mix and its distribution of cement plants and transport infrastructure. Both of its cement plants are based in the south of the country. Commentators have attributed the boost in exports to the devaluation of the Yen in 2015 as well as strong brand perception overseas. Unfortunately, this overall rise in exports has been matched by a fall in domestic sales at the same time and this is causing a headache for the major producers. Production too has started to drop since 2014 (Graph 2).

Graph 2: Cement production in Japan, 2006 - 2015. Source: Japanese Cement Association.

Japan's cement market is dominated by four producers - Taiheiyo Group, Mitsubishi Materials, Ube Industries and Sumitomo Osaka Cement - which hold nearly three quarters of the nation's production capacity between them. According to Global Cement Directory 2016 data, Taiheiyo Cement and its subsidiaries is the market leader with over 30% market share with the other three holding 10 - 20% each.

Graph 3: Cement production capacity share in Japan (Mt). Source: Global Cement Directory 2016.

Taiheiyo's downgraded forecast follows poor first quarter results, in which its net sales for its cement business fell by 16% to US$1.19bn. This follows a slight rise in net sales for its cement business in its 2016 financial year due to a boost in sales from its overseas subsidiaries, particularly in the US, that surpass a fall in domestic sales. Sales volumes were 14.7Mt domestically and 4Mt in exports in 2016. Mitsubishi Materials has posted a similar picture with cement sales and profits rising in 2016 before suffering in the first quarter of 2017. Mitsubishi Materials blamed the poor market on a delay in construction work mainly due to labour shortages and sluggish growth in demand from the public sector. Ditto Sumitomo Osaka Cement.

As highlighted by such decision as Tokyo Cement's move to resume exporting clinker to Sri Lanka in early 2015, Japan's cement industry is working hard to compensate for falling demand at home. Increasing exports in Asia Pacific among other massive exporters such as China, Vietnam and South Korea is impressive, although the prominent foothold by Japanese companies in the recovering US market may offer some advantage here. On-going weak demand in China though cuts out one major market for Chinese exporters. However, being a major exporter in a region of major cement producers must be a concern. Although commentators such as Ad Ligthart dismiss the chances of China flooding the world with cheap cement, if they are wrong and Japan continues its reliance on exports it may find itself in deep water. The other risk is if the US authorities decide to get tougher on foreign exports it may knock out one more market for Japanese exports. Too much reliance on exports is always dangerous. In this context, it’s no surprise that Japanese cement producers are blaming the government for insufficient infrastructure spending.

South African cement producers may be cheered this week with the news that Iranian cement is causing grief in Pakistan once more. Imported cement from Iran is allegedly undercutting local product in Pakistan through massive 'under-invoicing.' Sources quoted in Pakistan – itself a cement exporter (!) – described the situation as 'incomprehensible.'

The issue here is that Iran is doing to South Africa what Pakistan is doing to South Africa: selling cement cheaper than locally produced product. It's especially ironic this week because one Pakistani cement producer, Lucky Cement, is taking the fight against South African anti-dumping duties to the courts.

A report from July 2015 reckoned that Pakistan's cement exports might drop by 10 – 15% at the start of 2016 as economic sanctions on Iran are lifted. The report had a bit more sense than the usual scaremongering. It predicted that removing sanctions in Iran would not affect competition in Afghanistan as Iranian producers generally targeted Kandahar.

Despite this, cement exports to Afghanistan from Pakistan hit a high of 4.73Mt in the 2010 – 2011 financial year, according to All Pakistan Cement Manufacturers Association (APCMA) data. Since then they dwindled slightly for the next couple of years before decreasing more sharply from mid-2013. Overall exports fell by 11.57% to 7.2Mt in the 2014 – 2015 period. Pakistan's exports to Afghanistan may have been hit by the departure of North Atlantic Treaty Organisation (NATO) forces and a new cement plant in neighbouring Tajikistan.

In part the battle seems to be about tax. In June 2015 the APCMA lobbied the Pakistan government to cut duties. At the time these included a 5% federal excise duty and a 17% general sales tax on the retail price of cement. One APCMA spokesman reckoned that these taxes added US$1.56 per bag of cement. More recently the APCMA rallied against a tax on cement exports and an increase in import duties on coal. In this climate, repeated news stories on Iranian exports to Pakistan dodging taxes don't sound so good.

Meanwhile, back in South Africa, Lucky Cement has started to take legal action against anti-dumping duties imposed upon its cement exports by the International Trade Administration Commission of South Africa (ITAC). The ITAC imposed provisional anti-dumping duties of 14.3 – 77.2% on Portland Cement originating in or imported from Pakistan from 15 May 2015 for six months. The duty was imposed on bagged cement. Pakistan-based cement producers may defend themselves by saying that they are following the laws of the countries they are exporting to. In theory Iranian exports to Pakistan that pay the correct taxes should be the same price as Pakistani products.

What this debacle shows is that things could get a whole lot worse for coastal cement markets within easy reach of Iran once the sanctions fall. National bodies like the ITAC across the Middle East, South Asia and East Africa should start tightening up their import policies now.

There were two telling stories from Vietnam this week that show the level to which demand has been overestimated in the centrally-planned cement sector. Firstly, the country reported that exports in the period between January and July 2014 increased by nearly a quarter year-on-year to 13.1Mt. Secondly, the Prime Minister announced that another five cement plant projects were to be axed, following nine others that bit the dust in 2013.

All this is against a backdrop of chronic lower-than-expected domestic cement demand. When we look at the figures, it’s not hard to see that domestic consumers have had trouble consuming all the cement produced in Vietnam. The government forecast for cement production in 2015 is in the region of 75 - 76Mt. If this was spread evenly between Vietnam’s 88.8m people, each person would have to consume ~850kg of cement. That’s possible but it is quite a lot for a lower middle income economy. However, separate reports state that a 10% rise in domestic sales on 2013 levels would lead to just 60Mt of domestic cement sales in 2015. This equates to a more realistic 675kg/capita.

These figures leave a massive and increasing amount of cement for export. Read again that figure from the first seven months of 2014 – 13.1Mt – Roughly the capacity of South Africa (~12.5Mt/yr), Tunisia (12.9Mt/yr) of Colombia (12.9Mt/yr)! Also, while cement exports volumes were up by nearly a quarter, the value of those same exports rose by only 20%. This indicates a drop in export prices and represents additional pressure to halt capacity expansion.

Against a backdrop of 90Mt/yr expected capacity in 2015 and falling export prices, the latest cement project cull certainly makes sense but even in a best-case scenario the country is looking at a capacity utilisation rate of just 66 - 67%. Some cement plant project owners have even found themselves trapped by the situation. Having indebted themselves on the promise of ever-increasing cement demand, they now face the prospect of throwing good money after bad, continuing to build and operate just to service debts. This is a very unenviable position indeed. The lifting of trade restrictions within the ASEAN Community on 1 January 2015 might help export volumes, but might also also drive prices down further.

Culling new cement plant projects is one thing, but could the next step be more drastic? North of the border, China is gradually reducing its overcapacity by removing older and less efficient capacity. Perhaps Vietnam would do well to follow suit.

A recent BBC television documentary explained the rise of low-cost airlines in the UK in the early 1990s. With news of an independent cement grinding plant in western France doing the rounds this week, we ask could the same revolution happen in the cement industry?

Back in the early 1990s following deregulation in the European aviation industry, smaller airlines took the opportunity to try a different model to the larger national carriers. Taking cost-cutting ideas from the US-based Southwest Airlines (deregulation had occurred earlier in the US) new companies like Ryanair and EasyJet burst into the short haul market, seizing market share and changing people's attitudes to air travel. For example, low to medium income males going on a 'British Gentlemen' stag (bachelor) party to a European destination such as Ayia Napa or Riga would have been unthinkable before the mid-1990s.

Flying passengers around Europe and producing cement are clearly radically different businesses. However, Kercim Cements' objective to produce 600,000t of cement and take a 10% share of the local market near Saint-Nazaire in Loire-Atlantique department of France stands out. With the European cement industry in decline and endless stories about cement exporting nations flooding developing markets, taking a grinding-led business model suddenly sounds considerably more competitive.

In addition, an independent company importing clinker from non-EU countries might also benefit from not being subject to quota allocations of CO₂. This issue was raised from a different angle earlier in 2013, when Irish company Ecocem complained about large cement producers making profits from the EU Emissions Trading Scheme (ETS) despite reduced production.

Thinking around grinding as the model for an industry step-change, one of the presenters at the Global CemTrader conference in May 2013 was Moisés Nunez of Cemengal. He spoke about 'Plug&Grind', his company's low-cost modular grinding plant technology. Essentially, the Spanish company can fit a grinding station into 15 shipping containers and assemble the grinding unit wherever the client can transport it to. Once again, this sounds perfect for a global cement industry that is making too much clinker.

As this column has reported previously, Africa is the ideal target for a low-cost grinding-led business model given its overall high level of demand for cement. Any cement business near the coast has been under intense competition from imports. So much so, that former PPC (Portland Pretoria Cement) head Paul Stuiver stated that any African facility built within 200km of a port was at risk. Could French and other EU-based coastal cement plants also be at risk? With the cost of production and transport on the rise, the low-cost grinding model may even work in Europe. The beauty of the Cemengal system is that it is mobile so that it can follow market opportunity.

As the Economist recently pointed out in a review of the global cement industry, it is an industry dominated by a small number of companies. High cost of entry, high transport costs by road and other factors mean that this is unlikely to change anytime soon. Yet, exports by sea provide some level of increased competition. Both of the grinding projects mentioned above rely on this fact. Let's wait and see what happens.

The news this week that Vietnam's state-owned cement producer, Vicem, has made a first half profit 75% larger than that of the first half of 2011 is a surprising statistic from a country with so much spare cement.

The country has spent most of the past decade building cement plant after cement plant. According to research conducted for the April 2012 issue of Global Cement Magazine, Vietnam now has a cement capacity of over 70Mt/yr! Vicem says that it sold 9.7Mt of cement in the first six months of 2012 and reports that this level represents 44% of its intended production for the year. This makes its 2012 cement production target somewhere in the region of 22Mt.

How much of the non-Vicem cement capacity is being utilised in Vietnam is unknown, but it is certainly too much for Vietnam's current needs. When the country's own government owned cement producer announces that it expects to have 6Mt of cement stockpiled by the end of 2012 (enough to supply the UK for the whole of 2013), it is clear that there is a serious cement surplus. Oversupply has not been met by demand, cement prices are depressed and attempts to export, to countries both near and far, are on the up.

To help curb the problem, one cement plant project has been halted in the past week. The Kinh Bac City Development Share Holding Corp (KBC) has received permission from its state to not build its planned 5Mt/yr plant.

Halting new projects is one way for the country to reduce its overcapacity, but in the short term the industry is looking at exports. While its lengthly coastline makes getting cement to ports for export fairly straightforward, Vietnam is badly located to exploit its current situation in this way. It's proximity to China, which itself is starting to face an oversupply scenario despite its efficiency gains, leaves Vietnam at a cost disadvantage.

As well as there being China on Vietnam's doorstep, many other countries in the region, (Indonesia, Malaysia, Japan, South Korea, Philippines, etc), are also self-sufficient in terms of cement and are able to export extra capacity as necessary. Additionally, East Asian countries have often seen Africa as a good export market but the recent rise of Nigeria as a major producer may reduce this opportunity.

Amid all of these numbers the Vietnam News Brief Service commented that the current oversupply in the socialist state was down to the 'unplanned' construction of cement plants over recent years.

Nigeria: This week has seen a major development in the Nigerian cement industry, with a call from domestic manufacturers to ban cement imports, three months ahead of the government's schedule for the ban. The call has been presented in some quarters as proof that the country, long blighted by high cement imports, has achieved President Goodluck Jonathan's bold target of making Nigeria a net exporter of cement before 2013. In the face of steadily diminishing oil revenues the government would like Nigeria to be known as the regional cement exporter, but what else might happen?

According to the Cement Manufacturers' Association of Nigeria (CMAN), the country's total cement capacity now stands at 22.5Mt/yr. Domestic consumption is estimated at 18.5Mt/yr, translating into a required capacity utilisation rate of 82%. It is bizarre, therefore, that cement producers feel the need to call for an import ban. Perhaps:

a) The producers know that they can't compete with the low cost of imports from outside Nigeria,

b) The producers want to recoup their plant investment costs as quickly as possible,

c) The producers know that they can't export if the country continues to import.

With notoriously poor transport links within Nigeria, option c may be a small factor. If road and rail links are poor, transport costs increase and exports become less desirable for both the supplier and the end-user. What is more likely however, is a combination of a and b. Producers need to recoup their investments but can't if China and India can undercut them from thousands of miles away. If the desire to recoup investments goes unchecked when the import ban comes in, there is a high potential for cartel-like behaviour to surface again in the country.

One does not have to look back far to the last major incident of apparent cement market cartelisation in Nigeria. In mid-2011 President Jonathan had to step in and personally call for a 25% price reduction. His target was hit within three months, but since then prices have slowly started to rise again, even with Dangote's Ibese 6Mt/yr plant coming online just three months ago! With four producers committed to setting up a 3Mt/yr plant each by 2015 in exchange for 2011 import licences, the supply of cement in Nigeria will continue to rise, making the temptation to collaborate even stronger.