Displaying items by tag: market

Madagascar: Oman-based Raysut Cement has shared plans for a US$30m, 0.75Mt/yr clinker grinding plant in Toamasina, Madagascar. L’Express de Madagascar newspaper has reported that Raysut Cement will begin construction in June 2020 and enter production at the facility in mid-2022 at the latest. Raysut Cement Indian Ocean regional director Pascal Naud said, “Madagascar’s pre-capita cement consumption is around 22kg/yr, compared to 125kg/yr on average in sub-Saharan countries. It is therefore a market with high potential for this investment.”

On 2 February 2020 Raysut Cement entered into talks with Switzerland-based Cementia for acquisition of the latter’s 75% stake in the latter’s LH Maldives cement terminal. The group said it is currently ‘developing an external growth strategy by investing in several African countries such as Kenya and Uganda.’

Switzerland: LafargeHolcim has announced a Euro1.95bn profit in 2019, up by 32% from Euro1.48bn in 2018. The profit was a company record, made possible by ‘lower restructuring costs and financial expenses,’ according to LafargeHolcim CEO Jan Jenisch. Sales were Euro25.1bn, up by 3.1% from Euro24.4bn, ‘driven by good growth in Europe and North America, good price dynamics across all business segments and higher prices in most markets,’ according to Jenisch. “We have achieved all our targets for 2019 and have moved our company to a new level of performance,” he said.

Kenya: Devki Group subsidiary National Cement has launched its second Kenyan plant in Salgaa in Nakuru county at a cost of US$58.0m. Business Daily News has reported that the 0.75Mt integrated plant will supply cement to Kenya, South Sudan and southern Ethiopia.

Devki Group chairman Narendra Raval said that the completion of a 0.75Mt/yr second line at National Cement’s 1.2Mt/yr Kajiado County plant would bring the group’s total capacity to 3.5Mt/yr in July 2020, in a speech in which he lobbied the government to ban clinker imports. “We are gearing towards fixing the country’s clinker gap and making Kenya a regional market for raw material in cement production,” said Raval. The group also produces its Simba brand cement in Uganda.

Colombia: Switzerland-based construction materials producer Sika has invested an undisclosed sum in relocating production from a concrete admixture and mortar plant in Colombia to a larger facility in Barranquilla. Sika Americas regional manager Christopher Ganz said, “Our latest investment in Barranquilla will help us capture the potential of the dynamic construction market in the Caribbean region. Our aim is to grow more quickly than the construction market in this region.” The market grew by 15% in 2019.

Sika also manufactures building products for the Colombian market at facilities in Bogotá, Medellín and Duitama.

India: Market researcher Fortune Business Insights has forecasted market growth of 5.2% in the cement industry to US$463bn in 2026 from US$313bn in 2019. It conjectured that global improvements in road quality and investments in high-grade products will drive growing demand. The industry will meet this demand through advances in cement production and a reduction in the number of companies consolidating operations.

In India, the government’s ‘Housing for All by 2020’ scheme is set to kick-start consumption.

Fortune Business Insights' report is available here.

As ever, there have been plenty of news stories from Pakistan recently covering the on-going fallout of the water shortage at the Katas Raj Temples in Chakwal, Punjab and an update on new production line at Maple Leaf Cement’s Iskanderabad plant. The two stories present two sides to the furious pace of the local industry and the potential price this growth might entail.

Graph 1: Cement despatches in Pakistan, 2012 - 2017. Source: All Pakistan Cement Manufacturers Association.

Graph 1 above sets the scene with an industry that has seen total despatches grow by nearly 30% to 42.8Mt in 2017 from 33.1Mt in 2012. About four-fifths of this is based in the north of the county. The big sub-story alongside this is that exports have fallen by half to 4.2Mt in 2017 from a high of 8.3Mt in 2013. The cause of this appears to be a decline in the Afghan market and a similar drop in waterborne clinker exports. Given the higher proportion of exports to the southern market this change has likely hit the industry in south harder despite overall depatches there rising. So far in 2018 similar trends are holding, except for exports, where the clinker export market has rallied significantly in the south.

The background to all this growth domestically is Chinese investment in the form of the China-Pakistan Economic Corridor (CPEC). CPEC-related project include integrated road infrastructure, the modernisation of railways and the development of the city of Gwadar and its related infrastructure. In addition the local Public Sector Development Programme (PSDP) is also having an effect and demographic pressures, such as a housing shortage, are also expected to support the construction market.

Data from the All Pakistan Cement Manufacturers Association (APCMA) placed cement production capacity at 54Mt/yr in September 2018 compared to 66Mt/yr in the Global Cement Directory 2018, which includes new capacity being built. This compares to around 10Mt/yr in the 1995 local financial year to an estimated 73Mt/yr by the State Bank of Pakistan in its third quarter report for 2017 - 2018. This rapid growth can be seen in recent stories such as the Iskanderabad plant expansion, Flying Cement’s mill order from Loesche, Kohat Cement’s mill order also from Loesche, a new solar plant at Fauji Cement at its Attock plant and the commissioning of DG Khan’s new plant at Hub. These stories are all from the last three months! The State Bank of Pakistan estimated that 11 producers hare now investing US$2.12bn on capacity expansions to add over 23Mt/yr by the end of the 2021 financial year.

One potential price for all of this growth is currently being illustrated in the ongoing legal wrangles about the use of water by cement plants near the Katas Raj Temples. What started as an investigation into why water levels were dropping at a pond at a Hindu heritage site seems to have transformed into a full scale inquiry into alleged corruption by local government around the setting up of cement plants. A report by the Punjab Anti-Corruption Establishment Lahore to the Supreme Court has found irregularities committed by government departments in connection to the setting up of cement plants by DG Khan and Bestway Cement in Chakwal. It seems unlikely at this stage that this inquiry will cause too much trouble for the local cement industry but it will certainly make it more complicated and potentially more expensive to st up new plants in the future.

Read Global Cement’s plant report from the DG Khan’s Khairpur cement plant in Chakwal

CRH announced changes to its structure this week. The changes to its divisions follow the rapid growth of the company and may also anticipate the new cement assets it is about to take on-board once its acquisition of Ash Grove Cement completes in the US. Buried in one its regulatory filings covering the news were two graphs of changes in cement demand in the US and Europe through various financial depressions since the 1930s.

Graph 1: Changes in cement demand in US and Europe during financial depressions. Source: CRH with data from US Geological Survey, PCA, United Nations, Morgan Stanley etc.

The graphs serve their purpose for a public company as they show both markets in the current downturn starting to rise again. In other words it looks like the perfect time to invest in a building materials company! However, thinking more broadly the graphs give a timely reminder of how bad the last decade has been for the cement market, particularly in Europe. The period only really compares to the 1930s in decline and duration if the figures are accurate. It must be considered though that while the West has suffered, markets in the East, notably led by China and India, have boomed.

The financial crash in 2008 was precipitated by the US subprime mortgage market. Other potential market killers lie ahead no doubt. One such might be the so-called ‘Carbon Bubble.’ This idea has gained media traction this week with the publication of a paper in the Nature Climate Change journal examining the economic impact of decarbonisation, if or when it happens.

It’s not a new argument but it makes the assertion that as new technologies that replace fossil fuels start to influence the markets, traditional fuel producers like oil companies may face being stuck with ‘stranded’ assets as legislation toughens up and technology mounts. This in turn could cause a financial crash and it’s this aspect that the paper has looked at.

The ace in the hole from the Nature Climate Change paper is that the modelling here suggests a way out of the usual prisoner’s dilemma approach to climate change action. Once sufficiently-low carbon technologies hit a certain level of adoption, then any country holding out and using fossil fuels instead of taking of action may start to suffer economically. Or in other words cheating won’t pay.

The carbon bubble theory is pretty convenient for the climate change lobby as it gives it a financial reason to fight its enemies by targeting investors. One counter argument is realistically how fast and deep would the decarbonisation technologies actually have to be to cause significant financial disruption. Surely the oil producers would get out of risky assets before it was too late. Then again, maybe not.

The cement industry is in exactly the same situation as the oil producers as it too depends on carbon rich assets, in this case limestone, for its business to operate. If limestone assets become ‘stranded’ due to toughened legislation then how can production continue? In addition though, volatility in the fuels and secondary cementitious materials (SCM) markets already being observed from the cement industry may make one wonder about the existence of the carbon bubble. Markets for waste-derived fuels and granulated blast furnace slag are currently changing in the wake of the tightening of Chinese legislation both in and out of the country. In theory this could mean cheaper inputs for cement production but the market is hard to predict. The other classic recent example is how the US natural gas boom from fracking has reduced global oil prices with further effects on the coal and gas that cement producers use. This in turn has placed pressure on various countries that are reliant on their petrodollars and caused pain to their local cement industries, like Saudi Arabia for example. The price of Brent Crude may be rising at the moment but once it hits a certain threshold, the hydraulic fracking of gas wells in the US will resume pumping. Of course both waste inputs and fracking could just be attributable respectively to market distortions by a large country changing policy and a new technology finding its feet.

If the carbon bubble theory carries any weight then CRH’s cement demand graph during recessions may carry a warning to producers about what might happen if decarbonisation leaves the fossil fuel producers behind. With good timing for this theme South Korea’s Ssangyong Cement announced this week that it is close to completing a waste heat recovery (WHR) unit at its Donghae plant, one of the biggest in the world with seven production lines. The interesting detail here is that the WHR unit will work in conjunction with an energy storage system to form a microgrid. This kind of setup is well suited to using energy from renewables as well as from conventional sources like a national electricity grid. In other words, this is exactly the kind of development at a cement plant that might in a small way lessen its reliance on fossil fuels in the face of any potential supply issues.

The 2nd Future Cement Conference and Exhibition looking at how the cement industry can operate in a low- or zero-carbon world will take place in Belgium in May 2019

Votorantim shone a glimmer of hope for the Brazilian cement industry with the release of its first quarter financial results this week. Increased sales volumes in Brazil, Turkey, India and Latin America led to an 11% rise in revenue to US$682m in the period. Admittedly back home in Brazil, most of this came from concrete and mortar sales, but after the slump Brazil’s had they’ll take whatever they can get. This compares to a 14% drop in sales revenue in the same period in 2017 due to falling cement consumption.

Graph 1: Accumulated 12 months local cement sales in Brazil. Source: SNIC.

SNIC, Brazil's national cement industry association, preliminary figures for April 2018 show a similar trend. Cement sales for April 2018 rose by 8.9% year-on-year to 4.35Mt from 4Mt. Sales for the first four months of the year dipped slightly by 0.2% to 16.9Mt although this is an improvement on the first quarter figures showing the benefit a strong April has had. Improvements are driven by growth in the central and southern parts of the country. SNIC’s graph of accumulated sales (Graph 1) definitely shows a slowing trend of decreasing cement sales with April 2018 being the only the second month in over two years where sales have risen.

Paulo Camillo Penna, the president of SNIC, even went as far as to speculate that the three months from April to June 2018 might see the first sustained period of improvement since 2015 and that sales could even grow by 1% for the year as a whole. This is a far cry from Penna’s description of his industry at the start of 2017 as, “One of the worst moments in its history.”

Votorantim reported that some regions of Brazil were starting to show a positive trend in the second half of 2017. Unfortunately it wasn’t enough to stop the cement producer’s overall sales falling for the year. LafargeHolcim didn’t release specific figures for its Brazilian operations in 2017 but it did say that its cost savings programme had, ‘provided for material improvement versus prior year both in recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) and cash flow.’ It reckoned that despite the market contracting, it had managed to increase its market share. Meanwhile, on the supplier side RHI Magnesita said in a first quarter trading update that its cement and lime business was flat due to continuing low capacity utilisation rates in China and Brazil.

If this truly is the end of the Brazilian cement market slump then it seems surprising that there haven’t been more mergers or acquisitions. Mineração Belocal, a subsidiary of Belgium’s Lhoist, said this week that it had purchased L-Imerys, a lime producer that operates a plant at Doresópolis in Minas Gerais. Local refractory producer Magnesita merged with RHI in mid-2017.

The big deal that hasn’t happened is the sale of InterCement, the country’s second largest cement producer. Owner Camargo Corrêa was reportedly selling minority stakes in the company in 2015. Then in early 2017 local press said that it was aiming for a price of US$6.5bn for the whole company with Mexico’s Cemex as a potential bidder. Since then nothing has happened publicly although the initial public offering of InterCement’s Argentine subsidiary Loma Negra in November 2017 for US$954m may have bought Camargo Corrêa the time it needed to wait for the market to improve. Rumours of a public listing of InterCement’s European and African operations have followed.

In its World Economic Outlook in April 2018 the IMF forecast a 2.8% rise in gross domestic product (GDP) in Brazil in 2018. If SNIC’s forecast for 2018 is correct then Camargo Corrêa may have survived the worst of the slump to live to trade another day. The price for InterCement at this point can only rise, as should the prospects of the Brazilian industry.

No consolidation has happened yet in the Saudi Arabian cement industry but exports have started to be announced. Yanbu Cement signed an export deal in March 2018 to despatch 1Mt of clinker and 0.5Mt of cement from one year from 1 April 2018. Prior to that, Al Jouf Cement Company started a contract to export 72.000t/yr to Jordan from late February 2018. Earlier still, Bahrain was expected to benefit from a lifting of cement export tariffs at the end of January 2018.

Its early days yet but some of sort of action is starting to happen about the country’s falling cement sales. If export deals are in the early stages of being set following the lifting of the ban, then local movements of cement have intensified. As Al Rajhi Capital reports in its latest market update, that producers have been forced by low sales and high inventory levels to take action. It says that cement companies have started to sell products in different parts of the country than they do normally leading to a ‘price war’. The financial services and analytical company has pinpointed the central region as the key battleground as company market shares have fallen over the last six months as northern producers have moved in.

Graph 1: Cement sales (Mt) by quarter in Saudi Arabia, 2015 to March 2018. Source: Yamama Cement.

Cement sales fell by 15% year-on-year to 11.8Mt in the first quarter of 2018 from 13.7Mt in the same period in 2017. This is the first time in recent years that sales did not rise from the fourth quarter to the following first quarter. Not a good sign. Despite the bad news, a few producers did mange to increases their deliveries in the first quarter, including Saudi Cement, Hail Cement, Umm Al Qura Cement and United Cement.

Bizarrely, into this sales environment, plans for the long delayed Al Baha Cement cement plant project have re-emerged. The project previously has received coverage at various stages over the years. This time it has reportedly gained a licence to set up the company and it hopes to start tendering for the build in the second half of 2018. The investors may want to leave it a little longer given the current state of the Saudi cement industry.