2 - 3 June 2014
London, UK
Conference review - by Robert McCaffrey, conference convenor
Image gallery for Global CemTrader 2014
The 3rd Global CemTrader Conference and Exhibition has successfully taken place in London, UK.
The conference started with a presentation from conference convenor Robert McCaffrey on the nine mega-trends that will shape the future cement industry. They are; Depopulation and ageing in mature economies (Europe China Russia); Maturation of the global economy and resultant reduction in per-capita cement consumption; A post-boom phase in China resulting in a collapse of cement production and/or a tidal wave of exports; Rise of alternative mega-economies (India Iran Iraq Nigeria Ethiopia Indonesia Pakistan etc); Increased environmental legislation (including CO2 permit costs); Uncertain but probably rising fuel and energy costs - with a continued drive towards alternative fuels and waste heat recovery and captive power plants; Continued reduction of the clinker factor and the rise of alternative non-Portland cements; Increased competition from all other materials and the rise of highly-specified high performance cement to compete against steel wood and plastics in construction applications; and finally the continued effects of unknown unknowns on the global economy - also known as surprises.
Imran Akram of IA Cement gave a presentation on the global cement markets predicting a rise of 3% worldwide but with regional variations. The US will grow strongly, at beyond 6%, driven by the housing market. Highway spending programmes are set to end in September and there is a degree of political horse-trading in order to renew them. Brazil's economic outlook is softening, albeit cushioned by World Cup spending. Argentina has introduced capital controls to prevent money from leaving the economy, causing domestic money to look for new homes for capital growth - home building being a beneficiary. Mexico and Colombia are both showing signs of economic growth of above 3%. In Europe, the UK and Germany are both growing well but France, Italy and Spain are still in the doldrums although Greece may see an increase in cement demand in 2014. Imran suggested that 'pent-up demand' will be unleashed to boost cement consumption in Western Europe. Eastern Europe is starting to see gains after years of decline. In China, Imran suggested that cement demand will grow modestly - 4% in 2014 - leading to a strengthening of cement prices. India's new government may well drive cement demand in the medium-term. In the Middle East Iraq and Qatar will see cement demand growth of over 6% while Saudi Arabia and Turkey are likely to post growth of around 4%. Imran suggested that Egypt will return to growth, posting 2% in 2014. He suggested that Africa will be the 'star performer' worldwide in 2014, with Ghana, Algeria, Kenya and Nigeria all posting cement demand growth rates of above 8%. In Asia, Myanmar, the Philippines, Indonesia, Bangladesh, Pakistan and Malaysia will post robust growth while Thailand, Vietnam and South Korea are currently lagging behind in the growth stakes. Imran commented on the Lafarge-Holcim merger pointing out that the combined company will have an almost perfect spread of global operations distributed throughout the continents. The combined group will have to dispose of around US$6-10bn of assets, meaning that its debts will be radically reduced and allowing it to be more active in mergers and acquisitions. The merger will offer both threats and opportunities to other market participants. Anti-trust authorities may well seize upon the opportunity to create some new competition in domestic markets around the world.
Charlie Zeynel of ZAG International started out by saying that he had just come back from Japan where he had discovered that there is no additional slag to be had: the global cement industry is now facing a real shortage of supplementary cementitious materials (SCMs) with resultant increases in price. In the US, cement industry demand, prices and profitability are increasing: optimism is in the air. Imports will start again in earnest soon: imports from China and South Korea into the Houston market have already started. Charlie pointed out that at its peak the US imported up to 35Mt/yr of cement and he suggested that it will be at this level again in the next few years. A variety of acquisitions are reshaping the US cement industry with Martin Marietta buying TXI and Argos now the fourth largest cement producer in the country - and looking to consolidate its production capacity in the Caribbean as well. McInnes Cement in Quebec will be a new 2.5Mt cement plant that will supply the north east of the US using three or four terminals within two years - with resultant disruption to US markets. Charlie pointed out that between them Lafarge and Holcim control 85-95% of the available ground granulated blast furnace slag in the US - a situation that the anti-trust regulators are likely to act upon. Ternary blends of cement including ash, slag and other SCMs are becoming more common: only the BRIC countries are building new blast furnaces so that the supply of additional slag in the future will be limited. China produces 50% of global slag but the majority is used domestically and is not available to the international markets (ZAG has now cultivated two reliable sources however). On the day of the conference the US announced that around 300 coal-fired power stations are likely to be slated for closure, with 90% of the closures to be completed by 2016 so that the amount of ash that will be available to the cement industry will reduced by around 14Mt or 30% of the current demand. Japan is building new coal-fired power stations so that it is likely to have an excess ash supply in the next few years.
Tony Hadley, consultant but formerly of Blue Circle, Lafarge and Dangote, spoke about how government policies are changing the dynamics of African cement markets. Tony pointed out that practically every African will know the price of a bag of cement, compared to next-to-nobody in the developed world. Cement is a fundamental basic commodity in developing nations and this means that pricing decisions may be taken at a much higher level in government than in other places, often on political grounds. He suggested that Egypt is a difficult country in which to operate due to a mix of energy pricing policies, aggressive cement production license sales and structural overcapacity. There is currently a big shortfall of cement supply in Algeria with high levels of imports required and price control for most operators. New plants and lines are currently being built, partly due to very low energy prices (an instance of government policies distorting the market). All new projects are required to be at least 51% owned by local operators. Tony pointed out that Nigeria is at the tail-end of a 'backwards integration' process whereby cement producers were told to build domestic capacity and were given tax breaks, import bans and 'cheap' gas. The market in Nigeria is now fully-served by domestic capacity with a resultant increase in sales: 'supply creates its own demand.' Government policies have created EBITDA margins for cement of perhaps as high as 60% - a situation that cannot continue indefinitely. Tony suggested that East Africa is suffering from a lack of leadership from the cement industry, leading to an influx of imports and a drop in prices. Ethiopia is currently suffering from an acute overcapacity brought on by a misguided government drive to build new factories and exacerbated by a plethora of smaller plants including Chinese-built shaft kilns. This overcapacity is going to continue for the foreseeable future. In South Africa the government's Black Empowerment policies 'have bankrupted Afrisam - twice,' although Lafarge managed to cope with the policy. Government failure to address ongoing power shortages is leading to problems for the cement industry with no solution currently on the horizon. At the end of the day Tony pointed out that when doing business in Africa, perseverance is the key.
The conference next turned its attention to coal for the cement industry. Janina Lam of Howe Robinson Shipbrokers spoke on global seaborne coal trade and outlook. Indonesia and Australia account for two thirds of global coal exports. Coal trade is expected to increase by around 3.4% in 2014, a lower rate than in previous years. Indonesia will become one of the largest coking-coal exporters worldwide, from a near-zero base in 2009. This was as a result of China becoming a net importer, drawing in exports. Around 60% of all coal trade goes into Asia, with the EU and the Middle East bringing in perhaps 15% each of global coal trade. India's coal imports started to increase rapidly around 2009 with an annual growth rate of around 5% and a demand growth of 25% from 2009-2014. A mild winter in Europe and a severe winter in North America led to lower tonnages being shipped eastwards across the Atlantic. Janina pointed out that the major coal mining region of Russia in Kemerovo lies almost equidistant between Europe and Asia but with very high transport costs in whichever direction the coal is sent. She concluded by stating that over 50% of demand for freight is for iron ore and coking coal so that freight rates for the cement industry are dictated by external factors over which it has no control. Australia and Brazil supply the majority of iron ore, primarily to China on the import side. Freight rates tend to increase through the year with the second half significantly higher than in the first half particularly for Capesize and Panamax. Bulk fleets have been undergoing 'deletion,' so that with global economic recovery, a squeeze on bulk freight capacity may well be on its way.
Jo Gardner of Kiln Fuels Limited (formerly of HeidelbergCement and now acting as a consultant for the company) next spoke about the coal and petcoke market from the point of view of the cement industry. Jo mentioned that HC uses about 8Mt of coal each year in 68 cement plants around the world. HC Trading shipped around 18Mt in 2013, the largest cement industry shipper in that year, handling mainly coal and petcoke. Coal prices dipped down to around $72/t in mid-2013 but have recovered to close to $85/t now as a reflection of demand levels in Europe. When demand is stronger, there is generally a lower level of seasonality in the price. Russian suppliers are currently concerned with low prices for Russian coal into the European and Mediterranean markets. The US shale gas revolution is now old news but it has taken 100Mt out of coal mining production in the last three years in the US. Domestic gas pricing in the US has increased on the back of the super-cold Polar Vortex and coal for export has all but stopped, though Illinois Basin coal is still coming out through the Mississippi. Colombian coal now sets the pricing - together with the role of speculators - while the Russians and South Africans are now just following the price-setting behaviour of others. The global coal market continues to be well-supplied partly because demand side factors such as the mild European winter have depressed demand and prices. Russian infrastructure problems have not gone away and this may become a bottleneck in the future. India's burgeoning coal demand could power the global coal industry - and international trade - for decades. China's coal demand growth is lower than it has been but remains at 8-10% each year, compared to 15-17% previously, fuelling a price war between domestic Chinese producers. Colombian coal and US high-sulphur coal will continue to keep prices low in Europe in the medium term. If China has success in its incipient franking programme then all bets on future coal demand are off: anything could happen. Mid-sulphur petcoke supply is limited and prices are expected to remain steady at mid$70s to mid$80s. Flexibility - in supply, in quality and in type - is and will be the key to future success in fuel purchase and use in the cement industry.
Leigh Phillips of Biehl next spoke about US coal ad petcoke exports and opportunities for the cement industry. Biehl acts as a charterer's agent looking after government compliance, cargo logistics, terminal coordination and shipping preparation. Leigh reiterated that freight prices dipped to their lowest point in recent years during 2012-2013 and have started to rise across the board, as ship owners keep tonnage off long-term charter, partly in order to take advantage of high spot prices. US exports are generally trending downwards, but are still mainly directed towards northern Europe and to the Mediterranean. One US coal producer stated at the start of 2014: "We are seeing a strengthening domestic thermal market in 2014 supported by improved power demand, depleting coal stockpiles and higher natural gas prices. Low natural gas storage levels will need to be rebuilt." US petcoke tends to go to the Med but now also goes to China and to the rest of Asia. Leigh pointed out that a 'midstream' coal import operation can be instituted in fairly short order for a relatively low cost - only tens of millions of dollars, rather than the hundreds of millions that may be required for a land-based coal import terminal.
Moisés Nuñes of Cemengal finished the first day of the conference with a presentation on his company's mobile clinker grinding solution for the cement industry. Cemengal is around 25 years old with 80 employees, is fully-Spanish-owned and now has a turnover of over Euro50m per year. The company's core business is the production of grinding stations for clinker slag and raw meal. The company has a wide range of capabilities including pyro-system upgrades, upgrades of grinding circuits and coolers and full bulk material handling systems. The company can supply projects on both semi-turnkey and on EPC basis. Cemengal is currently building the largest mill in the world for Holcim in Barroso in Brazil. The company also preassembled a fully modularised grinding plant in Spain - using a Gebr. Pfeiffer vertical roller mill - for transport to Port Kembla in Australia to reduce labour costs. The Plug'n'grind system is a containerised mobile clinker grinding system that has been sold to customers around the world and which is now being offered in a larger size: Plug'n'grind XL.
Social evening and second day
On the second day of the conference Koen Coppenholle, Chief executive of Cembureau, spoke about how cement can tackle society's challenges. Koen pointed out that labour costs, energy costs and investment costs are high in Europe. However the European cement industry is a local industry with local raw materials using highly efficient processes and alternative fuels with a strong multiplier effect of spending on cement and which is also a major employer throughout Europe. "If only Europe tries to tackle climate change then it is unilaterally imposing economic constraints upon itself and that is not realistic - It may well lead to 'investment leakage' in the medium to long term." Koen gave a plea for a consistent and predictable legal framework to allow long term investment planning for the European cement industry. He pointed out some of the options for the cement industry to lower its CO2 emission out to 2050, which might include kiln efficiency and altering the fuel mix, clinker substitution and novel cements, transport efficiency, decarbonisation of power and possible breakthrough technologies including carbon capture and storage (CCS). Without CCS the cement industry could reduce its CO2 emissions by around 32% by 2050; with CCS it could be as high as 80%. It has been estimated that by 2050 only 40% of kiln energy may come from traditional sources with 60% coming from alternative fuels (of which 40% would be carbon-neutral biomass). Reducing the Europe-wide clinker ratio from 74% to 70% would lead to a reduction in CO2 emissions of 4% - if ash is still available from the decarbonised power sector. He suggested that a level playing field for access to waste-as-fuel would benefit the cement industry while new regulations promoting the recyclability of building materials would favour the cement and concrete industry. Koen concluded by announcing the Concrete Initiative, a Europe-wide campaign to promote the many sustainability advantages of using concrete.
Stefan Dietz of Holcim next spoke about SCMs or mineral components at Holcim, pointing out that they are one of the central pillars of the company's business model. In 2013 the company had a production capacity of around 213Mt with 138Mt of cement sales with a clinker factor of around 70%. Holcim is strong in Asia and India but weaker in Africa (where Lafarge is notably stronger). Stefan pointed out that flyash is a ready-to-use product which can be mixed in with cement or in concrete without too much further processing: in the US the majority of flyash is used in concrete rather than in cement. Blast furnace slag requires granulation and/or milling to be used in the cement industry, meaning that the owners of the granulators or mills have some more control over supply. GGBFS is typically used at up to around 35% content in cement but can be used at up to 95% in special formulations. Around 1bnt of flyash is produced worldwide each year and around 270Mt of BFS. Other SCMs used by Holcim include air cooled blast furnace slag, steel slag and bottom ash: the company used around 30Mt of SCMs in 2013. Stefan pointed out that SCMs offer the most powerful tool to reduce the clinker factor and to reduce CO2 emissions, often with reduced production cost at low capex and at the same time saving natural resources. He pointed out that durability and workability and other concrete properties can be improved with the use of SCMs so that they actually add value to the product as well as reducing production costs. Stefan pointed out Holcim's continuous shift from OPC production (80% of production in 1995) towards composite cements (80% in 2013). Reducing the clinker factor by 1% reduces CO2 emissions by 6.7-10kg /t cement. Holcim has set aggressive targets for itself to reduce specific CO2 emissions. The construction materials used account for around 20% of the points used to derive the LEED ratings. The one drawback of SCMs is that they impart a lower early strength to concrete. Limestone should not be seen as just an inert filler: in certain circumstances and with certain clinker formulations the limestone component can add strength to the final product. Holcim is in the process of buying the Dirk company - the largest processor of fly ash in India. The golden Gate Bridge in San Francisco used pozzolan cement (with 25% calcined shale) back in the 1920s. CEM III slag cement was used to create the 57-km long Gotthard Base tunnel under the Alps due to its special properties of sulphate resistance. Holcim Switzerland has promoted Flextremo 3R - a self-levelling cement for use in concrete. A combination of flyash and silica fume has also been promoted by Holcim Canada as TerC3. Burned oil shale cement along with limestone and slag has been used to create reduced-carbon cements in Switzerland, known as Optimo and Robusto.
Peter Brennan of STEAG Power Mineral next spoke on European new build coal fired power stations and their impact on global fly ash markets. A number of new coal fired power stations are being built in northern Europe, particularly on the coast of Germany as well as in the Netherlands, in Spain, Slovenia and in the Czech Republic. Many are being commissioned in 2013-2014, with hard coal power production increasing from 23GW to 28GW and an increase in flyash production of around 2Mt/yr. A number of markets in Europe are already saturated with flyash including Benelux, Germany, Poland, Spain, Portugal and Italy. Export-quality flyash totals from the new plants will be at least 1Mt. This may displace flyash that currently travels from Italy to the north of Europe. Closure of 204 coal-fired plants representing 7Mt of flyash production in the US (the closures caused due to the high cost of environmental regulation compliance and the low cost of natural gas due to the franking revolution) may lead to opportunities for European flyash. Increases in flyash demand in areas where there is little or no coal-fired power production such as the Persian Gulf and Scandinavia may also soak up some of the extra flyash production. At the same time, India's demand for energy is being met by construction of coal-fired power stations: flyash production is currently at a level of 150-170Mt but this may increase up to a level of 600Mt/yr by 2031. The Indian government has now mandated that new coal-fired power stations need to achieve 100% flyash utilisation within four years of commissioning. Peter concluded that the volume of flyash shipments should significantly increase as the new coal-fired power stations in northern Europe become operational while movements outside of Europe should also become more common. Flyash from Italy may start to move into the Middle East and even into North Africa. Exports from India in big bags are likely to ramp-up primarily in to east Africa and into Asia. He pointed out that flyash can be produced in the wrong place at the wrong time or be of inadequate quality for economic use in cement or concrete. Flyash in Europe is mostly produced in the winter months and must be stored until it is used by the construction industry in the summer months, potentially involving re-drying the material. Peter mentioned that a stockpile of flyash in Denmark was dug up in 2013 and transported to the US for use as a kiln feed - an instance of landfill mining. Ash beneficiation to reduce unburned carbon can be used to make previously unsuitable ash saleable in the market and also to produce a high carbon fuel product. Flyash logistics and the supply chain will need attention as international tonnages increase.
Rory Gogarty of Holman Fenwick Willan gave the penultimate presentation on legal issues in cement trading and shipping. In a free on board (FOB) contract, the risk of loss or damage to the goods passes to the buyer upon delivery on the ship. In the case of CIF (cost, insurance and freight) delivery the seller is responsible for delivery as well and risk only passes on delivery at the final port. The legal jurisdiction of contracts should be carefully specified in any contracts and Rory suggested that English courts are neutral, unbiased and more or less incorruptible, with much legal expertise available to both parties as well as arbitration options if legal recourse isn't an option. Listeners concluded that the wording of any contract or letter of credit for cement or clinker shipment is of absolutely vital importance.
Global Cement's own web editor David Perilli concluded the conference with a presentation on how social media are changing the cement industry. Social media involve interaction among people in which they create, share or exchange information and ideas in virtual communities. Examples include Wikipedia, Twitter, Reddit and Digg; content sharers like YouTube and Flickr; Facebook; business networking sites such as LinkedIn an Xing; and games and virtual reality sites such as World of Warcraft and Second Life. David pointed out that the Internet - a disruption-proof network - has become a disruptive system that has turned many business models upside down while at the same time being used by anti-state organisations to foment revolution and by states to perform surveillance on their own populations (and others). David mentioned the AFR LinkedIn group on alternative fuels which is a popular venue for cement industry experts to find out more about AF use. The Portland Cement Association in the US uses Twitter extensively and has over 6000 followers: the PCA's Patti Flesher says "Social media lets you reach a audience that you might not normally reach with a different level of engagement." In another example, Lafarge-Tarmac has integrated YouTube videos, a Twitter feed and its Facebook page to create a prize-winning 'mash-up' that Mike Lomax the boss of commercial communications for the company says brings value to the company: "we can justify what we do." On the other hand, international cement and clinker traders polled by David Perilli stated that Facebook and Twitter were not of use, with the 'traders' using them being predominantly frauds and 'phonies.' Activists who are against cement industry projects can also use social media and this can empower the groups well beyond their actual size or level of real support. Global Cement now has over 5000 members of its LinkedIn group, hundreds of Twitter followers and an active YouTube account. David's final conclusion was that social media have not changed the actual process of cement manufacture but that it has had a powerful influence on the soft factors that surround the industry.
At the end of the conference, delegates had a chance to vote for their favourite presentations. Peter Brennan was in third place for his paper on the future of flyash supply in Europe, while Moisés Nuñez was second for his interesting paper on clinker grinding options. However, in first place was Stefan Dietz of Holcim and his paper on the use of SCMs by Holcim.
Delegates rated the conference highly for its programme content and for its excellent networking opportunities. We look forward to meeting again, at the next CemTrader conference!
Delegate comments 2014:
• There were numerous opportunities for networking via speed dating in the coffee and lunch breaks and at the social evening.
• Friendly atmosphere
• Nicely supported by the CemTrader staff
• The quality of the papers and speakers is very good and the conference is a good way to meet people.
• Excellent conference.
• Nice global conference to understand the market scenario and overall outlook in the cement industry.