Analysis

This week’s Virtual Global CemPower Seminar included an assessment on how interventions in European power markets might affect efforts to decarbonise industry. The presentation by Thekla von Bülow of Aurora Energy Research outlined how different countries in the European Union (EU) were implementing the forthcoming electricity price cap on ‘inframarginal’ producers to 180Euro/MWh. Each of these different proposals will entail differing levels of structural change to the wholesale energy market. For example, the Agency for the Cooperation of Energy Regulators (ACER) has recommended establishing a series of frameworks including a stronger focus on Contracts for Difference (CfD) schemes to promote renewable energy sources.

These changes are a consequence of the EU’s response to the Russian invasion of Ukraine. Gas prices surged and then pushed up other energy prices in turn to record levels. As this column covered in September 2022, the price of electricity shot up in the summer of 2022 whilst at the same time Russian gas imports ceased. Cembureau, the European Cement Association, called for urgent action to be taken to support cement production due to large increases in the cost of electricity. For example, in its latest overview of the German cement industry, the German Cement Works Association (VDZ) said that the sector has an electrical consumption of 30TWh/yr. Clearly energy policy is of great interest to the industry.

Since then, in late September 2022, Heidelberg Materials’ chief executive officer Dominik von Achten told Reuters that his company was preparing to shift production at its Germany-based plants to times and days when power prices are lower including at the weekend. However, this was dependent on negotiations with the unions. Von Achten also warned of plant closures being a possibility. Then, in November 2022, it emerged that Zementwerk Lübeck’s grinding plant in northern Germany had reportedly been only operating its grinding plant at night and at the weekend due to high electricity prices. Also in November 2022 European energy news provider Energate Messenger reported that Heidelberg Materials was preparing its cement plants in Germany with emergency backup power to keep critical services running in the case of electricity power cuts. One view from the outside came from equipment supplier FLSmidth’s third quarter results where it noted it had, “...started to see the first cases of budget constraints imposed by customers to counter the increasing energy cost. A high utilisation is still driving service activity in Europe, but some customers have put large capital investments on stand-by and we have experienced a slowdown in decision-making processes.” On the other hand it also pointed out that this trend is driving sales of products that helped reduce energy usage and/or switch to alternative fuels.

On the financial side, Holcim reiterated in its half-year report that, on the country, level the group uses a mixture of fixed price contracts, long-term power purchase agreements, on-site power generation projects and increased consumption of renewable energy at competitive prices to reduce the volatility from its energy bills. Both Cemex and Heidelberg Materials said similar things in their third quarter results conference calls. Cemex said that nearly 70% of its electricity requirements in Europe were fixed in 2022 with nearly 30% fixed for 2023. It went on to reveal that around 20% of its total costs for cement production in Europe derived from its electricity bill. Interestingly, it added that a higher proportion of its electricity costs in Germany were fixed than elsewhere in Europe, due to the use of a waste-to-electricity system owned by a third party that is fed with refuse-derived fuel (RDF), but that it was more exposed to floating fuel rates in Spain. Heidelberg Materials added that it supported energy price caps in both Germany and the EU whether they affected it directly or not.

So far it has been a mild start to winter in Europe. This may be about to change with colder weather forecast for December 2022. This will stress test the EU’s energy saving preparations and in turn it could force the plans of industrial users, such as the cement sector, to change. Some of the cement producers have commented on the financial implications of rising fuel costs but they have been quieter publicly about how they might react if domestic consumers are prioritised. Plant shutdowns throughout cold snaps are the obvious concern but it is unclear how likely this is yet. The variety of energy policies between fellow member states, their own supply situations and the differences between cement plants even in the same country suggest considerable variation in what might happen. If large numbers of cement plants do end shutting throughout any colder periods, then one observation is that it will look similar to winter peak shifting (i.e. closure) of plants in China. The more immediate worry in this scenario though is whether these plants actually reopen again.

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CRH released its third quarter trading statement this week and the results were rosy, especially when compared to its peers in the cement business. Double digit growth in both sales revenue and earnings was reported for the nine month period so far in 2022. The company’s figures mainly attributed this to growth in its Americas Materials and Building Products divisions, although the presentation in its trading update took care to point out that the Europe Materials division had reported growth in the first half of 2022 only for it to run into a slowdown in the third quarter as energy prices increased. Even this wasn’t as bad on a like-for-like basis, with only earnings down in the third quarter in Europe. Chief executive officer Albert Manifold summed it up as follows: “This performance reflects the resilience of our business and the benefits of our integrated and sustainable solutions strategy.”

Manifold’s focus on integrated products was unsurprising given that the group has spent US$3bn in the year to date on businesses that make these kinds of things. These acquisitions have been added to its Building Products division adding to its already strong growth so far in 2022. The big one was the US$1.9bn deal to buy Barrette Outdoor Living, a US-based retailer and distributor of residential fencing and railing products. This was completed in July 2022. Other so-called bolt-on investments in 2022 have reached a total of US$1.1bn for 20 companies including Calstone, Hinkle, Rinker and Normandy in outdoor living, road and critical utility infrastructure sectors.

At the same time the group divested its architectural glass Building Envelope business for an enterprise value of US$3.8bn to private equity company KPS Capital Partners. That deal was completed in May 2022. On a smaller scale, it is also worth noting that Thomas Gruppe announced in early November 2022 that it had signed a purchase agreement to buy Opterra Zement and Opterra Beton. This includes the integrated Karsdorf cement plant, the decommissioned Sötenich grinding plant and the Neufahrn ready-mix concrete plant. However, there was no mention by Thomas Gruppe of the integrated Wössingen plant operated by Opterra Wössingen. Neither Opterra or CRH appears to have commented on this publicly yet though.

How CRH tweaks its business portfolio is interesting in comparison to the other cement companies. As Global Cement Magazine has covered recently, Holcim is bulking up a fourth business in light building materials and Cemex, Heidelberg Materials and others are similarly diversifying away from cement production to various degrees. CRH has generally held a more mixed portfolio away from the heavy materials trio of cement-concrete-aggregates over the last decade. However, it concentrated more on heavy materials when it picked up assets divested in the merger of Lafarge and Holcim in 2015. Since then it has been steadily pulling out of developing markets and focusing on North America and Europe. So, to see CRH moving out of the building envelope sector at the same time as Holcim and others dive in is a clear difference in approach.

The other point to highlight is that Manifold links sustainability to the group’s integrated products plan in his quote above. Earlier in 2022 the company revealed a new 25% reduction target in absolute CO₂ emissions by 2030, that has been certified by the Science Based Targets initiative (SBTi), and a continued goal of becoming net-zero by 2050. It clearly takes sustainability seriously as Manifold was also previously the president of the Global Cement and Concrete Association when it was set up in 2018. Other indicators include the company’s use of an internal carbon price as indicated in its 2021 sustainability report. It also mentioned here that 43% of its direct CO₂ emissions were covered under an emissions trading scheme. One implication here is that focusing on doing business in developed markets means that the group has to take its CO₂ emissions seriously, as legislators in these places do too.

CRH is one of the largest building materials companies in the world and its cement business has grown and shrunk a little over the last decade. Despite this it remains in the top 10 of cement producers globally based on production capacity. Its purview of multiple markets in building materials continues to make it a company to watch as the more traditional heavy materials cement companies adjust their own product portfolios.

The Infrastructure Development Company in Bangladesh announced this week that it had agreed to loan Crown Cement US$25m to help it add a new mill to its cement grinding plant at Munshiganj, south of Dhaka. If completed it will be the plant’s sixth mill. Originally known as MI Cement the plant has a production capacity of 3.3Mt/yr and the most recent mill was added in 2017. The plan to add a sixth mill dates back to 2019 but was revised in 2021 with a total investment of US$90m. Securing a loan marks a significant step forward for the project.

The timing to expand a cement plant in Bangladesh is interesting given the problems facing the local cement sector. In August 2022 Mohammed Alamgir Kabir, the president of the Bangladesh Cement Manufacturers Association (BCMA), told the Daily Star newspaper that cement producers were facing both falling investment in infrastructure development and private projects. The local cement industry imports 90% of the raw materials it uses and most of the country’s cement plants grind cement use imported clinker. However, the aftermath of the coronavirus pandemic created supply chain problems leading to higher costs of raw materials, dearer transportation charges and started to push up global energy prices. This was then exacerbated by the Russian invasion of Ukraine in February 2022 and negative currency exchange effects as the Bangladeshi Taka fell in value against the US Dollar. In words echoing cement associations in other parts of the world, Kabir suggested that cement producers now faced the option of either continuing to raise prices or simply shutting down production.

The local cement production capacity utilisation rate appears to be around 56% based on data from a recent feature in the Financial Express newspaper. It placed total production capacity at 83Mt/yr from 37 active plants but demand at only 47Mt/yr. This is similar to the reported utilisation rate of 54% back in 2017 from a total production capacity of 50Mt/yr. Data from the Bangladesh Bureau of Statistics (BBS) suggests that cement production picked up in 2021 but then declined on a monthly year-to-date basis between December 2021 and February 2022. However, the BBS only reports production from a sample of plants. Masud Khan, the chief advisor to Crown Cement and its former chief executive officer, placed the cost of all that unused capacity at US$40/t or something like an investment of US$1.46bn for idle manufacturing potential. In his view, the larger local producers forecast an increase in demand around five to 10 years ago and invested accordingly to avoid losing market share. However, some smaller companies may also have done the same.

The local sector has likely been able to cope with a relatively low capacity utilisation rate previously because it was ‘grinding heavy.‘ How the current problems have shown themselves on cement company balance sheets has been mixed though. LafargeHolcim Bangladesh’s sales revenue and profit grew by 8% year-on-year to US$166m and 7% to US$32.2m in the nine months to September 2022. It was probably able to do this, in part, due to the fact that it operates one the few integrated plants in the country and it has direct access to limestone reserves across the border in India. By contrast, HeidelbergCement Bangladesh’s sales fell by 3% year-on-year to US$90.7m in the first six months of 2021 and it made a loss of around US$2m. Aramit Cement’s revenue fell by 60% year-on-year to US$6.09m in the nine months to March 2022 and it reported a loss. Premier Cement Mills increased its revenue by 5% to US$99m in the same period, although its net profit dropped by 91% to US$387,000. Crown Cement’s revenue rose by 16% to US$13m but its net profit fell by 81% to US$1.32m.

Geopolitics, high energy prices and local problems are all combining to make life difficult for cement producers in Bangladesh. As the market adjusts to the current situation the determining factor here is likely to be the cost of grinding cement to end users versus just importing cement directly. Current conditions do not seem to be stopping Crown Cement though nor LafargeHolcim Bangladesh. The latter, for example, launched a new blended cement product, Supercrete Plus, earlier in November 2022. One way out for the others might be explore exports and the BCMA suggested just that to the government over the summer, although this doesn’t seem like the most obvious solution for a country that imports so much of its raw materials.

Readers may have noticed the 2022 United Nations Climate Change Conference (COP27) is currently taking place at Sharm El Sheikh in Egypt. Many of the cement companies, suppliers and related associations are present at the annual jamboree and getting stuck in. For example, Holcim’s chief sustainability officer Magali Anderson was scheduled on 8 November 2022 to discuss solutions to decarbonise the built environment at the event’s Building Pavilion, Cemex’s chief executive officer Fernando A González took part in the First Movers Coalition (FMC) panel, FLSmidth is down for a number of talks and both the Global Cement and Concrete Association (GCCA) and World Cement Association are busy too.

Stone cold progress, if any, from the conference is yet to emerge although there is still time given that the event runs until 18 November 2022. No doubt some sort of ‘big message’ style international commitment or plan will emerge from the haggling. However, on the cement sector side, the biggest story so far has been the FMC plan for some of its members to procure at least 10% near-zero cement and concrete for its projects by 2030. Both Holcim and Cemex were founding members of the collation of companies that intend to use their purchasing power to support sustainable technologies in hard to abate sectors. Commitments for the aviation, shipping, steel and trucking sectors were set at COP26 in Glasgow, aluminium and CO₂ removal followed in May 2022 and chemicals and concrete were scheduled for November 2022. The latter has started to happen with the formation of the FMC’s cement and concrete group. Companies involved include ETEX, General Motors, Ørsted, RMZ Corporation and Vattenfall. Of these, Sweden-based energy producer Vattenfall has publicly said it is going for the 10% near-zero cement and concrete target by 2030.

Table 1: Net CO₂ emission intensity (kgCO2/t) for cement production at selected large cement producers.

While we wait for more announcements to escape from Sharm El Sheikh it might be worth reflecting upon one of the targets some of the cement companies have set themselves for 2030. Table 1 above compares the net CO₂ emission intensity for cement production at some of the large cement producers. It doesn’t tell us much, other than that the CO₂ emission intensity for these companies was in the region of 550 - 600kgCO₂/t of cementitious material in 2021. This compares to 580kgCO₂/t in 2020 for the GCCA’s Getting the Numbers Right (GNR) data for the companies it covers. The companies featured in Table 1 are all aiming – or appear to be aiming – for 475 - 525kgCO₂/t by 2030. This may not sound like much but it has and will require hard work, innovation, investment and risk on the part of the cement producers. This is also before carbon capture, utilisation and/or storage (CCUS) units will have been built at most cement plants. Yes, until the CO₂ emission intensity goes to down to zero, if cement production volumes keep rising sufficiently then total gross CO₂ emissions from the cement industry will also increase. Yet, gross CO₂ emissions from cement production are likely to peak sometime between now and 2030 if they haven’t already.

One sobering fact to end with is that 1990 is now further in the past than 2050 is in the future. If you can remember George Bush Sr as US president or you saw the film Goodfellas at the cinema then that’s the amount of time we have left to reach net zero. The global economic shocks of the post-coronavirus period and the war in Ukraine are stressing the world’s climate targets more than ever before. Let’s see how COP27 reacts to this. So far though, serious commitments to using low-carbon cement and concrete from big companies are a useful step to entrenching these products in the market.

In Australia and New Zealand, four producers operate a total of six integrated cement plants, with another 13 grinding plants situated in Australia. This relatively small regional cement industry has been on a decades-long trajectory towards ever-greater sustainability – hastened by some notable developments in recent weeks.

Oceania is among the regions most exposed to the impacts of climate change. In Australia, which ranked 16th on the GermanWatch Global Climate Risk Index 2021, destructive changes are already playing out in diverse ways.¹ Boral reported 'significant disruption' to its operations in New South Wales and southeast Queensland due to wet weather earlier in 2022. This time, the operational impact was US$17.1m; in future, such events are expected to come more often and at a higher cost.

Both the Australian cement industry and the sole New Zealand cement producer, Golden Bay Cement, have strategies aimed at restricting climate change to below the 2° scenario. Golden Bay Cement, which reduced its total CO₂ emissions by 12% over the four-year period between its 2018 and 2022 financial years, aims to achieve a 30% reduction by 2030 from the same baseline. The Australian Cement Industry Federation (CIF)'s 2050 net zero cement and concrete production roadmap consists of the following pathways: alternative cements – 7%; green hydrogen and alternative fuels substitution – 6%; carbon capture – 33%; renewable energy, transport and construction innovations – 35% and alternative concretes – 13%, with the remaining 6% accounted for by the recarbonation of set concrete.

Australia produces 5.2Mt/yr of clinker, with specific CO₂ emissions of 791kg/t of clinker, 4% below the global average of 824kg/t.² Calcination generates 55% of cement’s CO₂ emissions in the country, and fuel combustion 26%. Of the remainder, electricity (comprising 21% renewables) accounted for 12%, and distribution 7%. Australian cement production has a clinker factor of 84%, which the industry aims to reduce to 70% by 2030 and 60% by 2050. In New Zealand, Golden Bay Cement's main cement, EverSure general-purpose cement, generates CO₂ at 732kg/t of product.³ It has a clinker factor of 91%, and also contains 4% gypsum and 5% added limestone.

Alternative raw materials

Currently, Australian cement grinding mills process 3.3Mt/yr of fly ash and ground granulated blast furnace slag (GGBFS). In Southern Australia, Hallett Group plans to commission its upcoming US$13.4m Port Augusta slag cement grinding plant in 2023. The plant will use local GGBFS from refineries in nearby Port Pirie and Whyalla, and fly ash from the site of the former Port Augusta power plant, as well as being 100% renewably powered. Upon commissioning, the facility will eliminate regional CO₂ emissions of 300,000t/yr, subsequently rising to 1Mt/yr following planned expansions. Elsewhere, an Australian importer holds an exclusive licencing agreement for UK-based Innovative Ash Solutions' novel air pollution control residue (APCR)-based supplementary cementitious material, an alternative to pulverised fly ash (PFA), while Australian Graphene producer First Graphene is involved in a UK project to develop reduced-CO₂ graphene-enhanced cement.

Golden Bay Cement is investigating the introduction of New Zealand's abundant volcanic ash in its cement production.

Fuels and more

Alternative fuel (AF) substitution in Australian cement production surpassed 18% in 2020, and is set to rise to 30% by 2030 and 50% by 2050, or 60% including 10% green hydrogen. In its recent report on Australian cement industry decarbonisation, the German Cement Works Association (VDZ) noted the difficulty that Australia's cement plants face in competing against landfill sites for waste streams. It described current policy as inadequate to incentivise AF use.

Cement producer Adbri is among eight members of an all-Australian consortium currently building a green hydrogen plant at AGL Energy’s Torrens Island gas-fired power plant in South Australia.

Across the Tasman Sea, Golden Bay Cement expects to attain a 60% AF substitution rate through on-going developments in its use of waste tyres and construction wood waste at its Portland cement plant in Northland. The producer will launch its new EcoSure reduced-CO₂ (699kg/t) general-purpose cement in November 2022. In developing EcoSure cement, it co-processed 80,000t of waste, including 3m waste tyres. The company says that this has helped in its efforts to manage its costs amid high coal prices.

Carbon capture

As the largest single contributor in Australia's cement decarbonisation pathway, carbon capture is now beginning to realise its potential. Boral and carbon capture specialist Calix are due to complete a feasibility study for a commercial-scale carbon capture pilot at the Berrima, New South Wales, cement plant in June 2023.

At Cement Australia's Gladstone, Queensland, cement plant, carbon capture is set to combine with green hydrocarbon production in a US$150m circular carbon methanol production facility supplied by Mitsubishi Gas Chemical Company. From its commissioning in mid-2028, the installation will use the Gladstone plant's captured CO₂ emissions and locally sourced green hydrogen to produce 100,000t/yr of methanol.

More Australian cement plant carbon capture installations may be in the offing. Heidelberg Materials, joint parent company of Cement Australia, obtained an indefinite global licence to Calix's LEILAC technology on 28 October 2022. The Germany-based group said that the method offers effective capture with minimal operational impact.

Cement Australia said “The Gladstone region is the ideal location for growing a diverse green hydrogen sector, with abundant renewable energy sources, existing infrastructure, including port facilities, and a highly skilled workforce." It added "The green hydrogen economy is a priority for the Queensland government under the Queensland Hydrogen Industry Strategy.”

Logistics

Australian and New Zealand cement facilities' remoteness makes logistics an important area of CO₂ emissions reduction. In Australia, cement production uses a 60:40 mix of Australian and imported clinker, while imported cement accounts for 5 – 10% of local cement sales of 11.7Mt/yr.

Fremantle Ports recently broke ground on construction of its US$35.1m Kwinana, Western Australia, clinker terminal. It will supply clinker to grinding plants in the state from its commissioning in 2024. Besides increasing the speed and safety of cement production, the state government said that the facility presents 'very significant environmental benefits.'

Conclusion

Antipodean cement production is undergoing a sustainability transformation, characterised by international collaboration and alliances across industries. The current structure of industrial and energy policy makes it an uphill journey, but for Australia and New Zealand's innovating cement industries, clear goals are in sight and ever nearer within reach.

References

1. Eckstein, Künzel and Schäfer, 'Global Climate Risk Index 2021,' 25 January 2021, https://www.germanwatch.org/en/19777

2. VDZ, 'Decarbonisation Pathways for the Australian Cement and Concrete Sector,' November 2021, https://cement.org.au/wp-content/uploads/2021/11/Full_Report_Decarbonisation_Pathways_web_single_page.pdf

3. Golden Bay Cement, 'Environmental Product Declaration,' 12 May 2019, https://www.goldenbay.co.nz/assets/Uploads/d310c4f72a/GoldenBayCement_EPD_2019_HighRes.pdf