Analysis

The mountainous eastern shore of the Adriatic Sea and its hinterlands in Europe’s Balkan Peninsula have one of the world’s highest densities of countries: six, across a broad equilateral triangle of 212,000km². All six states – Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia – are historically characterised by political non-alignment, carrying over from the Cold War period, and all the more notable for the presence of the EU to the north (Croatia, Hungary and Romania) and east (Bulgaria and Greece).

A nine-plant, 9Mt/yr local cement sector serves the 16.8m-strong population of the unconsolidated ‘bloc.’ Albania has 2.8Mt/yr (31%), Serbia 2.7Mt/yr (30%), Bosnia & Herzegovina 1.6Mt/yr (18%), North Macedonia 1.4Mt/yr (15%) and Kosovo 500,000t/yr (6%), while Montenegro has no cement capacity – for now. Altogether, this gives this quarter of South East Europe a capacity per capita of 539kg/yr. The industry consists entirely of companies based outside of the region. Albania’s two plants are Lebanese and Greek-owned (by Seament Holding and Titan Cement Group respectively). Titan Cement Group also controls single-plant Kosovo and North Macedonia, and competes in the Serbian cement industry alongside larger and smaller plants belonging to Switzerland-based Holcim and Ireland-based CRH, respectively. Lastly, Bosnia & Herzegovina’s capacity is shared evenly between Germany-based Heidelberg Materials and Hungary-based Talentis International Construction, with one plant each.

Lafarge Srbija, Holcim's subsidiary in Serbia, announced plans for its second plant in the country, at Ratari in Belgrade, last week. No capacity has yet emerged, but the plant will cost €110m, making something in the region of the country’s existing 0.6 – 1.2Mt/yr plants seem likely. This would give Serbia over a third of total capacity in the Central Balkans and twice the number of plants of any other country there, expanding its per-capita capacity by 22 – 44%, from a regionally low 408kg/yr to 500 – 590kg/yr.

In announcing the upcoming Ratari cement plant, Lafarge Srbija laid emphasis on its sustainability. The plant will use 1Mt/yr of ash from the adjacent Nikola Tesla B thermal power plant as a raw material in its cement production. In this way, it will help to clear the Nikola Tesla B plant’s 1600 hectare ash dumps, from which only 180,000t of ash was harvested in 2023. Circularity has been front and centre of Holcim’s discussions of its growth in Serbia for some time. When Lafarge Srbija acquired aggregates producer Teko Mining Serbia in 2022, the group indicated that the business would play a part in its development of construction and demolition materials (CDM)-based cement and concrete.

Holcim’s Strategy 2025 growth plan entails bolt-on acquisitions in ‘mature markets,’ backed by strategic divestments elsewhere. Other companies have been more explicit about a realignment towards metropolitan markets, above all in North America, at a time when they are also diversifying away from cement and into other materials. Just why a leading producer should look to build cement capacity in Serbia warrants investigation.

Serbia is the only Central Balkan member of Cembureau, the European cement association. In a European market report for 2022, the association attributed to it the continent’s fastest declining cement consumption (jointly with Slovakia), down by 11% year-on-year. Like the rest of Europe, Serbia is also gradually shrinking, its population dwindling by 0.7% year-on-year to 6.62m in 2023, which limits hopes for a longer-term recovery. Serbia remains the largest country in the Central Balkans, with 39% of the total regional population.

Several factors have compounded Serbia’s difficulties as a cement-producing country. Firstly, like the Nikola Tesla B thermal power plant, its kilns run on coal. 50% of this coal originated in Russia and Ukraine in 2021, causing the entire operation to become ‘imperilled’ after the former’s brutal invasion of the latter in February 2022, according to the Serbian Cement Industry Association. In planning terms, this was a case of putting half one’s eggs in two baskets – and dropping them both.

Secondly, Serbia’s choice of export markets is mainly confined to either the EU or global markets via the River Danube, Black Sea and Mediterranean. Either way, it is in competition with a cement exporting giant: Türkiye. Serbia sold €19.7m-worth of cement in the EU in 2023, up by 63% over the three-year period since 2020 – 31% behind Türkiye’s €28.8m (more than double its 2020 figure).¹ One other Central Balkan country had a greater reliance on the EU market: Bosnia & Herzegovina. It exported €48.4m-worth of cement there, quadruple its 2020 figure and behind only China (€133m) and the UK (€54.7) in cement exports to the bloc by value.

Bosnia & Herzegovina’s cement industry underwent a different permutation at the start of 2024: an acquisition, replacing one EU-based player with another. Lukavac Cement, which operates the 800,000t/yr Lukavac cement plant in Tuzla, changed hands from Austria-based building materials producer Asamer Baustoffe to Hungary-based property developer Talentis International Construction. Talentis International Construction belongs to one of Hungary’s major family-owned conglomerates, Mészáros Csoport.

Besides Central Europe, Balkan countries have found a ready source of investments in the past decade in China. In construction alone, Chinese investments total €13.2bn in Serbia, €2.4bn in Bosnia & Herzegovina, €915m in Montenegro and €650m in North Macedonia.² This can be a booster shot to all-important domestic cement markets, but has some risks. Montenegro previously faced bankruptcy after Export-Import Bank of China began to call in an €847m loan for construction of the still upcoming A1 motorway in the country’s Northern Region. This did not put off the Montenegrin government from signing a new memorandum of understanding (MoU) with China-based Shandong Foreign Economic and Technical Cooperation and Shandong Luqiao Group for construction of a new €54m coast road in the Coastal Region in mid-2023.

In Montenegro, UK-based private equity firm Chayton Capital is currently funding a feasibility study for a partly state-owned cement plant and building materials complex at the Pljevlja energy hub in the Northern Region. Along with an upgrade to the existing Pljevlja coal-fired power plant, the project will cost €700m.

In 2026, EU member states will begin to partly tax third-country imports of cement and other products against their specific CO₂ emissions, progressing to the implementation of a 100% Carbon Border Adjustment Mechanism (CBAM) by 2034. Montenegro led the Central Balkans’ preparations for the EU’s CBAM roll-out with the introduction of its own emissions trading system in early 2021. Bosnia & Herzegovina will follow its example by 2026, but other countries in the region have struggled to conceive of the arrangement except as part of future EU accession agreements.

Based on the average specific CO₂ emissions of cement produced in the EU, the World Bank has forecast that exporters to the bloc will be disadvantaged if their own specific emissions exceed 5.52kg CO₂eq/€.³ By contrast, any figure below this ought to offer an increased competitive edge. Albanian cement has average emissions of 4.71kg CO₂eq/€, 15% below ‘biting point’ and 13% below Türkiye’s 5.39CO₂eq/€. Albania’s government consolidated its anticipated gains by quintupling the coal tax for 2024 to €0.15/kg. The figure is based on the International Monetary Fund’s recommended minimum CO₂ emissions tax of €55.80/t, 21% shy of the current EU Emissions Trading Scheme (ETS) credit price of €70.49/t.⁴

The Central Balkans is a region of apparently slow markets and industry growth regardless – to 11 cement plants, following the completion of current and upcoming projects. A recurrent theme of capital expenditure investments and the way investors talk about them may help to explain this: sustainability. Looking at the mix of technologies in the current nine plants, these include wet kilns and fuels lines built for conventional fossil fuels. This is not to presume that any given plant might not be happy with its existing equipment as is. Nonetheless, the overall picture is of a set of veteran plants with scope to benefit from the kind of investments which all four global cement producers active in the region are already carrying out elsewhere in Europe. Such plans may already be in motion. In late 2023, Titan Cement Group’s North Macedonian subsidiary Cementarnica Usje secured shareholder approval to take two new loans of up to €27m combined.

As the latest news from Serbia showed, taking care of existing plants does not preclude also building new ones. The cement industry of the Central Balkans is finding its position in the new reduced-CO₂ global cement trade – one in which old and new work together.

References

1. Trend Economy, ‘European Union – Imports and Exports – Articles of cement,’ 28 January 2024, https://trendeconomy.com/data/h2/EuropeanUnion/6810#

2. American Enterprise Institute, 'China Global Investment Tracker,' 3 February 2024 https://www.aei.org/china-global-investment-tracker/

3. World Bank Group, ‘Relative CBAM Exposure Index,’ 15 June 2023, https://www.worldbank.org/en/data/interactive/2023/06/15/relative-cbam-exposure-index

4. Ember, 'Carbon Price Tracker,' 26 August 2024, https://ember-climate.org/data/data-tools/carbon-price-viewer/

A couple of stories have popped up this week regarding restrictions on cement imports. First, authorities in Taiwan have launched an anti-dumping investigation into Vietnamese cement. Secondly, and perhaps more surprisingly given its growing economy, the authorities in Kyrgyzstan are planning to ban overland imports of cement from within Central Asia. More on that later…

First, to the Far East, where Taiwan’s Trade Remedies Authority has launched an anti-dumping investigation into cement and clinker imported from Vietnam. It will assess imports covering the year from 1 July 2023 to 30 June 2024 and target seven specific Vietnamese cement producers among others. The Vietnamese companies are mandatory respondents – they will be compelled to answer investigators’ questions.

Vietnamese cement has long been among the cheapest in the region due to the country’s drive to hit production targets, rather than simply meeting demand. The situation has resulted in a vast amount of cement available for export. This, coupled to Vietnam’s long, indented coastline, makes it easy to ship cement overseas.

Even with export volumes falling by 1.2% year-on-year to 31.3Mt in 2023, around a third of Vietnam’s capacity, this is a massive volume of cement - and it’s only getting cheaper. The average export value of Vietnamese cement and clinker fell from US$46-48/t at the start of 2023 to just US$31-32/t in May 2024, a decline of 30-35%. These changes have been due, in part, to an increase in tax on clinker exports from 5% to 10% on 1 January 2023 and an anti-dumping investigation launched by the Philippines in March 2023. Falling prices and volumes represent a ‘double-whammy’ for producers, several of which have announced that they made losses in the first half of 2024. Vicem’s top management said that challenges also arose at home due to a reduced demand following limited civil engineering projects and a stagnant real estate market.

It is easy to see why Taiwanese cement producers may feel threatened by the prospect of greater volumes of cheap cement on their doorstep. Taiwan only made 4.9Mt/yr of cement in the first half of 2024. With domestic prices in the region of US$65-70/t according to Cement Network, this provides a very attractive margin of US$33-39/t for Vietnamese producers to export to Taiwan. It will be interesting to see how far the country’s authorities are willing to go to protect the country’s producers and whether any anti-dumping policies lead to further falls in the landed volumes of Vietnamese cement.

Meanwhile, 4600km to the west, Kyrgyzstan has announced that it will enforce a six-month road import ban on several types of cement including Portland cement, alumina cement and slag cement. The ban, affecting both cement and clinker, will take effect on 1 October 2024 and last for six months. According to the State Statistical Committee of Kyrgyzstan, the country saw a 76% year-on-year increase in cement imports – mainly from Iran, Kazakhstan, China and Uzbekistan - between January 2024 and May 2024. The total import volume over the five months was 125,737t. For a country that made just 1Mt over the same period, this is a major change.

The overland import ban is more of a surprise than the Taiwan / Vietnam situation, as Kyrgyzstan recently reported that the North of the country was experiencing a ‘construction boom’ and cement shortages. However, two new plants due to start production in the coming months could help the country out... unless it too would like to export its newly-developed cement production capacity.

And here we arrive at a ‘classic’ impasse. From Pakistani cement in South Africa, to price arguments in West Africa, import bans in Central Asia and Vietnamese cement in Philippines and Taiwan, more and more exporters are finding that their markets are already self-sufficient in cement, with the US perhaps the notable exception. Soon there will be nowhere left for cement to be exported to. Are we at peak cement?

Votorantim Cimentos released its half-year results this week giving us the opportunity to assess how well some of the larger cement producers are doing so far 2024. The general picture from the western multinational cement companies has been one of sluggish sales in the first half of the year but respectable earnings. So, for example, both Holcim and CRH were reporting static sales or revenue but earnings increases of over 10%. Heidelberg Materials and Cemex noted similar situations.

Graph 1: Sales revenue for selected multinational cement producers in the first half of 2024 and the first half of 2023. Source: Company financial reports.

Holcim was keen to play up that its net sales actually rose on a local currency basis. However, its recurring earnings before interest and taxation definitely rose, by 12% year-on-year to €2.33bn. Net sales were down in both North America and Europe, the group’s main two regions, but earnings were strong in both. Sales revenue for cement and aggregates may have been down across the group but earnings were up sharply. No such luck for ready-mixed concrete though, with both sales and earnings down overall. Another trend to watch is that sales and earnings were both up in the group’s Solutions & Products division. This part of the business has been growing due to merger and acquisition activity, and it is nearly the group’s second largest division after Europe.

CRH reported similar things overall. However, it has been busy selling off its Europe-based lime business, finishing the acquisition of its new assets in Texas and buying a majority stake in Australia-based AdBri. Its Americas Materials Solutions division reported both increasing revenues and earnings in the second quarter of 2024, at least, and the acquisitions in Texas helped too. Revenue in its Europe Materials Solutions division fell by 5% on an organic basis and this was blamed on subdued markets in Western Europe and poor weather.

Heidelberg Materials had a tougher time of it in the first half of 2024, with revenue down by 5% to around €10bn. It attributed the falling revenue to decreasing sales volumes across all business lines. It described its second quarter as follows, “The pressure on volumes is largely attributable to prolonged weak activity in the construction industry and adverse weather conditions in individual core markets. Active cost and price management largely offset the impact.” For clinker and cement this was noticed prominently in Europe despite volumes increasing in North America and Asia-Pacific. However, its result from current operations rose slightly. One reason for this appeared to be a ‘significant’ fall in material costs including energy.

Similarly, Cemex’s net sales were flat but its operating earnings were positive. Drilling down between its main geographical markets revealed a strong market in Mexico, a stable one in the US and declines in Europe, Middle East, and Africa (EMEA). In the US Cemex apportioned falls in cement and ready-mix concrete sales volumes to “...difficult weather conditions, a softening residential sector, portfolio rationalisation, competitive dynamics in certain micro markets and timing of several large projects.” Operating earnings were also hit by higher maintenance costs. In its EMEA region the trend was downwards but this was due to volume declines in Western Europe and geopolitical issues in the Middle East.

Votorantim Cimentos’ net revenue and adjusted earnings were down slightly in the first half of 2024 stemming from softer results in North America and Brazil in the first quarter. Revenue in Brazil was flat for the half year after a better second quarter. Revenue in North America though was hit by a slowdown in demand although price rises staved off some of this. Meanwhile, the group’s Europe, Africa and Asia region reported higher revenue due to higher volumes in most places.

Finally, UltraTech Cement is the odd company out in this group. The size of its annual revenue earns it a place in the list but it is more like some of the large China-based cement companies because it mostly sticks to one territory: India in this case. Yet, its revenue rose by nearly 6% to €4.2bn in the first half of 2024, making it the best performer in this article’s grouping. Domestic sales volumes increased at a similar rate in the April - June 2024 quarter. Similar to Heidelberg Materials, UltraTech Cement also reported that its energy costs fell by 17% year-on-year mainly due to reduced fuel prices. Its profit didn’t grow by much especially but the company is racing against Adani Cement to build capacity. It added 8.7Mt/yr alone in the April - June 2024 period compared to 13.3Mt/yr in its entire 2024 financial year that ended in March 2024.

The picture from the companies covered above suggests that the US market may have cooled for some since 2023. Despite this the earnings have mostly held up and cement companies enthusiasm for the market remains high led by Holcim’s impending market spin-off. Europe has been mixed, with declines in the west and stronger markets towards the east. Energy costs have finally fallen following the market shock when Russia invaded Ukraine in 2022 and this is helping earnings. That last point may be universal here given that it has affected both western multinationals and a large regional player such as UltraTech Cement. That’s it for now. In a future week Global Cement Weekly will take a look at how well the large China-based cement companies have done in so far in 2024.

Cemex announced this week that it is preparing to divest its operations in the Dominican Republic for US$950m. At first this seems a little close to home for the Mexico-based company but it felt similar at the start of 2022 when it sold its businesses in Costa Rica and El Salvador to the same company, Cementos Progreso. Readers may also recall that the business press reported, correctly we now know, in mid-2023 that Cemex was seriously considering its options in the Dominican Republic.

The current agreement will see Cemex sell one cement plant in the Dominican Republic along with related cement, concrete, aggregates and marine terminal assets for US$950m. The deal is expected to close towards the end of 2024. Cemex says that it is making the transaction to reduce its exposure to emerging markets and refocus its capital upon priority markets, such as the US. This reasoning is very much in line with its international peers in the building materials sector, which have been doing likewise.

This is the potential biggest divestment Cemex will have made since 2009. It is bigger than the agreement to sell the share of its business in the Philippines, revealed earlier in 2024, for an enterprise value of US$660m. Back in 2000, Cemex sold its Australia-based subsidiary to Holcim for US$1.7bn. Holcim still operates in Australia today via Cement Australia, a joint-venture with Heidelberg Materials. Plus, CRH, one of Cemex’s competitors that has also shown a keen interest in the US market previously, concluded a deal to buy a stake in AdBri in July 2024. Infamously, Cemex took over building products company Rinker in 2007 just as the 2007 - 2008 financial crisis burst. It then spent the next decade-and-a-half reducing its debt levels. In April 2024 it was pleased to announce that it had been awarded full investment grade status by rating agency Fitch Ratings.

Selling up in the Dominican Republic seems curious at first but, as mentioned at the start, we’ve been here before with Cemex’s subsidiaries in Central America and the Caribbean, plus the company has been working on it for at least a year. It is worth noting though that Cemex reopened a second production line at its San Pedro de Macorís site in 2022 giving the plant a cement production capacity of 2.4Mt/yr. That gives the current deal a value of US$380/t based on capacity. Local competitor Domicem also started up a second line at its Sabana Grande de Palenque cement plant in late 2023, demonstrating that other cement companies have also been investing in the market. Cemex’s sales from its business in the country were reasonable in 2023 but its operating earnings were the fourth biggest in the group after Mexico, the US and the UK. In its results for the first half of 2024 the group noted that tourism projects were driving demand in the country.

Graph 1: Mix of sales by region for Cemex, 2019 - 2023. Source: Company reports.

Graph 1 above presents the general way Cemex has been directing its business internationally over the last five years. Sales were roughly half-and-half between Mexico & the US and the rest of the world in 2019. In 2023 the ratio was more like 60:40. Operating earnings have tracked the same way with an even greater emphasis on Mexico and the US. It should be noted though that despite sales revenue being higher in the US, operating earnings remain higher in Mexico.

Pretty much every western international cement company is watching the US market intently right now. So, Cemex’s decision to sell a profitable business in the Dominican Republic to fund further investment in the US makes sense. Although what it might actually want to buy at US prices right now might be a tough call. CRH, for example, paid US$2.1bn in late 2023 to buy the 2.1Mt/yr Hunter cement plant, a network of cement terminals and 20 ready-mix concrete batching plants in South Texas. This was arguably quite a high price. One last point to consider is that the financial press was reporting falls in the global stock markets this week amid fears over the outlook of the US economy. Whatever happens next, at least Cemex is selling rather than buying this time round.

Heidelberg Materials inaugurated a plant near Katowice in Poland this week for separating and sorting demolition concrete. This gives us the chance to catch up with the state of construction and demolition waste (CDW) for the cement and concrete sectors and consider the differences between the strategies of the multinational heavy building materials companies in Europe and the US.

The new CDW recycling unit has a capacity of up to 100t/hr. Heidelberg Materials says that it is the “first company in the industry to introduce high-quality, selective concrete separation at this scale.” The company is using its proprietary ReConcrete process to sort out fractions from the CDW including sand, gravel and, finest of all, recycled concrete paste (RCP). That last one is particularly valuable because it can either be used as an alternative raw material for clinker production by replacing limestone or as a secondary cementitious material. Heidelberg Materials is also promoting the potential use of RCP as a carbon sink over the lifetime of a concrete structure via ‘enforced carbonation.’ The RCP is exposed to raw exhaust gases from cement production allowing it to both mineralise CO₂ and act as a clinker substitute. To further explore this option Heidelberg Materials is building an industrial pilot at its Górażdże plant to test the concept with construction expected by the end of 2024.

Both Holcim and Heidelberg Materials have been visibly busy buying up more aggregate recycling companies over the last nine months since Global Cement Weekly last reported on CDW. Holcim acquired Germany-based Mendiger Basalt in January 2024, Switzerland-based Cand-Landi Group and UK-based Land Recovery in June 2024, and Belgium-based Mark Desmedt in July 2024. It also said at the start of the year that it aimed to conclude 15 - 20 new acquisitions in 2024 with a focus on CDW companies in Belgium, France, Germany and the UK. Heidelberg Materials bought UK-based B&A Group in May 2024 and US-based Highway Materials and Aaron Materials in July 2024. Holcim has set itself a target of recycling 12Mt/yr of CDW by 2030 by using its ECOCycle technology. It reported 8.4Mt/yr in 2023 and hopes to reach 10Mt/yr in 2024.

Some of the recycling companies mentioned above are based in the US but the pace of CDW acquisitions have generally been faster in Europe. In the US, meanwhile, the heavy building materials producers have tended to buy more general aggregates companies. Heidelberg Materials announced on 30 July 2024 that it was buying Albany-based Carver Sand & Gravel. This followed the companies mentioned above and Texas-based Victory Rock, also in July 2024. Holcim said in its first half-year results for 2024 that it had ‘executed’ a bolt-on acquisition in the US that would strengthen its aggregate and ready-mixed concrete business. Cemex also revealed a joint-venture agreement with sand and gravel supplier Couch Aggregates and marine bulk product distributor Premier Holdings in July 2024. It said that the move was part of its “ongoing strategy to accelerate growth in the US and expand its aggregates business.” A big recent deal in the sector was the merger of the US-based operations of Summit Materials and Cementos Argos that completed in January 2024. Although at the time we concentrated on the cement-side of the transaction, it also gave the organisation just under 5Bnt of aggregate reserves.

It may be a stretch to call what’s going on here a trend. Yet the large heavy building materials companies do appear to be acting differently in the US and Europe with regards to aggregate companies and CDW recyclers. The main drivers here are the strength of the US market and the stricter environmental legislation in Europe. Higher population density in Europe compared to the US may also be playing a part in the differences in speed of adoption between the two markets. The ongoing Holcim spinoff demonstrates the differences between the two market regions in bold terms. In short, the company has decided to split itself in two in order to meet the different needs of each market. As for CDW, the trickle of acquisitions keep coming and momentum is steadily building.