Analysis

Raysut Cement Company (RCC) announced this week that it is preparing to commission its Duqm grinding plant in late 2021. It follows the news from earlier in September 2021 than Oman Cement Company (OCC) is planning to build a new clinker production line at its Rusayl cement plant.

First some detail on the RCC project. The new US$30m unit will have a production capacity of 1Mt/yr, bringing the company’s total cement production capacity to 7.4Mt/yr. As part of the development process, RCC signed a land lease and Port of Terminal services agreement with the Port of Duqm Company. The new grinding unit is also intended to complement RCC’s expansion and new investments and acquisitions in Oman, Asia and East Africa.

Other relatively recent RCC news include, in 2019, its acquisition of Sohar Cement Company in Oman for US$60m, the announcement of plans to build a new 1.2Mt/yr integrated plant in Georgia for US$200 and a joint-venture deal to establish a 1Mt/yr grinding plant in Somaliland for US$40m. Then in 2020 it obtained a 75% stake in a cement terminal in the Maldives owned by subsidiaries of Holcim, and a project to build a 0.75Mt/yr grinding plant in Toamasina, Madagascar, for US$30m was detailed in the local press. More recently in 2021, China-based Sinoma started building a waste heat recovery (WHR) unit at RCC’s Salalah cement plant, RCC gained certification for some of its cement products for export to the European Union, and the Competition Authority of Kenya granted RCC permission to sell a majority stake in its East African based business.

OCC’s upgrade to its Rusayl cement plant will see it add a new production line and increase the capacity of one of the existing lines. Overall the project will increase the unit’s nominal clinker production capacity to 15,000t/day from 8700t/day at present by adding a new 10,000t/day line and increasing the current Line 3 to 4000t/day from 2700t/day at present. Lines 1 and 2, at 2000t/day and 2700t/day, will then be decommissioned after the new line starts operation. OCC says that the new line, when built, will be the biggest in the country. Scant detail has been released beyond the main vision but the company says it wants to focus on low power consumption, consider using a waste heat recovery unit, increase its fuel efficiency, use alternative fuels and adhere to ‘best’ environmental standards. It has hired PEG Resources, a Switzerland-based engineering consultancy, to conduct a technical study, tendering and contracting as well as supervision of the project execution. The company had also been working towards building a new integrated plant at Duqm. However, this project was put on hold in the first quarter of 2021 pending confirmation of fuel availability and as the Rusayl upgrade took priority.

The Omani cement sector is dominated by OCC and RCC since they own the biggest plants and they have consolidated this by buying competitors and building new plants. Both companies suffered from reduced sales year-on-year in 2019 due to imports from the neighbouring UAE. The government duly implemented anti-dumping measures in 2020 and company revenues recovered that year. However, the coronavirus pandemic then hit, leading to losses at RCC in 2020 although the situation appears to have improved for the company in the first half of 2021. OCC reported continued ‘intense’ price competition between local producers and importers in the same period.

OCC is majority owned by the government via an investment fund. As the recent announcement shows, it has decided to focus on building production capacity domestically. This week’s launch of its Al Burj Cement as a distinctive local product looks like another part of this approach. However, as Bloomberg reported in May 2021, the government was considering selling its stake in the producer and had been in discussions with financial advisors on the matter. By contrast, RCC’s biggest shareholder at the end of 2020 was the Abu Dhabi Fund for Development, with a 15% share. RCC has taken a more international approach, operating an integrated plant in the UAE and focusing on trading and grinding cement around the Arabian and African parts of the Indian Ocean.

Similar to other Gulf States, the building materials markets in Oman are dominated by government spending and the price of oil. Market forecasts predict recovery in the building materials markets in 2021 but in the longer term growth depends on general economic diversification. Oman, like its neighbours, is trying to do this. In this context it is instructive to see that OCC and RCC are pursuing different business strategies.

It’s been a good week for carbon capture in cement production with new projects announced in France and Poland.

The first one is a carbon capture and utilisation (CCU) collaboration between Vicat and Hynamics, a subsidiary of energy-provider Groupe EDF. The Hynovi project will see an integrated unit for capturing CO₂ and producing methanol installed at Vicat’s Montalieu-Vercieu cement plant in 2025. It aims to capture 40% of the CO₂ from the kiln exhaust stack at the plant by using an oxy-fuel method and installing a 330MW electrolyser to split water into oxygen and hydrogen for different parts of the process. The CO₂ will then be combined with hydrogen to produce methanol with potential markets in transport, chemicals and construction. The setup is planning to manufacture over 0.2Mt/yr of methanol or about a quarter of France’s national requirement. The project was put forward under a call for proposals by the Important Projects of Common European Interest (IPCEI) program. Pre-notification of its participation in the program has been received from the French government and it is currently being evaluated by the European Commission. Vicat’s decision to choose its Montalieu-Vercieu plant for this project is also interesting since it started using a CO₂ntainer system supplied by UK-based Carbon8 Systems there on an industrial scale in November 2020. This system uses captured CO₂ from the plant’s flue gas emissions to carbonate cement-plant dust and produce aggregate.

The second new project is a pilot carbon capture and storage (CCS) pilot by HeidelbergCement at its Górażdże cement plant in Poland. This project is part of the wider Project ACCSESS, a consortium led by Sintef Energi in Norway that aims to cut carbon capture, utilisation and storage (CCUS) costs and to link CO₂-emitters from mainland Europe to storage fields in the North Sea. The cement plant part in Poland will test an enzyme-based capture method using waste heat at the plant. Another part of the project will look at how the captured CO₂ can then be transported to the Northern Lights storage facility in Norway including the regulatory aspects of cross-border CO₂ transport. ACCSESS started in May 2021 and is scheduled to end in April 2025. It has a budget of around Euro18m with Euro15m contributed by the European Union (EU) Horizon 2020 fund.

HeidelbergCement also says that the second stage of its LEILAC (Low Emissions Intensity Lime And Cement) project at the Hannover cement plant is part of ACCSESS, with both testing of the larger-scale Calix technology to capture CO₂ and the connected transport logistics and bureaucracy to actually get it to below the North Sea. That last point about Calix is timely given that US-based Carbon Direct purchased a 7% stake in Calix in mid-September 2021 for around US$18m. Whilst on the topic of carbon capture and HeidelbergCement don’t forget that the group’s first full-scale carbon capture unit at Norcem’s Brevik cement plant, using Aker Solution’s amine solvent capture technology, is scheduled for commissioning in September 2024. Another carbon capture unit is planned for Cementa’s Slite plant in 2030 but the proposed capture method has not been announced.

Other recent developments in carbon capture at cement plants include Aalborg Portland Cement’s plan to capture and store CO₂ as part of the Project Greensand consortium. The overall plan here is to explore the technical and commercial feasibility of sequestering CO₂ in depleted oil and gas reservoirs in the Danish North Sea, starting with the Nini West Field. The project is still securing funding though, with an Energy Technology Development and Demonstration Program application to the Danish government pending. However, the Danish Parliament decided in December 2021 to set aside a special funding pool to support a CO₂ storage pilot project so this initiative seems to be making progress. If the application is successful, the consortium wants to start work by the end 2021 and then proceed with an offshore injection pilot from late 2022. How and when Aalborg Portland Cement fits in is mostly unknown but a 0.45Mt/yr capture unit at its Rørdal cement plant is tentatively planned for 2027. There’s also no information on the capture method although Aker Carbon Capture is also part of the Project Greensand consortium. Finally, also in September 2021, Chart Industries subsidiary Sustainable Energy Solutions announced that it had selected FLSmidth to help adapt and commercialise its Cryogenic Carbon Capture carbon capture and storage (CCS) system for the global cement industry.

All of this tells the cynics in the audience that a large international climate change meeting is coming up very soon. Most cement companies will likely want some good news to show off when the 2021 United Nations Climate Change Conference (COP26) dominates the media agenda in November 2021. Other observations to point out include that none of the projects above are full-scale industrial carbon capture installations, most of them are consortiums of one sort of another and that they are all subsidised or want to be. While hydrogen and CO₂ networks get built this seems inevitable. Yet, we’re not at the stage where cement companies just order carbon capture units from a supplier, like they might a new clinker cooler or silo, without the need for long lists of partners. When this changes then carbon capture looks set to flourish.

On a final note, the UK is currently experiencing a shortage of commercially-used CO₂. The reasons for this have nothing to do with the cement industry. Yet consider the constant doom-and-gloom about record global CO₂ emissions and the sheer amount of effort going into reducing this by the projects mentioned above and others. Life has a sense of humour at times.

For a view on the CO₂ sequestration permitting process in the US look out for the an article by Ralph E Davis Associates, in the forthcoming October 2021 issue of Global Cement Magazine

Companhia Siderúrgica Nacional (CSN) Cimentos was confirmed this week as the agreed buyer for Holcim’s Brazilian cement business for US$1.03bn. The deal includes five integrated cement plants, four grinding plants and 19 ready-mix concrete facilities. CSN is now poised to become Brazil’s third-largest cement producer by production capacity after Votorantim and InterCement. Or second place if you believe CSN’s cheeky claims about a competitor’s idle capacity!

Figure 1: Map of cement plants included in CSN Cimentos’ deal to buy LafargeHolcim Brazil assets. Source: CSN Investor Relations website.

CSN originally started out in steel production and this remains the major part of its operations to the present day. In 2020 it reported revenue of US$5.74bn. Around 55% of this came from its steel business, 42% from mining, 5% in logistics and only 3% came from its cement segment. CSN’s path in the cement sector started in 2009 when it started grinding blast furnace slag and clinker at its Presidente Vargas Plant at Volta Redonda in Rio de Janeiro state. It then started clinker production in 2011 at its integrated Arcos plant in Minas Gerais. Not a lot happened for the next decade, publicly at least, as the country faced an economic downturn and national cement sales sunk to a low in 2017. From around 2019, CSN Cimentos then started talking about a number of new proposed plant projects elsewhere in Brazil, dependent on market growth and an anticipated initial public offering (IPO). These included plants at Ceará, Sergipe, Pará and Paraná and expansion to the existing units in the south-east. Then CSN Cimentos agreed to buy Cimento Elizabeth for US$220m in July 2021.

It is worth noting that the Holcim acquisition is subject to approval by the local competition authority. For example, the Cimento Elizabeth plant and Holcim’s Caaporã plant are both in Paraíba state and within about 30km of each other. If approved, this would give CSN Cimentos two of the four integrated plants in the state, with the other two operated by Votorantim and InterCement respectively. CSN also stands to pick up four integrated plants in Minas Gerais from Holcim to add to the one it holds at present. Although this would seem to be of less concern due to the high number of plants in the state.

Holcim has made a point of saying that its divestment in Brazil is part of its strategy to refocus on sustainable building solutions with the proceeds going towards its Solutions & Products business following the Firestone acquisition that completed in early 2021. It has also stated previously that it wants to concentrate on core markets with long term prospects. In this context a major steelmaker like CSN diversifying into cement is a contrast. Both industries are high CO₂ emitters so CSN is hardly moving away from carbon-intensive sectors. Yet the two have operational, economic and sustainability synergies through the use of slag in cement production. This puts CSN Cimentos in company with Votorantim in Brazil and JSW Cement in India, two other steel manufacturers that also produce cement. Whatever else happens at the 26th United Nations Climate Change conference (COP26) in November 2021, it seems unlikely that global demand for steel or cement is likely to be significantly reduced. CSN Cimentos is now going to resume its IPO of shares to raise funds for the Holcim acquisition.

Acquisitions are all about timing. The CSN Cimentos-Holcim deal follows the purchase of CRH Brazil by Buzzi Unicem’s Companhia Nacional de Cimento (CNC) joint-venture earlier in 2021. As mentioned above, the cement market in Brazil has been doing well since it started recovering in 2018. The coronavirus pandemic barely slowed this down due to weak lockdown measures compared to other countries. The current run of sales growth may be tapering off based on the latest National Cement Industry Association (SNIC) figures for August 2021. Rolling annual totals on a monthly basis had been growing since mid-2019 but this started to slow in May 2021. Annual sales will be up in 2021 based on the figures so far this year but after that, who knows? A CSN investors’ day document in December 2020 predicted, as one would expect, steady cement consumption growth in Brazil until at least 2025, based on correlated forecast growth in the general economy. Yet fears of inflation, rising prices and political uncertainty ahead of the next general election in late 2022 may undermine this. InterCement, for example, cancelled a proposed IPO in July 2021 due to low valuations amid investor uncertainty. CSN Cimentos may encounter similar issues with its own planned IPO or face over-leveraging itself when it picks up the tab for LafargeHolcim Brazil. Either way, CSN decided to take the risk on its path to becoming Brazil’s third largest cement producer.

Cementa’s prospects for continued mining limestone in Sweden beyond the end of October 2021 have been looking dubious recently. The subsidiary of Germany-based HeidelbergCement wants to carry on mining limestone at its quarries near its integrated Slite plant in Gotland after 31 October 2021 when its current permits expire. However, the Supreme Land and Environmental Court rejected its renewal application in July 2021 on the grounds that the impact of the quarries on groundwater had not been sufficiently investigated. Then the Supreme Court ruled that it had no basis for appeal at the end of August 2021. This leaves the cement producer hanging on for proposed government plans to make legislative changes to keep limestone mining ongoing for another eight months until mid-2022 and then for whatever scheme the legislators cook up next.

In July 2021 construction multinational Skanska publicly said that it was taking the situation ‘seriously’ because its concrete suppliers had warned it of the impending risk that they would potentially be unable to meet demand in the third quarter of 2022. At the same time the Swedish Construction Federation and related bodies noted that up to 175,000 jobs in construction could be adversely affected with a loss of investment of nearly Euro2bn/month due to the predicted cement shortage. In their view, increasing imports in the short term was unrealistic due to capacity constraints at ports and import terminals. Understandably, the Swedish government has been scrambling to keep the quarries open to protect cement supply and has been accused by both the local press and environmental bodies of circumventing legal norms in the process.

This is not a good situation to be in for either Cementa or anyone who might want to use cement locally in the near future. The cement producer operates both of Sweden’s integrated plants, at Slite and Skövde respectively, with Slite holding around 80% of the company’s production capacity. On its own, the Slite plant alone supplies 75% of the country’s cement, with about another 10 – 15% provided by importer Schwenk Zement. As a whole Cembureau data shows that the country’s market was just under 3Mt/yr in 2020 and stable despite the coronavirus pandemic. A small decline in the residential segment was reported, coupled with a ‘flat’ infrastructure segment, although increased demand from wind farm construction was noted. Cementa stopped production at a third local integrated plant, Degerhamn, in mid-2019 due to low profitability at the site and tightening environmental regulations.

Cementa and HeidelbergCement are putting up a fight by publishing lots of information on Cementa’s website about the permit application process and working towards both solutions in the short and longer term. In early September 2021 Nordkalk signed a deal with Cementa to supply it with limestone. However, as Thomas Lind, the head of cement for HeidelbergCement Northern Europe, pointed out in August 2021, the agreement won’t cover the entire shortfall, nor would it be ideal from logistical or environmental angles. On the opposing side, the Swedish Society for Nature Conservation has joined with the Supreme Land and Environmental Court in opposing the quarry permit renewal along with other environmental groups. Plus the government decision to force through a permit reprieve has also given ammunition to its political rivals.

The argument over Slite’s quarry sums up some of the challenges facing society over continued cement production in a world with ever-tougher environmental legislation. Cement plants are likely to face mounting opposition on environmental grounds but most governments will panic when facing the potential consequences of societies running out of essential building materials. There are many ways to avoid this scenario, such as far greater community and political involvement on the part of cement companies, recognition by governments of the importance of building materials, supporting the development and uptake of concrete made with less Ordinary Portland Cement or switching to higher ratios of other building materials and so on. Yet, without preparation, legislators elsewhere will also find themselves in similar positions to the one the Swedish government is in now.

Slite’s problems have arisen in part over a perceived direct threat to local drinking water, although Cementa says that this is absolutely not the case. Typically, cement plants in similar battles find themselves in opposition to local communities due to the immediate impacts of quarrying or production on water, or due to noise or dust. Yet the hidden consequence of clinker production is significant process CO₂ emissions with resulting global climate change. The particular tragedy in Gotland is that HeidelbergCement is one of the more sustainable-minded cement companies, with investment to match. In June 2021 it announced ambitions to upgrade the Slite plant to become the world’s first carbon-neutral cement plant through bio-based fuel substitution and a carbon capture and storage unit by 2030. This may be eight years away but it is one of very few full scale cement plant carbon capture upgrades that have been promised worldwide.

It’s time for a macroscopic view of the Chinese cement sector this week with the release of the half-year financial results by some of the larger Chinese cement producers. On the national level the picture so far in 2021 has been one of continued recovery from the coronavirus lockdowns at the start of the year and then a slowing market as state controls on real estate speculation started to take effect. However, poor weather in the spring and mounting raw material prices appear to have compounded the effects of the real estate regulations, leading to price falls.

Cement output data from the National Bureau of Statistics of China in Graph 1 shows that local production took a knock in the first quarter of 2020 due to the coronavirus pandemic and this strongly recovered in the same period in 2021. The market recovered fast in mid-2020 and so the year-on-year growth for the second quarter was less in 2021. Output on a monthly basis remained ahead year-on-year from April 2020 and stayed ahead until May 2021. However, output in June 2021 was behind the figure in June 2020 and the figure for July 2021 was behind both July 2020 and July 2019.

Graph 1: Cement output by quarter in China, 2019 – mid-2021. Source: National Bureau of Statistics of China.

The Chinese Cement Association (CCA) was lamenting falling cement prices at the start of July 2021. It blamed the situation on slowing infrastructure development in some regions, increasing government restrictions on real estate development, especially poor mid-year weather and higher input prices such as for steel. China Resources Cement (CRC) expanded upon the point about increasing real estate regulations in its financial results for the first half of 2021 explaining that the Chinese government has been promoting a policy that aims to ensure that “residential properties are not for speculation” including controls on the financing of real estate. Later in mid-August 2021 the CCA reported that prices were recovering in east and central-southern regions although the situation remained poor in Guizhou province with shipments down to 60% of normal levels. Production control measures are expected to be implemented to stabilise the situation.

Graph 2: Sales revenue of large Chinese cement producers in first half of year, 2019 – 2021. Source: Company reports.

On the corporate side the sales revenue from some of the large Chinese cement producers mostly show the usual gap-tooth pattern that coronavirus has created everywhere as the market recovered. Notably Anhui Conch managed to avoid falling sales year-on-year in the first half of 2020. However, the CCA’s observation above about rising input costs is visible in the falling profits of some (but not all) of the companies covered here. For example, Anhui Conch’s net profit fell by 7% year-on-year to US$2.32bn in the first half of 2021. It blamed this on a significant rise in the price of raw coal. CRC also reported falling profits attributable to increased production costs.

CNBM reported an increase to cement and clinker sales volumes of 7.6% to 177Mt and concrete sales volumes by 13.4% to 52Mm³. It noted that, “In the first half of 2021, the national cement market showed the characteristics of high price level fluctuation adjustment.” From January to April 2021 local fiscal policy boosted demand for cement but from May 2021 continuous heavy rainfall and increasing bulk commodity prices slowed infrastructure project development. Anhui Conch’s cement and clinker sales volumes for both production and trading grew by 11.5% to 208Mt. It reported stable market demand in eastern, central and southern regions but noted falling prices in the west.

Looking ahead, two issues, among many, to consider are carbon trading and imports. The former has been coming for a while and was launched formally online nationally in mid-July 2021 for the power generation industry. The carbon price was nearly Euro7/t in late July 2021 in China compared to around Euro53/t in the European Union. Cement and steel are expected to join the Chinese national scheme in the next phase although analysts believe that issues such as data gathering, permit allocation rules, accounting standards, sector reduction targets and related financial support all need to be improved before this can happen. Imports are a connected issue and it has been interesting in recent months to hear financial analysts point out the risks, for example, of major exporting nations such as Vietnam relying on China so much. The CCA reckons that China imported 33.4Mt of clinker in 2020, an increase of 47% year-on-year, with 60% of this derived from Vietnam. With the Chinese government trying to tackle cement production overcapacity and meet growing environmental targets, imports look set to become a ‘hot ticket’ issue. In this context it is telling to see talk from the CCA of ensuring standards for imports such as verified carbon emissions. Naturally, the imports that could be trusted the most will probably be the ones from plants that Chinese cement producers have built themselves overseas. As waste importers into China found out previously, relying heavily on one market with strong state controls carries considerable risks. Cement exporters in South-East Asia take note.