Analysis

Rwanda’s newest cement grinding plant is set to start commissioning at a great time. Last week Milbridge Group subsidiary Prime Cement said that its 0.6Mt/yr grinding plant in Musanze, Northern Province was preparing to start up in August 2020. This week the main local producer, Cimerwa, announced that it was setting standardised cement prices in an attempt to control speculation in the market following a shortage. According to local press, spikes in prices have been caused by an urgent supply tender from the Ministry of Education, which has started a large-scale project to build over 20,000 classrooms. Prime Cement is unlikely to make a difference to this particular shortage but its timing is spot on.

Graph 1: Cement production capacity/population of East African countries. Source: Global Cement Magazine & Global Cement Directory 2020.

Cement price surges in land-locked African countries crying out for construction materials are not new but it’s always illuminating to review how the situation is changing. Rwanda’s sole 0.6Mt/yr integrated plant is run by Cimerwa, a subsidiary of South Africa-based PPC, near Bugarama in the south-west of the country, close to the borders with Democratic Republic of the Congo (DRC) and Burundi. The new grinding plant is located in the north-west near the borders with DRC and Uganda. It will join another grinding plant run by Kenya’s ARM Cement at Kigali.

PPC’s operation in Rwanda has performed well in comparison to a poor market back home in South Africa. For its financial half year to September 2019 Cimerwa reported revenue growth of 28% year-on-year to US$31.2m due to a 20% increase in sales volumes. Earnings rose even more in percentage terms due to higher volumes and an improved cost per tonne performance, likely due to a debottlenecking project. More recently, PPC said that its operations in Rwanda were disrupted in April 2020 due to a coronavirus lockdown that started in late March 2020. It partially resumed operations in the second half of April 2020 with cement sales volumes for the month expected to be 15 - 20% of those in April 2019. The other point of note is that the Rwandan government was trying to sell its minority share in Cimerwa in mid-2019 but nothing has been publicly announced since then. However, Cimerwa was reported as being in the process of listing on the Rwanda Stock Exchange in May 2020.

Rwanda’s other grinding plant at Kigali has had problems with its parent company in Kenya. ARM Cement went into administration in mid-2018 and its assets have gradually been sold off since then amidst legal wrangling. It has also had ongoing operational issues with interrupted production due to clinker and coal shortages caused by import issues with Tanzania. An attempt to sell the 0.1Mt/yr grinding plant in September 2018 failed when an auction didn’t even reach one tenth of the estimated market value of US$1.4m. The plant was still reportedly on sale in May 2020.

The new Prime Cement grinding plant will have a production capacity of 0.6Mt/yr. It has been supplied by Germany-based Loesche, who installed a Loesche Jumbo CCG (Compact Cement Grinding plant) with mill type LM 30.2. The project has been reported to have a cost of around US$65m. A second phase was also mentioned at the time of the initial announcement that might include upgrading the grinding plant to a fully-integrated one at a later stage. Time will tell. In the meantime though it will be interesting to see whether the new plant has the same raw material issues that ARM’s Kigali Cement has had. One potential source of clinker is the integrated Hima Cement at Kasese in Uganda. Bamburi Cement reported in May 2020 that its Hima Cement subsidiary in Uganda was unable to ‘access’ the market in Rwanda in 2019 due to ongoing trade problems across the Rwanda-Uganda border.

Rwanda’s cement consumption has been reported to be 0.7Mt/yr so a new combined national production capacity of 1.4Mt/yr seems likely to create significant exports. Other countries in the region have also noticed what’s going on in Rwanda and want to do likewise. In June 2020 DRC’s Industry Minister Julien Paluku talked up plans of reviving the 0.3Mt/yr state-owned National Cement Plant (CINAT) in Kimpese. He noted that DRC has been partly reliant on cement produced by Cimerwa in Rwanda, which has been serving a combined demand of 900,000t/yr in DRC and Burundi.

A statistic that received a fresh airing this week was one from the World Bank in 2016 that worked out that the price of cement in Africa was on average 183% higher than the global average. It popped up in a news article about the expanding Nigerian cement industry but it applies to the whole continent. While it continues to hold true, exports will boom and plants will keep being built in the places that exports can’t reach.

Data is starting to emerge from South American countries for the first half of 2020 and it’s not necessarily what one might expect. Countries had different trends in play before the coronavirus pandemic established itself and then governments acted in their own ways with mixed results. Here’s a brief summary of the situation in the key territories.

Graph 1: Cement sales in selected South American countries in first half of year, 2018 – 2020. Source: Local cement associations and national statistics offices. Note: Colombian data is for January – May for each year.

Brazil’s cement sector looked set to become the big loser as global events seemed poised to dent the recovery of cement sales since a low in 2018. This didn’t happen. The Brazilian national cement industry union’s (SNIC) preliminary data for the first six months of 2020 shows that sales grew by 3.7% year-on-year to 26.9Mt. This is above the growth rate of 3% originally expected. Indeed, the monthly year-on-year growth rate in June 2020 was 24.5%. SNIC is not wrong in describing this kind of pace as being ‘Chinese.’ All this growth has been attributed to the home improvement market as people used their lockdown time to renovate their homes, renovations and maintenance in commercial buildings during lockdown and growing work on real estate projects. The government’s decision to implement weak lockdown measures clearly helped the sector but this may have cost lives in the process.

SNIC’s president Paulo Camillo Penna pointed out that producing and selling cement could co-exist with fighting coronavirus. However, trends such as a slowing real estate sector, less large construction projects and mounting input costs are all seen as potential risks in the second half of 2020. What SNIC didn’t link to the wider fortunes of the local cement industry was the economic consequences of coronavirus. The World Bank, for example, has forecast an 8% fall in gross domestic product in Brazil in 2020 due to its coronavirus, “mitigation measures, plunging investment and soft global commodity prices.”

Peru, in contrast to Brazil, implemented a strong lockdown early in March 2020. Unfortunately, it didn’t seem to work as well as hoped possibly due to informal and structural issues such as reliance on markets, the informal economy and residential overcrowding. This means that production and sales of cement are significantly down without any public health benefit. Both production and despatches fell by about 40% to around 2.9Mt in the first half of 2020 with close to total stoppages in April 2020. In terms of coronavirus, Peru is at the time of writing in the top 10 worldwide for both total cases and deaths, behind only Brazil in South America. It should be pointed out though that Peru’s testing rate is reportedly high for the region and this may be making its response look dire in the short term. All of this is particularly sad from an industrial perspective given that Peru was one of the continent’s strongest performers prior to 2020. One consolation though is that the economy is expected to recover more quickly compared to its neighbours.

Argentina started 2020 with a downward trend in its local market. Cement sales had been falling since 2017, roughly following a recession in the wider economy. Throw in a strong lockdown and sales more than halved at its peak in April 2020. So far this has led to a drop of 31% to 3.83Mt for the first half of 2020 compared to 5.51Mt in the same period in 2019. Unfortunately, a recent spike in cases in Buenos Aires has led to renewed lockdowns in the capital. Due to this unwelcome development and the general economic situation Fitch Ratings has forecast an overall decline in cement sales volumes of 25% for 2020 as a whole.

Finally, Colombia’s cement production fell by 24% year-on-year to 3.90Mt in the first five months of 2020 from 5.14Mt in the same period in 2019. April 2020 was the worst month affected. The country’s lockdown ended on 13 April 2020 for infrastructure projects and on 27 April 2020 for cement production and residential and commercial construction. On 5 May 2020 Cementos Argos said that domestic demand was at 50% of pre-lockdown levels. Data from DANE, the Colombian statistics authority, shows that local sales fell by around a third year-on-year to 0.71Mt in May 2020 from 1.06Mt in May 2019.

Most of the countries examined above follow the pattern of reduced cement production and sales in relation to the severity of the lockdown imposed and the resulting intensity of the coronavirus outbreak. Stronger lockdowns suppressed cement production and sales in the region of 20 – 40% in the first half of the year as governments shut down totally and then released industry and commerce incrementally. The exception is Peru, which has suffered the worst of both worlds: a severe lockdown and a severe health crisis. Local trends have continued around this, like the recovery in Brazil in the construction industry and the general recession in Argentina.

SNIC’s president has said that making and selling cement needn’t be exclusive with public health measures. He’s right but Brazil’s surging case load is an outlier compared with most of its continental neighbours and the rest of the world. Cement sectors in countries with growing economies like Peru and Colombia are expected to bounce back quicker than those with stagnant ones like Argentina. The risk for Brazil is what its government health strategy will do to the construction sector in the second half of 2020.

Hydrogen and its use in cement production has been adding a dash of colour to the industry news in recent weeks. Last week, Lafarge Zementwerke, OMV, Verbund and Borealis signed a memorandum of understanding (MOU) to plan and build a full-scale unit at a cement plant in Austria to capture CO₂ and process it with hydrogen into synthetic fuels, plastics or other chemicals. This week, Air Products and ThyssenKrupp Uhde Chlorine Engineers (TUCE) signed a strategic agreement to work together in ‘key regions’ to develop projects supplying green hydrogen. Both of these developments follow the awarding of UK government funding in February 2020 to support a pilot project into studying a mix of hydrogen and biomass fuels at Hanson Cement’s Ribblesdale integrated plant.

As the title of this column suggests there is an environmental colour code to describe how hydrogen is made for industrial use. This is a bit more codified than when grey cement gets called ‘green’ but it pays to remember what the energy source is. So-called ‘green’ hydrogen is produced by the electrolysis of water using renewable energy sources such as hydroelectric or solar, ‘Grey’ hydrogen is made from steam reforming using fossil fuels and ‘Blue’ hydrogen is similar to grey but has the CO₂ emissions from the fuels captured and stored/utilised. Price is seen as the main obstacle to wider uptake of hydrogen usage as a fuel in industry although this is changing as CO₂ pricing mounts in some jurisdictions and the connected supply chain is developed. A study by BloombergNEF from March 2020 forecasted that green hydrogen prices could become cheaper than natural gas by 2050 in Brazil, China, India, Germany and Scandinavia but it conceded that many barriers would have to be overcome to get there. For example, hydrogen has to be manufactured making it more expensive than fossil fuels without government policy support and its, “lower energy density also makes it more expensive to handle.”

The three recent examples with respect to the cement industry are interesting because they are all exploring different directions. The Lafarge partnership in Austria wants to use hydrogen to aid the utilisation side of its carbon capture at a cement plant. The industrial suppliers, meanwhile, are positioning themselves in the equipment space for the technology required to use hydrogen on industrial plants. Secondly, ThyssenKrupp has alkaline water electrolysis technology that it says it has used at over 600 projects and electrochemical plants worldwide. Air Products works with industrial gas production, storage and handling.

Finally, the Hanson project in the UK will actually look at using hydrogen as a partial replacement for natural gas in the kiln combustion system. A Cembureau position paper in mid-2019 identified that the challenges to explore in using hydrogen in cement production included seeing how its use might affect the physical aspects of the kiln system, the fuel mass flows, temperature profile, heat transfer and the safety considerations for the plant. Later that year a feasibility study by the Mineral Products Association (MPA), Verein Deutscher Zementwerke (VDZ) and Cinar for the UK government department that is funding the Hanson project concluded that a hydrogen flame’s high heat in a burner alone might not make it suitable for clinker formation. However, the study did think that it could be used with biomass to address some of that alternative fuel’s “calorific limitations” at high levels. Hence the demonstration of a mixture of both hydrogen and biomass.

That’s all on hydrogen but, finally, if you didn’t log into yesterday’s Virtual Global CemProducer 2 Conference you missed a treat. One highlight was consultant John Kline’s presentation on using drones to inspect refractory in some hard to reach places. Flying a camera straight into a (cool) pyro-processing line was reminiscent of a science fiction film! Global Cement has encountered the deployment of unmanned aerial vehicles in quarry and stockpile surveys previously but this was a step beyond.

The proceedings pack - including video, presenter slides and delegate list - for the Virtual Global CemProducer 2 Conference 2020 is available to buy now

HeidelbergCement released their sustainability report for 2019 this week. Every large cement producer publishes one but this one is worth checking out because of the company’s ambition to become CO₂ neutral. Other companies are heading the same way but few of them have such developed and public plans.

Sustainability reports are often a hodgepodge of non-financial reporting bringing together environment, health and safety, community and other topics. Multinational companies cover a wide range of jurisdictions and combining reporting in these kinds of fields can be beneficial. Typically they are members of various bodies like the Global Reporting Initiative (GRI) or the Global Cement & Concrete Association (GCCA) that give various levels of conformity between reports. Yet, the wider focus of sustainability reports gives companies a chance to promote what they are doing well, away from balance sheets.

One highlight of HeidelbergCement’s report is its progress towards reducing its specific CO₂ emissions per tonne of cement and its recognition by the Science Based Targets (SBT) initiative towards this goal. So far it has achieved a reduction of around 22% from 1990 levels to 599kg CO₂/t (net) with a target of a 30% reduction or 520kg CO₂/t by 2030. There is a lot more going on in the report but it’s led by the vision, ‘to offer CO₂-neutral concrete by 2050 at the latest.’ It plans to achieve this by increasing the proportion of alternative CO2-neutral raw materials and fuels, developing lower clinker cement types and capturing and utilising CO₂ emissions. A focus on concrete is worth noting given the pivot by building materials manufactures towards concrete in recent years.

Back in the present, HeidelbergCement is roughly in the middle of the pack of major European multinational cement producers with its specific CO₂ emissions for cement in 2019. LafargeHolcim reported 561kg CO₂/t and Cemex reported 622kg CO₂/t. This is a bit of a moving target since corporate acquisitions and divestments can change both the starting point and the apparent current progress. HeidelbergCement’s acquisition of Italcementi in 2017 or CRH’s purchase of Ash Grove did exactly that. The other thing to consider is that these companies manufacture a lot of cement. The actual gross CO₂ emissions from a multinational cement producer are immense. LafargeHolcim, one of the world’s largest multinational producers, emitted 113Mt of CO₂ in 2019 from process and fuel sources whilst making cement. To put that into context, estimates for total global CO₂ emissions range from 33 – 36Gt for 2019. The cement industry’s entire share was estimated by the International Energy Agency (IEA) to be 4.1Gt in 2018.

Where this sustainability report starts to become really interesting is where it talks about CO₂ capture and utilisation. Its plans in this department are more mature than many of its competitors with various initiatives at different levels of development, mostly in Europe. Norcem, its Norwegian subsidiary, recently signed an agreement with Aker Solutions to order a CO₂ capture, liquification and intermediate storage plant at its integrated Brevik cement plant. The deal is dependent on government support but it’s a serious proposal. As reported previously from the Innovation in Industrial Carbon Capture Conference 2020, HeidelbergCement is actively preparing to hook up with CO₂ transport and storage infrastructure. The driver is CO₂ pricing from initiatives like the European Union (EU) Emissions Trading Scheme (ETS). With the EU preparing for the next phase of the ETS and talk of the European Green Deal gathering pace, before the coronavirus outbreak at least, CO₂ prices in Europe look set to rise. HeidelbergCement is positioning itself to benefit from being the first major cement producer to head into CO₂ capture and storage/utilisation with a variety of methods intended for different CO₂ prices and regional requirements.

HeidelbergCement doesn’t mention the coronavirus pandemic in its latest sustainability report. The report covers 2019 after all, before all of this happened. These reports do include health and safety information of employees, so this may be something to look out for next year. However, Cemex did mention the coronavirus in relation to its climate action plans this week. Essentially it wants to maintain its plans as a ‘fundamental component’ of its efforts to recover from the health crisis. This chimes with media talk around so-called ‘green-led’ government-backed relief programmes. Governments are the ones who are likely to be handing out the money, probably in the form of infrastructure projects. So it’s the perfect opportunity for them to encourage change from the companies bidding for this funding. Sustainability reports and the information behind them will be a useful tool in accessing this cash.

Many people have been adapting to home working over the last few months due to the coronavirus pandemic and the resulting lockdowns. The digital tools have been present for years but current events were all that was needed to force everyone to try it out en masse, moving much of the back office, supporting and managerial functions to the homes of staff. Some of this communal clerical working may never come back in the views of some commentators. Other functions related to networking, such as sales or knowledge transfer, have moved to different channels like webinars and social networking or have resorted to older methods like using the telephone more. The balance between real world and remote networking may change but a return to some level in favour of the former seems likely.

The core processes of cement manufacture are resistant to this trend as workers need to be on site to mine limestone and maintain production lines. Although, that said, Global Cement Magazine has covered examples of remote commissioning and maintenance of equipment at plants in recent issues. Prior to this there has been steady work on remote monitoring of equipment and plants by both suppliers and producers and moves by cement companies to focus on digital operation such as LafargeHolcim’s ‘Plants of Tomorrow’ Industry 4.0 from 2019 or Cemex’s work on autonomous cement plant operations with Petuum.

Some ways in which cement companies have coped with social distancing recently have been revealed as they have published their best practice guides. Last week, for example, Holcim Philippines was promoting its various online customer interaction tools including its existing sales platform and a new online customer engagement program to ‘provide updates on the company’s directions, share knowledge and best practices on Health and Safety and to bond with business partners while quarantines are in place.’ Other companies have done similar things like the Cemex Go platform. On the supplier side there have been various announcements as companies have pushed their digital offerings. Meanwhile, the companies offering automation or remote operation products have been handed a unique stage to promote their wares.

Another example of cement companies trying something new in digital is the pilot that was announced this week by Siam Cement Group with the Bank of Thailand to test out payment systems using a central bank digital currency (CBDC). This likely has very little to do with the cement industry and much more to do with the sheer size of that conglomerate in Thailand. As the second largest company in the country, it’s an obvious target to try out something new like this at scale. The project will run from July 2020 until the end of the year. It will build on work that the central bank has carried out on Project Inthanon, a project between the bank and the eight financial institutions to study and develop a method for domestic wholesale funds transfer using wholesale CBDC. Any benefits using a CBDC eventually bring to Siam Cement Group and other producers in the country are likely to be limited to finance departments but savings are always welcome wherever they arise.

One cautionary note to consider though is that introducing changes to national currency systems can have impacts upon cement companies through general effects to the economy as a whole. The classic example of this in recent years is that of banknote demonetisation in India in late 2016. Cement production growth declined for about half a year at the time due to the disruption it caused.

The downside of this increased reliance on digital products and platforms is increased exposure to cybercrime. There was a rare good-news story in this area recently when Schmersal Group revealed that it had intercepted a network attack in progress in May 2020. It promptly took its IT network offline and disconnected its various systems, from the telephones, to its business software, to its production processes and automated storage systems, at all of its locations. Systems were then gradually cleansed and restored over the next two weeks. Schmersal’s response is commendable but chillingly it ended its press release by saying that, “the attack demonstrated that standard protection from antivirus programs and a firewall is powerless in the event of a targeted attack with previously unknown malware.” Companies had the same vulnerabilities before the pandemic but the increased reliance on digital platforms has heightened the potential risk. As we mentioned last time we covered this topic companies that admit to large scale malware attacks are hard to find most likely because it looks bad. Although since that article was published, Buzzi Unicem admitted that a ransonware attack on its information systems originating from its Ukrainian operations were delaying its financial disclosures in mid-2017.

In the longer term it will be interesting to see how much of the altered working patterns or methods created by the coronavirus lockdowns remain afterwards. The current situation isn’t quite like the ‘disruptive innovation’ business theory pedalled by Clayton M Christensen that has led in-part to established companies setting up start-up incubators to try and spot the next big new thing. Yet, existing trends are being sped up and this may lead to some surprises that were coming down the road anyway. For example, buying someone shares in video networking tool Zoom would have made a nice Christmas present this year! Hindsight is a wonderful thing.