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Poland: A blueprint for the rest of Europe?
Written by David Perilli, Global Cement
21 October 2015
Gorazdze Cement has been approved this week by the local authorities to buy Duda Kruszywa and Duda Beton. Aggregate and concrete acquisitions are outside the remit of this column, but Poland still deserves attention as a European country that has seen construction growth in recent years.
Approval by the Polish Competition and Consumer Protection Office (UOKiK) for the Gorazdze purchase is relevant due to cartel fines that were issued to seven cement companies, including Gorazdze Cement, in 2013. At that time Lafarge had its fine absolved, Gorazdze's was reduced but the other producers had to pay 10% of their annual turnover. As part of the Duda purchase, Gorazdze is expected to sell a concrete unit in Olszowa to avoid market overlap.
Polish cement production hit a high of 18.6Mt in 2011 according to Polish Cement Association (SPC) data. In its annual report for 2011, Lafarge attributed the surge to European Union (EU) funding for infrastructure projects and a deficit in housing. The multinational cement producer reported a 27% increase in domestic sales that year. Since then production fell to a low of 14.5Mt in 2013 before picking up. Cement production for the first nine months of 2015 is a little ahead of 2014 year-on-year.
Poland's cement production capacity is 16.8Mt/yr. The industry comprises 11 cement plants that are run by eight producers. As mentioned in the Global Cement Lafarge-Holcim Merger report, the country already has two cement plants from a CRH subsidiary, Grupa Ożarów. This is pertinent because the country offers a view of how LafargeHolcim might act in competition with CRH in a national environment.
In 2014 CRH noted that cement volumes grew by 6% in the country and its Europe Heavyside sales increased by 4% year-on-year to Euro3.93bn. In the first half of 2015 CRH reported selling 'non-core' businesses from its Europe Heavyside division in Poland amongst other territories. It also reported that whilst a solid general economy and construction growth helped sales, it was under price pressure in all of its main product lines.
Interestingly, LafargeHolcim announced in late September 2015 that it was implementing a new three-year strategy in Poland. The plan is to offer its clients logistic, design and consulting services in addition to cement, concrete and aggregate sales. The choice of Poland to test this strategy in with its clear competition from CRH is instructive as this situation is now duplicated in several markets throughout Central and Eastern Europe. Lafarge too reported a 'competitive' environment in its first quarter results for 2015 before the merger with Holcim completed. Yet it noted that its cement volumes had contracted compared to the same period in 2014. This is in contrast to the SPC data for the first quarter of 2015 that suggests that cement production rose slightly compared to the same period in 2014. However, Lafarge did expect construction activity to pick up for the rest of 2015 due to infrastructure tenders based on a new EU infrastructure plan. SPC data on cement production suggests that this may be correct. LafargeHolcim's and CRH's cement plants are in slightly different parts of the country which may also explain reported differences in sales volumes in 2015.
So, we have a picture of CRH streamlining its business in Poland to help grow profits. LafargeHolcim, meanwhile, is broadening its offer with 'soft' businesses to complement its heavy divisions. The results will be worth watching.
Trickle down economics in Ecuador
Written by David Perilli, Global Cement
14 October 2015
Change draws nearer this week in the Ecuadorian cement industry with the announcement of further details on a new integrated cement plant. Union Cementera Nacional (UCEM) plans to build its third cement plant. The part-government owned group will build its new 2200t/day facility in the country's central Chimborazo province. The move will expand the group's domestic production from 1600t/day to 3800t/day, adding to its existing 650t/day of plant in Chimborazo and its 950t/day plant in Azogues. The expansion was supported by a US$230m investment agreement agreed in September 2015 between UCEM and Casaracra.
The timing is interesting here given that cement sales have reportedly fallen year-on-year by 7% for the first seven months of 2015, according to Ecuadorian Institute of Cement and Concrete (INECYC) data. Holcim, in its financial report for the first half of 2015, attributed its lower cement volumes to effects on the local economy by lower oil prices and poor weather. This also followed a declining year for volumes in 2014 after Holcim reported a record year in 2013.
Holcim also reported continuing to export clinker to its Ecuador unit in 2014 despite the drop in volumes. To that end it completed the second phase of its own expansion project at its Guayaquil cement plant back in March 2015. It increased its clinker production capacity to 4500t/day at the site at a cost US$400m.
Also of note, but on a smaller scale, was the announcement by the North American subsidiary of Gebr. Pfeiffer in September 2015 that it was supplying a new MPS swing mill for an existing grinding station at a clinker plant run by Hormicreto. Published details are sketchy on this plant but A TEC Greco refers to supplying a burner to the company for a cement kiln in 2013. The mountainous location and ownership by a concrete producer suggest that this may be a mini-cement plant.
Following the departure of Lafarge from the market at the end of 2014, Ecuador now has three main cement producers: LafargeHolcim (inheriting the Holcim assets), UCEM and Union Andina de Cementos (UNACEM). UCEM's expansion plans will increase its share of the industry by production capacity making it the second largest producer in the country. MCPEC - INECYC estimates projected that cement demand would reach 9Mt/yr in 2018. Meanwhile Manuel Román Moreno, general manager of the Empresa Pública Cementera del Ecuador (EPCE), estimated that the country imported around 1Mt/yr of clinker in 2014.
The question then for UCEM is whether the country will want 9Mt/yr of cement in 2018 with a depressed price of crude oil. As an Organisation of the Petroleum Exporting Countries (OPEC) Ecuador's economy is, no doubt, feeling the pinch from the low price of crude oil after a period of growth. In its expansion announcement UCEM reported the reliance of the new plant on bunker oil. This will be trucked in from the Amazonas (Shushufindi) refinery in Sucumbios province and purchased at a subsidised price. Cheap oil can be used to run the plants but it may be needed more to run the country's infrastructure demand for building materials such as a cement.
Cement for the long term
Written by David Perilli, Global Cement
07 October 2015
We report on development from Japan this week with the creation of a low-alkali cement for use at nuclear waste sites. Professor Katsuyoshi Kondo, Joining and Welding Research Institute at Osaka University, and Nippon Steel & Sumikin Cement Co have prepared a process that mixes silica dioxide extracted from rice chaff with cement.
As press reports explain, the team has developed technology to extract highly purified silica with numerous holes measuring 5 – 7nm in diameter by washing rice chaff with organic acid and burning it. The surface area of the silica extracted from rice chaff is 50,000 - 90,000 times larger than that contained in existing cements, enhancing the reaction between silica and calcium hydroxide and thus lowering the alkaline level.
The stated application for this new research is for underground nuclear waste disposal sites. At these locations extremely high durability is required for long periods of time, potentially for tens of thousands of years.
Normally the concern with alkali-silica reactivity is between alkali in the cement and a sensitive aggregate over a shorter time period. Under high moisture and high alkali content the resulting concrete can crack leading to reduced-performance. However, the issue with nuclear waste storage is that it has to be stored underground and for long periods of time. This means that the cement can potentially react with groundwater producing calcium hydroxide making the groundwater alkaline. This can then react with aggregates in the clay and bedrock at the storage site. Clearly this is undesirable for a long-term storage site of hazardous materials.
In the wake of the Fukushima disaster, this kind of development will be of high interest in Japan. It will also have applications around the world wherever radioactive waste sites are built.
One example of the demanding construction conditions facing builders in these environments is the original sarcophagus used to encase the Chernobyl Nuclear Power Plant reactor in 1986. Building it used more than 7,000t of steel and 410,000m3 of concrete. Erected in a hurry under horrendous conditions, the container was never sealed properly and the structure was only given a design lifespan of 20 to 30 years. Currently a replacement, New Safe Confinement, is being built at a projected cost of Euro2bn for completion in 2017. The structure will be up to 100m tall and 165m long with a lifetime of at least 100 years.
One of the issues raised in the documentary film 'Into Eternity' is what exactly should one daub on the entrance to a long-term waste dump? Given that the Onkalo spent nuclear fuel repository in Finland is planning to stay sealed for 100,000 years, how should its planners communicate to people, who potentially rediscover it in the future, that they should stay away? One suggestion quoted here is to put Edvard Munch's The Scream on the door. However, we have difficulty today in reading and interpreting Ancient Egyptian writing and art from 5000 years ago. What this means for any of our descendants unlucky enough to stumble upon a buried nuclear waste site is anyone's guess. At the very least though using a low-alkali cement that will last as long as possible is a good start.
Chinese producers and plant builders have arrived
Written by Peter Edwards
30 September 2015
The past few weeks have been notable for the high number of cement plant projects announced. Aside from further Dangote developments in Africa, (which doesn't seem to be able to go a week without announcing some 'milestone' or another,) a growing number have been in 'new' markets, especially in Central Asia.
The list from the past month or so is impressive. In east Asia Myanmar's Ait Thit Man group has announced that it will double its capacity from 5000t/day to 10,000t/day. In the south, Shree Cement wants to build another new facility in India. In west Asia, Pakistan, a country that has not seen significant cement capacity investment in the past few years, will be getting a new plant in Salt Range courtesy of China's Yantai Yantai Baoqiao Jinhong.
Turkmenistan looks set to build a 1Mt/yr plant as part of a massive government industrial stimulus package. China's Jilong Group wants to build a 0.8Mt/yr plant in Issyk Kul, Krygyzstan. Another Chinese producer, Xinjiang Tianshan will be bringing a 1.2Mt/yr plant to Georgia. Even today (Wednesday 30 September 2015), we have heard that there will be further Chinese investment, this time by Shangfeng Cement. It has announced financing for two new plants: in Tajikistan and Uzbekistan. Both are set to be 1.2Mt/yr facilities.
Two trends are clear from this. 1. Land-locked Central Asian and other relatively undeveloped countries elsewhere in Asia are finally coming to the cement plant party. 2. It is the Chinese producers that have the upper hand in these markets. This is based partly on cultural, political, geographical and historic links between China and these former Soviet nations. It is partly due to the lower 'face value' cost of Chinese equipment compared to European manufacturers. (The efficiency with which the lower cost equipment is installed and its running costs remain potential pitfalls, according to the Europeans.) Finally, it has a lot to do with the collapse of domestic demand for cement plants in China itself, where the economy continues to teeter on the brink.
The steady rise of the Central Asian cement sector and the increasing international activities of Chinese cement plant manufacturers have been 'on the cards' for years. To date, they have been trends waiting to happen, but 2015 looks to be the year that these factors finally combined and translated into large numbers of projects.
For Central Asian countries the prospects that come with a larger and more dynamic cement industry should enable greater independence, accelerated infrastructure development and economic growth. For the Chinese, setting up cement plants in Central Asia is a natural expansion of its multi-billion dollar activities in the African cement sector, where Sinoma recently signed a massive deal with Dangote Cement. As noted previously in this column, Africa can't continue to add capacity at the current rate forever.
For European manufacturers of cement plants, the other side of this story is not as pretty. AGAB, the large plant manufacturing group of Germany's Verband Deutscher Maschinen- und Anlagenbau (VDMA), has recently released its Status Report 2014/2015, which reports on activities from 2014. AGAB members' cement plant order volume fell by an incredible 63% in 2014 to Euro198m. This is a fall from Euro529m in 2013 and six times lower than the Euro1.2bn peak of 2008. Some of this is domestically driven but the vast majority of it is export markets.
The same report also shows that, for construction of all types of large industrial plants, Chinese producers have increased their global market share from 5% in 2006 to 17% in 2014. Over the same period, Western European producers have seen their share fall from 45% to 33%, although an increase in overall project volumes mean that these producers received roughly the same value of orders in each year. US suppliers, although not a major consideration for the cement sector, saw their share of orders fall from 22% to 20%. Japan also lost a third of its stake over the same period, falling from 15% of sales in 2006 to just 10% in 2014.
While AGAB's report anticipates increased competition from Chinese producers, it is by no means all 'doom and gloom' for Europe's traditional large plant manufacturers. It highlights the fact that Russia, the largest single market for heavy plant in 2014 and a significant consumer of European-made cement equipment, has decided against Chinese equipment in some cases. It also highlighted that the weakness of the Euro helps exports from Germany and the rest of the Eurozone and suggests that the sector should look to increase its service and consultation offering in order to build on its existing reputation for high quality equipment.
Will cement industry growth in the Philippines reveal CRH’s plan?
Written by David Perilli, Global Cement
23 September 2015
San Miguel Corporation has upped the pace of its capacity expansion this week to a US$1bn investment towards five new 2Mt/yr cement plants in the Philippines. The announcement builds on its previous plans to build two plants for US$800m. At that time construction had already begun at subsidiary Northern Cement's plant in Pangasinan and Quezon. Plants in Bulacan, Cebu and Davao have now joined the list for completion in 2017.
The scale of this expansion is vast considering that the Philippines has 17 active cement plants with a total integrated production capacity of 24.6Mt/yr. San Miguel president and COO Ramon Ang's comments to media that if there were an oversupply of cement the market would correct itself in a couple of years may sound flippant to anyone who isn't the head of a multi-billion dollar corporation. However, if achieved it will propel the San Miguel subsidiaries from the country's fourth largest cement producer to its largest.
However each of the other major producers also have their own expansion plan in various stages of completion. Holcim Philippines announced US$40m plans in May 2015 to expand its production capacity to 10Mt/yr by the end of 2016, mainly through reviving existing projects. Cemex announced plans in May 2015 to spend US$300m towards building a new 1.5Mt/yr integrated line at its Solid Plant. Lafarge Republic had plans in April 2015 to raise its cement output through the opening of grinding plants at its Rizal and Bulacan cement plants. The former was opened in April 2015 but this is the one plant that hasn't been acquired by CRH following the sale of Lafarge Republic in the run-up to the LafargeHolcim merger. The latter was last reported due for opening in December 2015.
The big change in the Philippine cement industry in 2015 has been the merger of Lafarge and Holcim to form LafargeHolcim. Given that Lafarge Republic and Holcim Philippines held over 55% of the country's production capacity before the merger, it was inevitable that they would be forced to sell off assets. In the end CRH picked up most of Lafarge Republic's cement assets bar the Teresa Plant in Rizal, which stayed with Holcim. The merger has skewed the market towards one clear leader, LafargeHolcim (9.5Mt/yr), followed by Cemex (4.73Mt/yr) and CRH (4.19Mt/yr) with similarly sized cement production bases. These producers are then chased by San Miguel (2.15Mt/yr) and the other smaller firms. If San Miguel succeeds in its expansion strategy then the market will change once again.
Cement sales rose by 11.1% to 11.9Mt in the first half of 2015 according to the Cement Manufacturers Association of the Philippines (CeMAP). They attributed this growth to strong construction activity helped by increases in government infrastructure spending. Alongside this, gross domestic product (GDP) is predicted to rise by 6% in 2015 and 6.3% in 2016 by the Asian Development Bank. Another promising sign for development came from a study by Antoinette Rosete of the University of Santo Tomas which forecast that cement demand would meet 27Mt/yr. Capacity utilisation rates rose to 85% from 68% in 2014 according to Department of Trade and Industry data.
With this kind of encouragement, no wonder San Miguel is betting on such a large expansion project. If Rosete's forecast and capacity utilisation rates hold then the Philippines might need a capacity base of around 36Mt/yr. San Miguel's growth will fill that gap.
Of course other players might have their own ideas about giving away market share. LafargeHolcim and Cemex are likely to be saddled with debt or existing projects. CRH meanwhile is the wildcard as its expansion strategy is opaque. In recent years it has seemed to focus on acquisitions over building its own projects. The Euro5.2bn the company has spent on buying Lafarge and Holcim assets this year seems likely to slow down investment on any internal development plans. However CRH is bringing in local partner Aboitiz in the Philipines to help with a US$400m loan.
The Philippines is clearly an exciting market for the cement industry at the moment. One consequence of the current situation is that it may signal what CRH's global intentions are following the LafargeHolcim merger. If it decides or is able to start building new capacity then it may reveal the start of a new phase for the Ireland-based multinational.