Analysis

There have been two major announcements in the cement sector this week. The first was that Holcim is preparing to divest its business in the US via a spin-off and full capital market separation. The second was that FLSmidth is thinking about selling its cement equipment business. Both stories are huge so we will cover them both. This week we will focus on FLSmidth and Holcim will follow next time.

Both news stories came as something of a shock. Yet FLSmidth’s plans were not surprising given the divestment of MAAG gears and drives business earlier in January 2024 and several years of tough trading conditions in the sector generally. Yet, as one commentator on the Global Cement LinkedIn Group put it, it feels like “the end of an era.”

First a little history. FLSmidth has been in business for over 140 years and has been indelibly linked to the cement market throughout this time. Its first big cement order was in 1887, it built its own plant in Aalborg in 1889 and it started selling rotary kilns in 1899. By 1957, at the time of its 75th anniversary, it was estimated that 40% of the world’s cement was manufactured in equipment supplied by FLSmidth. Many other advancements and milestones followed but signs of the modern business’ focus on mining can be detected in the acquisition of US-based Fuller Company in 1990, the sale of Aalborg Portland in 2002 and the purchase of ThyssenKrupp Industrial Solutions’ mining business in 2021.

FLSmidth described its reasoning for a potential divestment of its cement business and focusing on mining as follows: “our industries, and in turn, the appropriate operating models which best serve them, have diverged. Consequently, combining our two organisations under one ownership is now forcing more operational friction than benefit.” It took pains to state that it hopes to sell its cement business in one piece whereupon it can continue to grow under new ownership and “maximise its full potential.”

FLSmidth’s strategy for selling its cement equipment business appears to have taken the form of separating out the cement business, making it look as strong as possible and then publicly announcing that it is “exploring divestment options.” This is different from many other corporate divestments that only become public once a deal with a prospective buyer has been secured. FLSmidth has been preparing for a potential divestment of the division internally through its ‘pure play’ strategies and focusing more recently on product, services and technology rather than project risks. It said that the MAAG sale had shown it that there was interest in buying the cement business. However, no potential buyers have been disclosed at this time. In a conference call the company said that it was hoping for five to 10 interested parties and it would expect these to be either industrial buyers or financial entities.

One of the callers homed in on the attempts by ThyssenKrupp to sell the cement division of its subsidiary ThyssenKrupp Industrial Solutions (TKIS) in 2020 following a restructuring drive. It changed its mind in 2021 and ended up selling its mining division to FLSmidth instead. In response to any comparison, FLSmidth asserted that it was preparing to sell a significantly different asset to TKIS, not least due to its careful steering away from project-based risk.

The wider business backdrop to this decision has been the rise of the Chinese cement sector since the late 1990s, persistent global production overcapacity, the setting of net zero CO₂ emission targets globally and, more recently, logistic and economic shocks arising from the Covid-19 pandemic and geopolitical events. New cement production line projects are now frequently managed by China-based equipment suppliers in many territories, with the exception of North America. It is worth noting here that some of the largest China-based cement equipment suppliers are subsidiaries of the government. The Chinese government has also supported the construction of new plants outside its borders through its Belt and Road initiative. Protectionist investment policies implemented by western governments to support industry transitioning to net zero is in part a response to this in the general economy. Cement equipment suppliers from outside of China can and do build lines on a regular basis but they tend to concentrate on parts of plants, such as mills, or specific technologies and services. FLSmidth is a good example of this transition with its renewed focus on the green transition.

The decision by FLSmidth to consider selling its cement business marks another sign that the cement industry is changing. The transition to net zero puts Europe-based suppliers in a good position given that the region is currently leading with carbon capture projects. A retrofit boom for cement plants (and customers) being made to pay for CO₂ emissions could change the dynamic for the cement equipment sector as the focus shifts from building kilns to capturing CO₂. And companies like FLSmidth are well placed to benefit from this. Then again it may just end up being business as usual. Either way, any eventual change in the ownership of FLSmidth’s cement division does indeed mark the end of an era.

Next week: Holcim’s plans in the US

It has been a busy week for carbon capture in the cement sector with Global Cement covering five stories. However, increasingly, the topic has become a regular feature in the press as the industry bends to the demands of the carbon agenda. This week’s selection is notable because three of the stories cover North America.

Holcim US announced that it is working with Ohio State University and GTI Energy to design, build and test engineering-scale membrane carbon capture technology at the Holly Hill cement plant in South Carolina. The information builds on an earlier release from the US Department of Energy’s (DOE) Office of Fossil Energy and Carbon Management (FECM) in late December 2023 about the project. It has a total budget of US$9m, with US$7m supplied by the DOE. It plans to build a 3t/day CO₂ capture unit that uses a method intended to retain 95 - 99% of CO₂ from cement kiln gas with a purity exceeding 95%. The new information at this stage is that GTI Energy is involved. Specifically, it will support the development of the pilot skid for site deployment.

The other two stories from North America are worth noting because they both concern commercial equipment or technology suppliers joining up to work together. First, 10 companies - Biomason, Blue Planet Systems, Brimstone, CarbonBuilt, Chement, Fortera, Minus Materials, Queens Carbon, Sublime Systems, and Terra CO₂ - announced they were launching the Decarbonized Cement and Concrete Alliance (DC2). The group’s principal aim is to lobby the US government toward using new low-carbon cement and concrete products in public infrastructure. It also intends to look at advocacy and public sector engagement including expanded tax credits, development of standards for novel cements, consistent ecolabeling and accounting, and customer demand support. DC2 was formally launched in January 2024 but it follows previous work by the companies in the area. The other related story was a memorandum of understanding that Aker Carbon Capture and MAN Energy Solutions have also signed this week to jointly pursue opportunities related to carbon capture, utilisation and storage (CCUS) and CO₂ compression in the North American market. These two companies have worked on the full-scale CCUS unit at Norcem’s Brevik cement plant, which is due to be commissioned later in 2024. They are likely intending to capitalise on the publicity that is likely to be generated once it officially starts up.

Back in North America the DC2 Alliance noted in its press release the DOE’s release of its Pathways to Commercial Liftoff: Low-Carbon Cement report in September 2023. Although it is similar to many other varied sector roadmaps, including the Portland Cement Association’s Road to Net Zero that was released in 2021, this document is well worth reading due to its details and local market context. The headline figure, for example, is that following a set of pathways to fully decarbonise the US cement industry would cost US$60 - 120bn by 2050. Doing so would involve reducing the clinker factor, improving energy efficiency, increased use of alternative fuels, using CCUS, using alternative feedstocks and adopting alternatives to traditional cement production methods.

Graph 1: US active cement kilns by capacity and age. Source: PCA survey data used in Department of Energy Pathways to Commercial Liftoff: Low-Carbon Cement report.

One other interesting tidbit to consider from the report is an analysis of the age of the US cement sector’s kilns versus their production capacity as shown in Graph 1 above. The largest 10 kilns in the country account for 22% of the country’s total capacity and these were all built after 2000. Then, the next 44% of the national capacity comes from 38 kilns out of a total of 120 kilns at 98 cement plants. The report itself does not make this assertion but the implication is that retrofitting CCUS units at one third of the country’s clinker lines would capture the CO2 being emitted from two-thirds of the sector’s production capacity. This is not to say that this could actually work technically, logistically or economically. Yet seeing the scale of the challenge presented in this way is fascinating and one starts to have thoughts about how a retrofit roll-out of CCUS units might actually be approached.

Whether the cement sector adopts CCUS at scale remains to be seen but demonstration projects are definitely coming in both Europe and North America. The DOE report from September 2023 suggests that decarbonisation will cost a lot of money. No surprises there and, as ever, there is rather less detail on who will actually pay for this. One thing that might help here, that the DOE report mentions frequently, is the 45Q carbon capture tax credit scheme, which was introduced by the Trump administration in 2020. Regardless of the potential bill for consumers of cement though, the suppliers are clearly taking note of the investment potential as evidenced by all the non-cement plant CCUS news stories this week.

The 1st Global CemCCUS Conference will take place 13 - 15 May 2024 in Norway and it will include a plant tour of the Norcem Brevik cement plant and CCS project

This year will mark the 10th anniversary of the Yazidi genocide in Sinjar, Iraq. Beginning on the night of 2 - 3 August 2014, ISIS displaced the entire Yazidi population from its homeland, amid a campaign of abductions and killings that claimed 12,000 victims.¹ A striking detail of this and other crimes of the self-proclaimed caliphate is the proximity of a Western corporate actor: cement producer Lafarge, whose subsidiary Lafarge Cement Syria operated the Jalabiyeh cement plant in neighbouring northern Syria. On-going investigations have since helped uncover what may amount to complicity on the part of Lafarge and Lafarge Cement Syria in the form of payments dating back to August 2013.²

In a week that began with the abandoned Jalabiyeh cement plant ablaze following a drone strike,³ Lafarge learned that it will face trial in France over its alleged complicity in crimes against humanity committed by ISIS.⁴ On 16 January 2024, the French Court of Cassation upheld Lafarge and Lafarge Cement Syrias' indictments on the charge. Also reportedly indicted are (all former) Lafarge CEOs Bruno Lafont and Eric Olsen, vice president Christian Herrault and security director Jean-Claude Veillard and Lafarge Cement Syria CEOs Bruno Pescheux and Frédéric Jolibois, along with an intermediary and a Jordan-based risk management consultant.^{5, 6} The collaboration in question includes monthly payments to ISIS and other armed groups worth US$15.5m, a lower French court found in May 2022. It may be more than another 20 months before the thorny mass of issues to be considered by the court resolves itself in convictions, or cleared names.

Another front in Lafarge and Lafarge Cement Syria's legal battle over what happened in Syria is the US civil court system. Activist and survivor Nadia Murad and 426 other Yazidis have filed an Anti-Terrorism Act claim for damages, based on the companies' previous guilty plea to the US Department of Justice to conspiracy to the tune of US$5.92m in October 2022. Murad and fellow claimants allege ‘far higher’ total payments, pointing to correspondence between Lafarge Cement Syria and its intermediary that references ‘[sic] ten millions that we pay directly to them, i.e. to ISIS.’ The DoJ estimates the total value of the conspiracy for all parties at US$80.5m.

On 6 August 2014 (the fourth day of the Yazidi genocide), Lafarge and Lafarge Cement Syria signalled their agreement to enter into a new long-term agreement to share their revenues with ISIS. On 15 August 2014, the UN Security Council issued Resolution 2170 condemning 'any engagement in direct or indirect trade' with the organisation.⁷ Lafarge and Lafarge Cement Syria allegedly concluded the revenue-sharing agreement, under new terms more beneficial to ISIS, on that same day.

Lafarge Cement Syria finally evacuated the Jalabiyeh cement plant in September 2014, whereupon ISIS added it to its own five-plant international cement network, with sales worth US$583m/yr. The US-led Coalition bombed the site in October 2019 and it was subsequently occupied by Kurdistan Workers’ Party (PKK) forces. The strike on 14 January 2024 was part of a drone campaign by Turkish forces against Kurdish positions that the invaders say destroyed 23 targets.

It is conceivable that Turkish armed forces also had personal reasons for destroying this monument to Lafarge’s former presence in the region: on Lafarge’s stipulation, ISIS implemented a duty on Turkish cement entering its area of control, ostensibly charged at US$150/truck. As anyone familiar with the Turkish cement sector knows, one of the major investors in the industry happens to be the country’s military pension fund.

For the 400,000 Yazidis who have survived, the tragedy that began in August 2014 will not end soon. More than half remain in refugee camps. Among the missing are 2000 girls and women who the International Centre for Counter-Terrorism suspect ISIS may have 'further entrenched in human trafficking,' constituing a continuation of the genocide that has outlasted both the self-proclaimed caliphate and the French multinational that may have helped to bankroll it.⁸ Courts in different countries are helping bring to light a reign of terror that spanned international borders. In the US, some of its victims may find redress, while in France, justice may be closing in on anyone who might prove to have made common cause with the perpetrators.

References

1. RASHID, 'DESTROYING THE SOUL OF THE YAZIDIS,' Augut 2019, https://www.rashid-international.org/downloads/RASHID_Yazidi_Heritage_Destruction_Report_2019.pdf

2. Jenner & Block, 'IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK,' 14 December 2013, www.jenner.com/a/web/fy85Wd97fANx7fwBecn31r/23-9186-as-filed-complaint2.pdf

3. ANHA, 'Turkish occupation army targets former Lafarge site,' 14 January 2024, https://hawarnews.com/en/turkish-occupation-army-targets-former-lafarge-site?__cf_chl_tk=mSB3Ph6iU.3FEJ.Z3ywRvcu2n.tOahhpLnd.Fmqk0SU-1705415232-0-gaNycGzNDHs

4. Reuters, 'Lafarge can be charged with 'complicity in crimes against humanity' over Syria plant, French court says,' 16 January 2024, https://ca.news.yahoo.com/lafarge-charged-complicity-crimes-against-132904436.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAANqF5SKpSZ7KB5rT5rjo_vFZ5LGdZ9bVkC5SeNw3iZGneLy5Tir2dsb1O3GQjITBRSF_xEs2GDBcSU94nKOocm-npnTznmbfhKB_FgOsBCg-9lO7ilPP2phHAcGahghG9yjmFoWVd24uU7xEwZ2RZqmmMaE2bSIIcTGRuh4LAlXD

5. Madeline Young, Lafarge's Case Cemented, 2021, https://scholarlycommons.law.emory.edu/cgi/viewcontent.cgi?article=1032&context=eilr-recent-developments

6. Le Télégramme, 'Complicité de crimes contre l’humanité : les poursuites contre Lafarge validées par la Cour de cassation?' 16 January 2023, www.letelegramme.fr/france/complicite-de-crimes-contre-lhumanite-les-poursuites-contre-lafarge-validees-par-la-cour-de-cassation-6505590.php

7. UN Security Council, 'Security Council Adopts Resolution 2170 (2014) Condemning Gross, Widespread Abuse of Human Rights by Extremist Groups in Iraq, Syria,' 15 August 2014, https://press.un.org/en/2014/sc11520.doc.htm#:~:text=Through%20the%20unanimous%20adoption%20of,as%20ISIS)%20and%20Al%2DNusra

8. Al-Dayel et al, ‘ISIS and Their Use of Slavery,’ 27 January 2020, https://www.icct.nl/publication/isis-and-their-use-slavery

Eastern Province Cement said this week that it had awarded a new production line project to Sinoma CDI. The subsidiary of China-based CNBM Group and Sinoma International Engineering has picked up the contract to build a 10,000t/day plant from design to installation at the cement producer’s Al Khursaniyah plant. Word on project finance is to follow later and the contract should be signed by the end of March 2024. The cement company last mentioned the project to the Saudi Exchange back in March 2023, when it suggested that it was focusing on upgrading existing lines at its Al Khursaniyah plant rather than building a brand new clinker plant at Najibiyah. The plans for the latter project date back to 2015. Eastern Province Cement holds limestone extraction licences in both locations.

It is worth noting that the last couple of new conventional production line projects announced in Saudi Arabia have been picked up by Sinoma International Engineering and related companies. Sinoma International Engineering won an engineering, procurement and construction (EPC) contract to build Southern Province Cement's upcoming Jizan cement plant in May 2023. This followed the awarding of a new 10,000t/day line by Yamama Cement, also to Sinoma International Engineering, in November 2022. However, Germany-based IBAU Hamburg was confirmed by Hoffmann Green Cement Technologies (HGCT) in September 2023 as being the company that would build a ‘clinker-free’ cement plant in Saudi Arabia in 2024. This will be a copy of HGCT’s H2 plant in France, which uses a combination of activated clay, ground granulated blast furnace slag (GGBFS) and gypsum to manufacture its products. HGCT has signed a deal with Shurfah Group to build several Hoffman plants under a 22-year exclusive licensing agreement.

Arguably though, despite all these new plant news stories, the bigger issue so far this year was Saudi Aramco's decision to raise its feedstock and fuel prices from the start of 2024. Several Saudi cement producers released warnings in response that production costs would rise and earnings would fall. Al Jouf Cement, Arabian Cement, Qassim Cement, Saudi Cement, Yamama Cement and Yanbu Cement each made statements to shareholders on the issue, saying that they were working out the impact, would announce what this might be when known and that it was likely to make a difference from the first quarter results onwards.

The timing of Aramco's price hike is poor given that after a tough year, with falling sales for some producers, demand was expected to pick up somewhat. Aljazira Capital, for example, in a cement sector report released in late December 2023, forecast a 3% year-on-year increase in cement sales volumes in 2024 following an estimated fall of 8% in 2023. Its reasoning was that the domestic housing construction market had declined in 2023, leading to high levels of competition in the central region of the country caused by high levels of company inventory. Looking ahead, the competition was expected to ease as more projects were generated outside the central region and demand from the country’s various large-scale infrastructure plans took off. We will have to wait for Aljazira Capital’s next report to find out how they think the market will cope with higher fuel costs, but it seems likely that business may remain tougher than expected for the cement producers in the short term at least.

Finally, one more story to consider is that Al Jouf Cement signed a deal with Rabou’ Al-Taybeh Company this week to export cement and clinker to Jordan. The initial period covers six months with the option for renewal. Up until 2022, at least, clinker exports from Saudi Arabia were growing most years since the export rules were relaxed in 2017. With a difficult market reported domestically in 2023, the appetite to focus on exports may be growing and this could be a sign of that. Another example this week of Saudi-based cement companies looking outside the domestic market could be detected when Northern Region Cement said it had sold a 49% stake in its Iraq business to Al-Diyar Al-Iraqia for Investments Company. The cement company said that the new strategic partnership would help it to further expand its investments in the promising market. It will use the proceeds of the deal to repay loans and for ‘external investments.’ It valued the transaction at just under US$44m. For more on what Northern Region Cement and others have been up to in Iraq, see Global Cement Weekly’s analysis from November 2023.

The steady stream of new clinker production lines suggests confidence in the cement sector in Saudi Arabia in the medium to long term. It is also fascinating to witness a secondary cementitious material plant like the one HGCT is planning on the way too. Unfortunately though, the recent fuel price rise looks like it might ruin the party in the short term for those hoping for better things in 2024.

The 26th Arab International Cement & Building Materials Conference and Exhibition takes place in Cairo on 15 - 17 January 2024. Visit Global Cement at stand N3

Kyrgyzstan had a couple of prominent stories in the press towards the end of December 2023 with news of a new plant and continuing data showing that cement production has grown.

The Chüy project was first announced by the government in mid-2022 when it signed an investment agreement with a consortium comprising representatives from Terek-Tash and ZENIT. More information on the unit emerged this week when the Russian-Kyrgyz Development Fund revealed that it made a loan of US$45m towards the scheme based in the northern Chüy region of the country. The plan is to build a 1.7Mt/yr plant with a budget of US$160m. Equipment to build the plant is reportedly being sourced from companies in China and Russia. Special features of the project include a waste heat recovery unit and the use of ash from the Bishkek Thermal Power Plant in the production process. The plant is expected to be launched in 2024.

Graph 1: Cement production in Kyrgyzstan, 2018 - 2023. Source: National Statistical Committee of the Kyrgyz Republic.

One reason why the government might be keen to build a new plant is because cement production has mostly grown in each of the past five years, with the exception of 2020, when the Covid-19 pandemic began. In 2022 it increased by 7% year-on-year to 2.7Mt and the latest data from the National Statistical Committee indicates that it rose by 11% year-on-year to 2.6Mt in the 11 months to the end of November 2023. If this rate held in December 2023 then it looks likely that the country will have produced just under 3Mt in 2023. At the same time the country’s exports of cement have also been falling. In November 2023 the government of Kazakhstan’s Jambyl Region said that it had found investors to support construction of a railway line between the locale and Kyrgyzstan due to a ‘building boom’ in the latter country.

Earlier in 2023 the Eurasian Development Bank (EDB) said it had earmarked US$48m for the modernisation of equipment at the Kant Cement plant, operated by Kazakhstan-based United Cement Group (UCG), also in Chüy region. The plant is the biggest in Kyrgyzstan, running five wet process production lines, according to the Global Cement Directory 2023. The EDB linked its investment to a hydroelectric project in the country that it is also funding, pointing out that such structures require lots of cement and concrete. This follows a previous upgrade project by owner Kazakhstan-based United Cement Group (UCG) at the plant from 2021 to March 2023. This involved efficiency and environmental gains such as installing bag filters and converting a cement grinding mill to a closed circuit. China-based and CNBM subsidiary China Triumph International Engineering was the lead project partner. In early December 2023 UCG announced that it had signed another contract with China Triumph International Engineering over the summer to build a new dry production line at the site with a clinker capacity of 0.8Mt/yr. At the time of the announcement it said that preparation of the construction site had started and that work had begun on installing a pile foundation.

Finally, one more Kyrgyz news story of note in recent months was the announcement in October 2023 that the government had effectively nationalised the Kurmentinsky Cement plant in Issyk-Kul Region. The reason why it had done so was unusual because it said that a 93% share in the company running the plant had been transferred to the State Property Management Agency following the death of its former owner. The former owner was one Kamchybek Kolbaev, an organised crime boss who had been listed on the US Department of State Transnational Organized Crime Rewards Program and was reportedly killed by state security services in early October 2023. The remaining shares in the plant have been passed to its workers and the government further said that it intends to upgrade the site.

The cement sector in Kyrgyzstan is modest and in need of modernisation. It appears to be having a resurgence at the moment though with production mounting and at least two major plant projects underway. The country is in a compelling position economically and geopolitically given its membership of the Russia-backed Commonwealth of Independent States (CIS) and its proximity to China. Various projects backed by the latter’s Belt and Road Initiative, both underway and forthcoming, would certainly appear to benefit from more efficient local cement production and higher volumes.