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Mind the gap: cement news shortcuts
Written by David Perilli, Global Cement
29 April 2015
Striking news from Libya this week with the announcement that an investor with international backing wants to buy the majority stake in the Libyan Cement Company.
Libya holdings owner Ahmed Ben Halim is in the process of buying out the Austrian Group Asamer that originally bought a majority share for US$145m back in 2008. Most of the remaining share was owned by the Economic and Social Development Fund. Taking over the company now seems bold from a European perspective or Ahmed Ben Halim got a very good price. No financial information regarding the deal has been made public.
Libya has remained politically unstable since the civil war in 2011. According to the Libyan Herald, following the war a strike at the Libyan Cement Company's plants for lost wages stopped production. Since then two of the three cement plants the company runs in east Libya near Benghazi have remained shut due to their proximity to fighting with the Ansar Al-Sharia militia. Before the civil war in 2011 the Libyan Cement Company had a combined cement production capacity of 6Mt/yr almost half the USGS estimated production for the entire country in that year.
The Libyan Cement Company's plants are all located in the east of the country under the nominal control of the Council of Deputies based in Tobruk. Its two plants in Benghazi have remained shut due to their proximity to fighting with the Ansar Al-Sharia militia. A third plant near Derna has also had security issues. Halim told the Financial Times that he was not 'crazy' to be investing at this time. "We have a long-term strategic plan" he said, "that Libya's going to rebuild its infrastructure. And a key element of this is cement." If he can hold out until the rebuilding starts then he may just be right.
Meanwhile across the border in Egypt, Minister of Supply Khaled Hanafy announced this week that cement prices had remained 'stable' for the fifth month in row. Some commentators placed improved energy supply security at the heart of this situation allowing producers to build up inventory. However, given the situation in Libya, it is worth considering what will happen once Libyan demand for cement does pick up both in competition for energy supplies like coal and a keener export market.
Finally, our editorial director Dr Robert McCaffrey was at the IEEE-IAS/PCA Cement Conference in Toronto, Canada this week. Here's his snapshot of PCA economist Ed Sullivan's forecast for future US cement supply and demand.
Ed Sullivan's forecast for future US cement supply and demand, at IEEE in Toronto. pic.twitter.com/RUoT7uHGtg
— Robert McCaffrey (@DrRobMcCaffrey) April 28, 2015
The UK London Underground has 'mind the gap' as its well-known warning phrase to prevent passengers falling between the platform and the trains when boarding. The favourable supply gap Ed Sullivan is talking about in US will be one cement producers will definitely not want to miss.
What price for cement industry development in Cameroon?
Written by David Perilli, Global Cement
22 April 2015
Cameroon announced this week that it intends to ban imported cement to aid the sales from the new Dangote owned cement plant in the country. Readers should note that Dangote is a Nigerian-based company. Protective legislation such as this should come as no surprise given the rise of Nigeria's own cement industry and similar initiatives in that country. The difference here, however, is that the Cameroonian government is protecting investment by a foreign company rather than propping up any home grown concerns.
The new Dangote-run cement plant in Douala will start with a cement production capacity of 0.95Mt/yr with the intention to rise to 1.5Mt/yr in 2016. A meet-and-greet by company officials with local press in early April 2015 revealed that the company intends to snatch 30% of the local cement market in 2015 with prices primed to just undercut the other major producer.
What then of the country's two other integrated cement plants? Both have foreign ownership. Cimenteries du Cameroun, with a 1Mt/yr plant, is a subsidiary of France-based Lafarge. Ciments de L'Afrique, with a 0.5Mt/yr plant, is a Moroccan firm. Add the new 1.5Mt/yr Dangote cement plant and domestic production in Cameroon is anticipated to exceed local demand.
When this happens how will the Cameroonian government view the two non-Dangote producers who may well be importing clinker and other products into the country for their operations? If the experience of Nigeria is a model then a 'self-sufficiency' battle may ensue in the media. Alongside this the price of cement may well stay fairly stable despite any alleged 'gluts'. This week, for example, the Cement Producers Association of Nigeria has lobbied the President-elect of Nigeria, Muhammadu Buhari, to cut the price of cement by half. The hypocrisy during the Nigerian spat over imports was that Nigeria wanted (and has become) a cement exporter.
At the time this column asked how that could work if imports at the time were so much more competitive that they had to be banned at home. Then as now deals seem to mark the way. At that time, in early 2013, Liberia relaxed its tariffs on cement just as Dangote was building a new plant there. Now, in Cameroon, once again Dangote appears to be negotiating some form of preferential treatment.
At the root of these issues, Cameroon's citizens and industry want to build and develop their country. Cheaper cement will enable them to do this by pushing up per capita cement consumption. Protecting their domestic industry or those that have invested in the country may not necessarily lead to cheaper cement.
Nicaragua – Central America’s up-and-comer?
Written by Amy Saunders, Global Cement
15 April 2015
This week saw the announcement that Cemex and Holcim are both upping their stakes in Nicaragua to increase production. The companies have stated that they expect cement demand to grow significantly in the near future.
Holcim has started work on a US$10m project to increase production by 30% to 400,000t/yr at its Nagarote grinding plant. A second expansion phase will see production raised another 30%. Cemex, for its part, is building a US$55m, 440,000t/yr grinding plant in Ciudad Sandino. Completion is expected by 2017.
These new developments will make significant additions to Nicaragua's cement industry. Currently, it consists of one Cemex-owned 600,000t/yr integrated plant and one Holcim-owned 300,000t/yr grinding plant.
Nicargua has the dubious honour of being Central America's least developed economy and one of the poorest among all of the Americas. In recent years, however, its economy has grown dramatically, with significant expansion in the construction and mining sectors, indicating that Holcim and Cemex are right to bet on Nicargua. Indeed, late in 2014 president of the High Council of Private Enterprise, José Adán Aguerri said that the country had a significant cement shortage and was currently importing from Mexico and Colombia to meet its needs.
Driving cement demand in Nicaragua is the residential housing sector boosted by the growing population, much-needed infrastructure projects and the country's most controversial project, the Nicaragua Grand Canal. The canal will be, according to local media, a 'commercial waterway that will reshape commercial shipping, reap a windfall for investors and haul one of the hemisphere's poorest nations out of poverty.' Heavily backed by Chinese investors, it is deeply unpopular with industry experts and locals alike. There have been lots of questions as to whether there is enough demand for the canal, while its construction will divert scant resources, particularly water, away from agriculture, the country's main industry. The project will, however, contribute significantly to cement demand until its completion, which is expected in 2019.
So is Nicaragua the place to be? Its near-future economic and construction sector outlooks certainly look strong, but the cement industry relies heavily on long-term infrastructure plans, which are sorely lacking. Additionally, none of Nicaragua's neighbouring countries have noteworthy cement deficits. This means that export market opportunities from Nicaragua are in short supply. Nicaragua's future depends overwhelmingly on its leaders' long term-planning abilities...
Indian inefficiency and China running out of options
Written by Peter Edwards
08 April 2015
The news this week that construction companies in the Indian state of Telengana are considering cement imports from China in order to circumvent a local dispute over cement prices highlights several issues. Firstly, state politics in India can create some interesting and not altogether logical situations. Secondly, it throws the spotlight on the changing situation in China, where the cement industry will be increasingly squeezed from all sides in the coming years. Thirdly, it shows that the global cement industry is exactly that – Global.
The first reaction when hearing of Chinese imports into India might reasonably be one of shock. How can it be that it is cheaper (21% less by local estimates) to import cement from 5500km away, into the world's second-largest cement producer, than it is to send it down the road from Andhra Pradesh? Overall, India is 'swimming in' excess cement capacity, which should make it cheap across the board. Large, well-run and efficient plants, coupled to current low diesel (transport) prices, should give the industry significant advantages on the international stage. So what's going on?
Poor local and national infrastructure is the 'obvious' culprit here, but it is only part of the story. The Telengana state government has imposed extra taxes on trucks bringing cement into the state from neighbouring Andhra Pradesh. By suggesting imports from China, it is possible that the Real Estate Developers' Associations of India (CREDAI) wants to make a point to the state government. Spotting a local imbalance of cement supply and demand, Telengana appears, in this instance, to have acted to make a quick buck. However, it has done so to the detriment of many other stakeholders. The extra tax deprives cement producers of higher sales, robs hauliers of business and stops the public getting a fair market price for cement. This highlights that India has not only physical infrastructure to build (in terms of highways and new railways), but also a more effective political infrastructure that can put aside state-on-state one-upmanship. This is a long-term task and not straightforward when you consider India's 1.25 billion inhabitants.
Of course the fact that China has been mentioned by CREDAI as a likely source of cement is far less surprising. The largest cement producer in the world has had excess capacity for several years now (regardless of who is supplying the statistics) and takes the opportunity to export whenever it can.
However, the sands are shifting under China at the moment. The country has not been able to rely on domestic demand to keep its over-inflated cement industry in business for many years now. It is indeed highly questionable whether it ever needed a cement industry the size of the one that it built.
Indeed, economic growth is slowing for the economy as a whole and this week there were even calls for the national housing bank to reduce interest rates for lower and middle income earners, effectively propping the sector up. This comes on top of tax breaks for home-buyers, which came in at the end of March 2015. Falling house prices have bred uncertainty and a lack of demand for new constructions and hence cement. Could China's absurd cement demand bubble finally be about to pop?
Whether or not the bubble pops next week or in a couple of years, the government has long been making preparations, in the cement sector at least. It has started to aggressively remove older and inefficient capacity, encourage cement exports and helped finance new plants overseas. China is changing its emphasis from cement production to cement plant project management. This is a good move, especially as there will be fewer opportunities for conventional exports in the coming years. Neighbouring Vietnam expects to have an incredible 20Mt of cement for export at less than US$50/t in 2015, flooding China's traditional sphere of influence. At the same time, the number of countries that are self-sufficient in terms of cement production are on the rise, meaning fewer importers.
Even opportunities for Chinese firms to build cement plants outside China are likely to become fewer and further between in the future. The most promising markets in Africa already have Chinese cement plants or cement plant projects, joined this week by Zambia. Chinese cement and cement engineering firms also have interests in Central Asia, Nepal, Mongolia and elsewhere. These markets, while promising, will have nothing like the potential to consume cement like China did in the recent past. As China reduces its capacity, its growing cement plant engineering sector may well find it hard to do enough business to survive...
Have PPC and AfriSam missed an opportunity?
Written by David Perilli, Global Cement
01 April 2015
The other big cement producer merger collapsed this week when PPC announced that it had terminated discussions with AfriSam. Details were scant due to a confidentiality agreement between the South African cement producers. However, the CEO of PPC, Darryll Castle, confirmed that neither party could agree the terms of the merger. PPC's shares rose by 5% on the news of the breakdown.
Financially the decision may have made sense. As an unlisted company AfriSam doesn't publish its financial results but PPC did report a revenue of US$742m in 2014. Comparing cement production capacity in South Africa gives PPC 4.75Mt/yr and Afrisam 3.50Mt/yr. Roughly this is a 58:42 split although this doesn't take into account both companies' aggregates, ready-mix concrete and other product concerns.
It's possible that disagreements over the value of the two companies caused the breakdown. At the time the merger was first proposed in December 2014 PPC was reeling from the resignation of its CEO Ketso Gordhan in September 2014. Some media commentators viewed the proposal as opportunistic on the part of AfriSam given all the internal problems PPC was coping with. Also, given that the combined companies would have held a 60% share of the market, it is likely that the Competition Commission of South Africa would have taken a keen interest.
The uneven ratio of sizes between the two companies considering merging is similar to the problems now facing Lafarge and Holcim. The European building materials companies started out trumpeting their merger of equals before Lafarge's relative poor financial performance and fluctuating currencies made a mockery of this parity. Once this became clear then major shareholders in Holcim started to question the merger.
Back to Africa, the question with PPC and AfriSam is whether they should have swallowed their differences in view of future growth. With Dangote expanding across the continent and Lafarge consolidating its local activity under the Lafarge Africa banner it seems like the time to merge resources and expand.
AfriSam has been saddled with debt since a buyout in 2007 when Holcim reduced its share from 85% to 15%. In 2011 it agreed to pay a penalty of US$16m, representing 3% of its 2010 cement annual turnover in the Southern African Customs Union, due to cartel activity. Then in 2013 investment holding company Pembani Group reduced AfriSam's debt for shares and a controlling say on its board. By contrast PPC has been expanding across Africa, in countries such as the Democratic Republic of Congo (DRC), Zimbabwe, Algeria and Mozambique, to boost foreign sales to 40% by 2017. The programme is anticipated to raise PPC's cement production capacity from 8Mt/yr to 12Mt/yr.
Domination at home in South Africa and firm plans for continental expansion suggest that this deal wasn't in PPC's interest, although its domestic cement sales have declined which may have also made the case for consolidation more tempting. Dangote's progress in west African must be both inspiring and troubling for South African cement producers.