Analysis
Search Cement News
Smog politics and cement overcapacity
Written by David Perilli, Global Cement
03 December 2014
China has admitted once again that its cement industry is plagued by over-capacity. State news agency Xinhua came clean this week as it reported that 103 production lines have been closed for the winter months.
The principal reason given for the winter shutdown was prevention of air pollution with resolution of overcapacity presented as a handy secondary. With long term plans in place to reduce overcapacity through industry mergers, demolitions and bans on new plants this is one more offshoot from the very public problems that smog and industrial pollution has given the Chinese government.
The policy follows a similar shutdown in China's far-western state of Xinjian that has been implemented since 1 November 2014. Xinjian is away from China's main cement production heartland in the south and east of the country. The idea here is to stagger winter production from cement kilns that use coal to avoid flue gas emissions rising when coal consumption for heating also rises. Since cement consumption by the construction industry is lower in the winter, a stoppage at this time of year should affect the cement producers less. Proposals have also been made to include Inner Mongolia and Hebei into the scheme.
The three provinces in question now - Heilongjiang, Liaoning and Jilin – represent 80Mt/yr or 6% of China's total cement production capacity from 28 cement plants, according to the Global Cement Directory 2014. This is broadly in line with the proportion of national population the three provinces hold.
Back in 2012 the National Development and Reform Commission suggested that national cement capacity utilisation was 69%. Local media in China have been reporting that currently Xinjian uses 60%. Western commentators reckon that China uses only 50% of the cement industry's total production capacity. By contrast India, the world's second biggest cement producer after China, has been lamenting this year that capacity utilisation had fallen below 70%. Worldwide, excluding China, capacity utilisation rates have been estimated to be just below 70% in 2014.
Plummeting particulate matter counts are great for Beijing's cyclists and their continued goodwill towards the government. However, the implications are bad for the producers who are affected and the associated industries. As one Chinese equipment manufacturer commented on Global Cement's LinkedIn Group, "...many small manufacturers of cement plants in China will go bankrupt." Unfortunately this too is also in line with the country's strategy to reign in its cement industry through industry consolidation. It may yet turn out sunny for the state planners... once the smog clears.
Movers in Myanmar
Written by David Perilli, Global Cement
26 November 2014
A couple of news stories this week from Myanmar present an opportunity to look at the country. Lafarge has opened a cement repacking plant in the Thilawa special economic zone (SEZ). Upcountry meanwhile, Anhui Conch has had a joint venture approved by the government for an upgrade to an existing cement plant in Kyaukse.
Towards the end of 2013 the government announced that 13 companies were to establish joint ventures with the local state-owned cement plants. In addition the Myanmar Investment Commission had approved the construction of nine new cement plants with an aim of a target cement production capacity of 10.53Mt/yr. Following this, Siam Cement Group's on-going investment in a 1.8Mt/yr plant is due for completion in 2016. Semen Indonesia have been pushing for a joint venture since mid-2014 although it was still trying to agree terms in September 2014, according to local media. Italcementi's chief executive Carlo Pesenti also expressed his company's interest in setting up a joint venture in early 2014.
Association of Southeast Asian Nations (ASEAN) investment bank CIMB placed cement demand in Myanmar at 4Mt in 2012 and a local cement production capacity of 3Mt/yr. Cement consumption was placed at 76kg/capita for the country's population of 52.8 million. In contrast, Thai cement engineering supplier LV Technology reported demand of 6Mt in 2012. CIMB recorded Myanmar's capacity utilisation rate at 60%. Cement sales were broken down as 95% by bag and 5% by bulk.
This kind of supply-demand gap excites foreign investors. Neighbouring Thailand has a consumption of 515kg/capita, Myanmar imports cement from Thailand, Indonesia and India and the country's GDP growth rate is currently estimated to be around 8%.
Yet what's notable about Myanmar's industry are the high number of small, low production capacity cement plants. Many of them are wet process plants. Only one plant is reported as being capable of producing over 0.5Mt/yr with the Siam Cement plant project due to significantly bust this record when it is commissioned in 2016. Limited limestone deposits in the country may also make plants larger than 1.5Mt/yr unviable. Fuel is also an issue, with LV Technology advocating a wholesale industry conversion from state-subsidised gas to coal due to power shortages and impending competition issues.
In 2015 Myanmar is set to enact free trade tariffs from its ASEAN membership. Without protection or preparation, its cement plants could face serious consequences from cheaper imports from Thailand, Indonesia and Vietnam. The move by the government to encourage joint ventures with foreign partners looks like one way to mitigate this. In a market report in 2013 CIMB described the situation for investors as 'high-growth, high-barrier.' This seems to be an apt description given the experiences of Semen Indonesia.
China rides out
Written by David Perilli, Global Cement
19 November 2014
Startling news from Hebei, China this week. The northerly province intends to move out its excess capacity in heavy industries, including cement, to other countries by 2023. 5Mt of cement production capacity is planned for transfer by 2017 and 30Mt is planned for transfer by 2023. The larger figure is about the same as the cement production capacity of France or Germany!
Hebei isn't the biggest cement-producing province in China but it has received attention as the authorities have cut down on 'out-dated' production capacity. The region was targeted in a programme to cut emissions from heavy industry due to its proximity to Beijing and that city's smog issues.
The Ministry of Industry and Information Technology (MIIT) set a target of 60Mt/yr in cement production capacity to be cut by 2017. The region was also the site of massive cement plant demolitions in late 2013 and early 2014. 18 cement plants were demolished in December 2013 followed by 17 cement plants in February 2014 alongside the destruction of connected grinding and storage capacity. Overall an incredible 74 cement plants in the area surrounding Shijiazhuang alone were targeted for demolition by March 2014.
Following this massive spate of capacity elimination, the public announcement to actively move abroad marks a stark change to China's general cement industry strategy so far. The country's equipment suppliers like Sinoma have been taking business from European rivals like FLSmidth or KHD for some time now especially in developing markets.
In 2013, FLSmidth reported a cement market order intake of US$575m and KHD reported an order intake of US$216m. In comparison Sinoma's cement equipment and engineering services reported order intake of US$5.59bn. In its annual report for 2013 FLSmidth estimated that the global market for new kiln capacity was 50Mt. At a capacity construction price of US$150/t this suggests that Sinoma took orders for nearly three quarters of the world's required capacity for new cement kilns in 2013. Order intake covers more than just building cement plants, so this quick calculation presents only a rough impression of what's going on.
More recently Chinese cement producers have started building their own cement plants or funding them outside of China. In October 2014 State Development and Investment Corp and Anhui Conch Cement Company announced plans to fund a plant in Indonesia. In September 2014 ground breaking was held for a Chinese-funded plant in Kyrgyzstan. In June 2014, Huaxin Cement invested in Cambodia Cement. This was its second overseas investment following a project in Tajikistan in 2011.
With China's government still attempting to avoid a hard economic landing as its growth slows, moving industrial overcapacity overseas makes sense. International and national players must be worried about the potential scale of this transition. On the plus side, however, those notorious inscrutable Chinese production figures in the cement industry will be far easier to analyse in plants outside of China facing international competition. Today Hebei, tomorrow the world!
Capturing the cement carbon capture market
Written by David Perilli, Global Cement
12 November 2014
One highlight from the cement industry news over the last month was Skyonic's announcement that it has opened a commercial-scale carbon capture unit at the Capitol Aggregates cement plant in Texas, US. Details were light, but the press release promised that the unit was expected to generate US$48m/yr in revenue for an outlay of US$125m. Potentially, the implications for the process are profound, so it is worth considering some of the issues here.
Firstly, it is unclear from the public information released whether the process will actually make a profit. The revenue figures for the Skyonic unit are predictions and are dependent on the markets that the products (sodium biocarbonate, hydrogen and chlorine) will be sold into. Skyonic CEO and founder, Joe Jones, has said in interview that the sodium-based product market by itself could only support 200 - 250 plants worldwide using this process. Worldwide there are over 2000 integrated cement plants. Since Jones is selling his technology his market prediction might well be optimistic. It is also uncertain how existing sodium biocarbonate producers will react to this new source of competition.
Secondly, Skyonic is hoping to push the cost of carbon capture down to US$20/t. Carbon dioxide (CO2) capture and transportation varies between industries depending on the purity and concentration of the by-product. For example, in 2011 the US Energy Information Administration estimated the cost for CO2 capture to range from US$36.10/t for coal and biomass-to-liquids conversion up to US$81.08/t for cement plants. The difference being that capturing CO2 from cement plant flue gas emissions requires more cleaning or scrubbing of other unwanted chemicals such as mercury.
With these limitations in mind, Skyonic is placing itself in competition with the existing flue gas scrubbing market rather than the carbon capture market, since the level of CO2 removal can be scaled to local legislation. Plus, SOx, NO2, mercury and other heavy metals can be removed in the process.
Back on carbon capture, Skyonic is securing finance for a process it calls Skycycle, which will produce calcium-based products from CO2, with a pilot plant planned at Capitol Aggregates for late 2015. This puts Skyonic back amongst several other pilot projects that are running around the world.
Taiwan Cement and the Industrial Technology Research Institute inaugurated their calcium looping project pilot in mid-2013. It was last reported to have a CO2 capture rate of 1t/hr.
The Norcem cement plant in Brevik, Norway started in early 2014 to test and compare four different types of post-combustion carbon capture technologies at its pilot unit. These are Aker Solutions Amine Technology, RTI Solid Sorbent Technology, DNV GL/ NTNU/ Yodfat Engineers Membrane Technology and Alstom Power Regenerative Calcium Cycle. The project in conjunction with HeidelbergCement and the European Cement Research Academy (ECRA) is scheduled to run until 2017.
St Marys Cement in St Marys, Canada started its bioreactor pilot project in July 2014. This process uses flue gas to grow algae that can then be used for bio-oil, food, fertiliser and sewage treatment.
If Skyonic is correct then its sodium biocarbonate process in Texas is a strong step towards cutting CO2 emissions in the cement industry. Unfortunately, it looks like it can only be a step since the market won't support large-scale adoption of this technology. Other pilots are in progress but they are unlikely to gather momentum until legislation forces cement producers to adopt these technologies or someone devises a method that pays for the capture cost.
Dynamite, cement and financial reports
Written by David Perilli, Global Cement
05 November 2014
Lafarge's third quarter financial results have coincided with the alarming news that terrorists attacked one of its cement plants in Nigeria. Thankfully nobody was hurt at the Ashaka plant. The suspected Boko Haram insurgents reportedly came looking for French nationals but the plant had been mostly evacuated following an earlier more violent incident at a nearby town. Instead they stole explosives and trucks and fled.
The resonance here with Lafarge's global financial situation is that rebel action elsewhere in the world was noted as having an adverse effect on the cement producer's coffers for the third quarter of 2013. In Iraq cement volumes have reportedly fallen by 15% in the year-to-date and almost halved in the third quarter, hit by an inability to transport cement across the country since June 2014, when Islamic State fighters captured parts of northern Iraq.
Looking at the nine months so far in 2014, Lafarge's sales have fallen by varying amounts with the exception of one territory: Middle East and Africa. Here, bucking the trend, sales rose by 3% to Euro2.8bn. The area had been the group's single largest sales region so far in 2014. Of course countries such as a South Africa are much more stable, but most other countries in the territory have had recent terrorism campaigns where a European-backed cement plant might present itself as a target.
This is not good news for a corporate balance sheet relying on these same countries to keep the profits up. However, as Lafarge states in its outlook, 'emerging markets continue to be the main driver of demand and Lafarge will benefit from its well-balanced geographic spread of high quality assets.' Spreading its bets geographically should pay off.
Also in its outlook, Lafarge announced that it intends to pause its stand-alone divestments pending completion of the planned merger with Holcim. The move suggests that the company is prioritising the impending merger over debt reduction. With Lafarge's and Holcim's recent formal notification to the European Commission of their proposed merger to obtain regulatory approval, the last of its necessary notifications worldwide, the merger is getting closer. So far, the original expectation of closure in the first half of 2015 does not look unreasonable.
When former British prime minister Harold Macmillian was asked what causes governments trouble, his apocryphal reply was, "Events, dear boy, events." The same applies to building materials producers. There may be more 'events' before the merger completes.