Analysis

Cementos Molins has been celebrating the first anniversary this week of its alternative raw materials unit at its Sant Vicenç dels Horts plant near Barcelona. It has processed 75,000t of waste since September 2022 when the site started up. More is yet to come as the unit has a production capacity of up to 200,000t/yr. The facility receives waste in coarse, granular, powder and sludge formats. Waste from concrete plants is crushed and screened to produce recycled aggregate. Industrial and construction waste is dosed and homogenised to produce alternative raw materials for cement production.

Global Cement Weekly has covered construction and demolition waste (CDW) a couple of times already so far in 2023. A number of cement producers are investing in the sector - including Holcim, Heidelberg Materials, CRH, Cemex – by developing technology, buying up other companies, setting up internal CDW divisions and so on. Holcim and Heidelberg Materials have been the more obviously active participants over the past six months based on media coverage. In September 2023 Holcim France commissioned the Saint-Laurent-de-Mûre alternative raw materials plant and Holcim Group invested in Neustark, a company promoting technology to sequester CO₂ in CDW. In August 2023 Lafarge Canada also completed the first stage of a pilot project to use CDW in cement production at its St. Constant plant in Quebec. Heidelberg Materials meanwhile announced in October 2023 that a forthcoming upgrade to its Górażdże cement plant in Poland would include a new CDW recycling unit and in September 2023 it launched a CDW division for its subsidiary Hanson UK.

Previously we have described how the European Union (EU) has set recovery targets for CDW. However, McKinsey & Company published research in March 2023 setting out the economic case for cement and concrete companies looking at CDW. It estimated that “an increased adoption of circular technologies could be linked to the emergence of new financial net-value pools worth up to roughly Euro110bn by 2050.” It is not a certainty and there is risk involved, but adopting circular practices is one way to reduce this risk. It then went on to predict that recirculating materials and minerals could generate nearly Euro80bn/yr in earnings before interest, taxation, depreciation and amortisation (EBITDA) for the cement and concrete sectors by 2050. The biggest portion of this could come from using CDW in various ways such as a clinker replacement or as an aggregate in concrete production, or the use of unhydrated cement ‘fines.’ Capturing and using CO₂ and increasing alternative fuels (AF) substitution rates would have a financial impact but not to the same scale.

Graph 1: CO₂ abatement cost via circular technologies for cement and concrete sectors. Source: McKinsey & Company.

Graph 1 above puts all of the McKinsey circular technology suggestions in one place with the prediction that all of these methods could reduce CO₂ emissions from cement and concrete production by 80% in 2050 based on an estimated demand of 4Bnt/yr. The first main point they made was that technologies using CO₂, such as curing ready-mix or precast concrete, can create positive economic value at carbon prices of approximately Euro80/t of CO₂. Readers should note that the EU emissions Trading Scheme CO₂ price has generally been above Euro80t/yr since the start of 2022. The second point to note is that using CDW could potentially save money by offering CO₂ abatement at a negative cost through avoiding landfill gate fees and reducing the amount of raw materials required. This is dependent though on government regulation on CO₂ prices, landfill costs and so on.

Cement producers have been clearly aware of the potential of CDW for a while now, based on the actions described above and elsewhere, and they are jockeying for advantage. These companies are familiar with the economic rationale for AF and secondary cementitious materials (SCM) in different countries and locations. CDW usage is similar but with, in McKinsey’s view, existing CO₂ prices, landfill costs, and regulatory frameworks all playing a part in the calculations. Graph 1 is a prediction but it is also another way of showing the path of least resistance to decarbonisation. It is cheaper to start with AF, SCMs and CDW rather than barrelling straight into carbon capture. The beauty here is that cement and concrete sold, say, 50 years ago is now heading back to the producers in the form of CDW and it still has value.

Heidelberg Materials reversed the prevailing wisdom for western multinational cement companies this week when it said it was preparing to buy a cement plant in Indonesia. It announced on 17 October 2023 that its Indonesia-based subsidiary Indocement had signed a deal to acquire all the shares of Semen Grobogan’s integrated cement plant in Central Java for an undisclosed sum. This challenges the trend since the mid 2010s of the likes of Holcim and CRH selling up in the developing world and concentrating instead in markets in North America and Europe.

The decision to buy a cement plant in Indonesia raises eyebrows because the country can produce far more cement than it needs at present. Its cement capacity utilisation rate has been below 60% since 2020 and Central Java has the most plants out of all the nation’s regions. Indocement’s own investor relations presentation for the first half of 2023 laid out data from the Ministry of Industry and internal sources forecasting that the utilisation rate would only reach 57% in 2025. National production capacity meanwhile is around 117Mt/yr at present and expected to reach just below 120Mt/yr in 2025.

Before this latest agreement, Indocement operated four integrated plants in the country and it was the country’s second largest cement producer after Semen Indonesia. Heidelberg Materials bought the company in 2001 and currently owns a 55% share in it. Three of these plants it owns directly, with a capacity of around 25Mt/yr across 14 production lines. One of these is the 18Mt/yr Citeureup plant, one of the world’s largest cement plants. However, in 2022 the company leased the Maros integrated cement plant in South Sulawesi, the Banyuwangi grinding plant in East Java and several cement terminals owned by Bosowa Group, including terminals in Makassar, Barru and Garongkong, via production facility lease agreements. It said this was part of a plan to reduce logistics costs and target the east of the country better. The integrated plant has been leased for three years from March 2022 and the grinding plant and terminals for five years from September 2022.

Semen Grobogan’s plant started commercial production in 2022, has a cement production capacity of 2.5Mt/yr and limestone reserves of over 50 years. Germany-based Heidelberg Materials was keen to point out that the acquisition would reward it with “significant synergies with Indocement’s existing plants in Indonesia” such as in logistics, alternative fuels, and transfer of technical and sustainability knowledge.

It is worth noting financially that Indocement suffered a couple of bad years during the Covid-19 pandemic with revenue and profit down. However, the situation improved in 2022 with both net revenue and earnings before interest, taxation, depreciation and amortisation (EBITDA) for the year up by 11% year-on-year to US$1.04bn and 4% to US$220m respectively. Despite the company’s sales volumes falling by 2% to 17.6% and energy prices increasing it was able to raise its prices. The first half of 2023 has seen the improvements accelerate with more price rises, higher domestic sales volumes from the new leased operations and increased clinker exports to Bangladesh and Brunei.

The improving financial outlook for Indocement and the new condition of many of its clinker production lines may help to explain what is going on here. The Citeureup plant started up in late 2016 and, combined with the Semen Grobogan plant that started up in 2022, both plants cover three-quarters of the company’s production capacity. In a highly competitive market such as Java this may make a significant difference. Consider also the leased plant at Maros, in the less well-served Sulawesi region, and that focus on terminals elsewhere. Here one might be able to view another approach to coping with overcapacity, by targeting different markets either directly or via exports.

It won’t be clear how well Heidelberg Material’s strategy in Indonesia is working until like-for-like financial figures start to be released. The company itself has warned of various risks such as the country’s impending ban on overloaded trucks and the potential effects of a proposed carbon tax on electricity prices. Another thing to consider are last week’s rumours in the press about Heidelberg Materials selling up in India. If this did happen then the proceeds might well help advance the company’s plans in Indonesia. All of this goes to show that one doesn’t always have to copy one’s corporate peers. The retreat by the western multinationals to safer havens has slowed… for now at least.

The Indian corporate rumour mill ramped up this week with speculation that UltraTech Cement and Adani Group might possibly be interested in buying Heidelberg Materials' assets in India. This follows the story broken by the Economist newspaper last week that JSW Cement had made an unsolicited offer to buy them. However, when HeidelbergCement India was asked by the Bombay Stock Exchange what exactly was going on, it replied that it was unaware of any such development and that it did not comment on market speculation.

A week later though and now another related story has popped up. In this case it is unclear exactly what the Hindu newspaper actually knew. The country’s two largest cement producers are locked in a battle for capacity expansion and any opportunity is likely to be of interest to them both. Yet the newspaper did quote a source who said that any divestment by HeidelbergCement India (HCI) would involve a “full-fledged bidding process,” implying that something may be going on.

Germany-based Heidelberg Materials operates four main subsidiaries in India: Gulbarga Cement; HC Trading (India); HCI; and Zuari Cement. HCI and Zuari Cement are the main two in terms of cement production. Heidelberg Materials entered the market in 2006 via a number of purchases and a joint-venture. It then acquired Zuari Cement via its takeover of Italcementi in 2016. Between them the two subsidiaries operate four integrated plants, three grinding plants and one terminal in Central and Southern India. Altogether the company says it has a total cement production capacity of 14Mt/yr. Gulbarga Cement, meanwhile, is a long running project via Zuari Cement to build a new integrated plant at Gulbarga in Karnataka. As of mid-2021 at least the company was still finalising planning and permitting requirements.

HCI’s income fell by 3% year-on-year to US$275m in the financial year to the end of March 2023 from US$282m in the same period that ended in 2022. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 39% to US$35.4m from US$58.2m, its lowest figure since at least its 2017 financial year. The company blamed this on higher fuel prices, although it has been trying to offset this by optimising its fuel and power mix. Unfortunately, it was not able to pass these costs on to its customers through price rises due to competition and new cement plants being commissioned in its market areas. Its revenue and profits improved somewhat in the quarter to July 2023. Recent financial data on Zuari Cement appears to be unavailable, possibly in part due to the company changing the dates of its financial year in 2020. However, it reported revenue of US$249m in its 2021 financial year, a broadly comparable figure to HCI’s. When asked during the company’s earnings call in July 2023, HCI’s managing director Joydeep Mukherjee did confirm that the company was looking at a potential merger with Zuari Cement. However, the company was waiting for the right time before it would consider actually doing it.

The Indian cement market has been consolidating in recent years. Companies have been increasing their production capacity, competition has been intensifying and the spike in fuel prices in 2022 battered profits. Adani Group’s acquisition of Holcim’s businesses in 2022 has probably been the most visible example of this trend towards mergers and acquisitions. It follows UltraTech Cement’s acquisition of Jaiprakash Associates in 2017. Heidelberg Materials has been steadily selling off bits and pieces of its cement business since the mid 2010s but at a slower pace than Holcim. Selected sales have occurred in Italy, Spain, Georgia, Ukraine and various countries in Africa, but the biggest was the sale of its US West region to Martin Marietta Materials for US$2.3bn in 2021. It reinforced this process with its ‘Beyond 2020’ strategy with the stated aim to simplify its country portfolio and prioritise its strongest market positions. A large-scale divestment of its operations in India would certainly fit with this plan. Whether the current reporting is accurate or not, Heidelberg Materials’ intentions for its Indian operations are certainly worth keeping an eye on.

The European Union (EU) carbon border adjustment mechanism (CBAM) started its transitional phase this week ahead of the full adoption of the scheme in 2026. Importers of goods with a high carbon cost, including cement, will have to report the direct and indirect CO₂ emissions associated with production. No financial penalty will be incurred during the transition period, but from 2026 onwards importers will have to start buying certificates at the EU emissions trading scheme (ETS) price. However, even the full version of the CBAM will be phased in with the cost of embedded emissions increased gradually from 2026 to 2034. Readers can catch up on the CBAM guidance for importers here.

Graph 1: Sources of cement and clinker imports to the EU in H1 2023. Source: Eurostat/Cembureau.

Global Cement Weekly has covered the EU CBAM frequently, but it is worth remembering which countries are most likely to be affected. According to data from Eurostat and Cembureau, the EU imported just over 10Mt of cement and clinker in 2022. This compares to around 2.5Mt in 2016. Graph 1 (above) is even more instructive, as it shows where the cement and clinker came from in the first half of 2023. Most of it was manufactured in countries on the periphery of the EU with, roughly, a third from Türkiye and a third from North Africa. These are the countries with the most to lose from the CBAM.

Graph 2: CO₂ emissions intensity for cement exports. Green signifies cleaner than the EU average, Red signifies more carbon intensive than the EU average. Source: World Bank.

Türkiye is the most exposed. Data from Türkçimento shows that it exported 3.4Mt of cement and clinker into the EU in 2022 or 13% of its total exports. Bulgaria, Italy and Romania were the main destinations for cement. Belgium, Spain and France were the main targets for clinker. Notably, more clinker than cement was exported to the EU. For context, in total Türkiye exported 18.5Mt and 8.5Mt of cement and clinker respectively in 2022. The US was the leading destination for Turkish cement at 9.7Mt and Ivory Coast for clinker at 1.3Mt. Türkiye seems set to tackle the problem that CBAM poses for its iron and cement sectors by introducing its own emissions trading scheme. One view expressed has been that if the country has to pay for its carbon emissions it would much rather pocket the money domestically than see it go to a foreign entity. A relative CBAM Exposure Index put together by the World Bank by June 2023 suggested that Türkiye would actually benefit slightly in comparison to some of its cement exporting rivals as the CO₂ emissions intensity of its cement exports was 4.85kg CO₂eq/US$. This study’s pivot point was 4.97kg CO₂eq/US$, putting Türkiye just across the line for increased competitiveness.

Cement export data for Algeria is harder to find but state-owned Groupe des Ciments d'Algérie (GICA) has been regularly issuing bulletins since 2018 detailing its cement exports. It previously had an export target of 2Mt for 2023 with destinations in Africa, Europe and South and Central America. Looking more widely, research by the African Climate Foundation (ACF) and the Firoz Lalji Institute for Africa at the London School of Economics and Political Science estimated that 12% of Africa’s cement exports ended up in the EU. It reckoned that the introduction of the CBAM and an EU ETS price of Euro87/t would reduce total African exports of cement to the EU by 3 - 5% if the EU ended its ETS free allowance. The World Bank CBAM Exposure study found that Egypt and Morocco were likely to become more competitive for cement exports but Tunisia less so. Unfortunately this analysis did not cover Algeria.

The third largest individual source of imports into the EU in the first half of 2023 was Ukraine. Research from the Kiev School of Economics estimated that the start of the CBAM would reduce the export volume of cement to the EU by 2 - 5%/yr. The World Bank study found that Ukraine would become less competitive as the emissions intensity of its cement exports was 7.62kg CO₂eq/US$. This would be compounded by the fact that more than 90% of the country’s cement exports ended up in the EU. However, since the EU backed the country when Russia invaded in early 2022, imposing the CBAM on exports has acquired geopolitical consequences. There has been lobbying on this issue from various sources, so this situation might be one to watch to gain a sense of how the EU might react when its sustainability aims clash with its political imperatives.

One major risk for the cement exporting countries soon to be affected by the CBAM is if other countries start to do the same in a domino effect before the exporters introduce their own carbon pricing schemes. Türkiye is clearly alert to this. Other countries are thinking the same way. The US, for example, has had senators discuss the merits of setting up its own version. It is also wise to using sustainability legislation to further its own economic ends as the Inflation Reduction Act in 2022 showed. At the moment the US needs lots of cement imports but were this to change then the case to enact a US CBAM might grow.

Finally, one should never discount the sheer amount of bureaucracy involved when dealing with the EU. The UK discovered this when it voted to leave the EU and now the rest of the world gets to enjoy it too! Christian Alexander Müller of Evonik told the Die Welt newspaper this week that Brussels had created a bureaucratic ‘Godzilla.' Another commentator noted that the European Commission only published its guidance document for importers on CBAM in mid-August 2023 and that helping export partners would be like teaching them Latin in just a few weeks. Bona fortuna!

Taiwan Cement has just commissioned a 107MWh energy storage project at its Yingde plant in Guangdong province, China. Subsidiary NHOA Energy worked on the installation and has been promoting it this week. The battery storage works in conjunction with a 42MW waste heat recovery (WHR) unit, a 8MWp solar photovoltaic unit and a proprietary energy management system. It is expected to store about 46,000MWh/yr of electricity and save just under US$3m/yr in electricity costs.

NHOA Energy, formerly known as Engie EPS before Taiwan Cement bought a majority stake in it, claims it is one of the largest industrial microgrids in the world. We can’t verify this for sure, but it is definitely large. For comparison, the 750MW Vistra Moss Landing Energy Storage Facility in California often gets cited as the largest such facility in the world. This is run by a power company, as are many other large battery energy storage systems. In its annual report for 2022 Taiwan Cement said it was planning to using NHOA’s technology to build seven other large-scale energy storage projects at sites in Taiwan including its integrated Suao, Ho-Ping and Hualien cement plants.

The aim here appears to be supplying renewable electricity to the national grid in Taiwan. Taiwan Cement is diversifying away from cement production, with an aim to derive over 50% of its revenues from other activities besides cement by 2025. In 2022 cement and concrete represented 68% of its sales, while its electricity and energy division, including power supply and rechargeable lithium-ion batteries, represented 29%. The company is also not using its own batteries at the Yingde plant. Instead it is using lithium iron phosphate batteries supplied by Ningde Times. This is worth noting, as the cement producer’s batteries are used in vehicles.

Global Cement regularly reports news stories on cement plants that are building photovoltaic solar power arrays. However, so far at least, energy storage projects at scale have been rarer. One earlier example of an energy storage system loosely associated with a cement plant includes the now decommissioned Tehachapi Energy Storage Project that was situated next to the Tehachapi cement plant in California. That project tested using lithium ion batteries to improve grid performance and integrate intermittent generation from nearby wind farms. It is also worth noting that Sumitomo Osaka Cement’s sister company Sumitomo Electric is one of the world’s larger manufacturers of flow batteries, although no installation at a cement plant appears to have happened yet. In simple terms, flow batteries are an alternative to lithium ion batteries that don’t store as much energy but last longer.

More recently, Lucky Cement in Pakistan started commercial operation of a 34MW solar power plant with a 5.59MWh energy storage unit at its Pezu plant in Khyber Pakhtunkhwa in late 2022. Reon Energy provided the equipment including a lithium-ion based battery approach to the storage. Then, in March 2023, Holcim US said that it was working with TotalEnergies to build solar power capacity and a battery energy storage unit at the Florence cement plant in Colorado. TotalEnergies will install, maintain and operate a 33MW DC ground-mounted solar array and a 38.5MWh battery energy storage system at the site. Operation of the renewable energy system is expected to start in 2025.

Away from electrical batteries, the other approach to energy storage at cement plants that has received attention recently from several quite different companies has been thermal batteries. The two prominent groups using them at different scales are Rondo Energy and Synhelion. The former company has developed its Heat Battery technology, which uses refractory bricks to absorb intermittent renewable energy and then supply the energy back as a steady stream of hot gas for use in a cement plant mill, dryer, calciner or kiln. Both Siam Cement Group (SCG) and Titan Cement have invested in Rondo Energy. In July 2023 SCG and Rondo Energy said that they were planning to expand the production capacity of a heat battery storage unit at a SCG plant to 90GWh/yr. Synhelion, meanwhile, has been working with Cemex on using concentrated solar power to manufacture clinker. It achieved this on an ‘industrially viable scale’ in August 2023. It has since been reported that the companies are working on building a small scale industrial plant at Móstoles near Madrid by 2026. Crucially for this discussion though, the process also uses a thermal energy storage unit filled with ceramic refractory material to allow thermal energy to be released at night, and thus ensure continuous operation.

The examples above demonstrate that some cement companies are actively testing out storing energy at scale. Whilst this will not solve the cement sector’s process emissions, it does potentially start to make using renewable energy sources more reliable and reduce the variable costs of renewable power. Whether it catches on remains to be seen. Most of these kinds of projects have been run by power companies and that is where it may stay. It is instructive to note that Reon Energy was the only company to state that its battery-based energy storage system has a life-span of 8 - 12 years. Our current vision of a net-zero future points to high electrical usage but it may be shaped by how good the batteries are… from our phones to our cars to our cement plants.

For more information on Rondo Energy read the January 2023 issue of Global Cement Magazine