Analysis

Half-year results from some of the major global cement producers are starting to present a detour from the usual European doom-and-gloom and optimism for the BRIC economies (Brazil, Russia, India, China and South Africa) of recent years.

Yes, Europe is dragging balance sheets down (particularly certain countries), but some indicators are starting to stabilise following a good second quarter. Very possibly the cost cutting programmes of the multinational cement producers are starting to kick in. Alternatively, perhaps these cement markets have finally bottomed out.

Lafarge has suffered a bad six months with cement sales down by 6%. However, its sales decline in Western Europe has slowed down with the worst news now coming from Central & Eastern Europe. Cemex has reported a better second quarter in 2013 with overall sales up by 4%. It too can show softened declines in its European territories. Italcementi and its subsidiary Ciments Français both saw revenues falling in the half year but either at a reduced rate or with a slowdown in the rate that earnings before interest, taxes, depreciation and amortisation (EBITDA) are declining.

Only HeidelbergCement's results have resisted any direct signs of an improvement in Europe. Overall revenue has remained stable for the half year with its profit up year-on-year. In Europe its revenue reduction has worsened to 4.7% for the half year. However it did observe a 'significant' improvement in cement sales in the UK.

Meanwhile, one of the cement industry's more reliable markets in recent years – India – is showing signs for concern.

As our news roundup this week reports, the country's largest standalone cement producer, UltraTech, had its profits drop year-on-year by 13.5% to US$111m for the most recent quarter and its net sales actually dropped slightly. Holcim has also been active in India with the announcement that it is simplifying its corporate structure to cut costs. In addition Lafarge reported that its market growth in India was 'subdued', considerably down from the 24% growth in cement sales seen in that country in the first half of 2012.

The news from UltraTech and Lafarge suggest that the rate of growth of the Indian cement industry is slowing. The unanswered question from Holcim's activity in India is whether they are doing it to counteract European losses or to counteract a loss of profitability in India.

Holcim's half-year results will make interesting reading when they are released in mid-August 2013 and may help to decide whether the worst is over in Europe.

Sri Lankan cement demand fell in the first half of 2013. Yet this doesn't seem to be stopping the cement industry's slow recovery following the civil war that ended in 2009.

As reported by Sri Lankan media around the launch of Holcim Lanka's 2012 Sustainability Report, the local cement industry has seen volumes fall by 7% but this is expected to improve in the second half. Tokyo Cement, a grinding plant operator, confirmed a similar drop in the first quarter of 2013.

Despite the talk of downturn so far in 2013, Tokyo Cement has announced plans for a 1Mt/yr cement plant costing US$50m complete with its own captive biomass power plant. In addition, plans have emerged of a joint venture involving Pakistan's D.G. Khan Cement to build a grinding plant at Hambantota in the south of the island. Costing US$15m, the plant is intended to process exports to South Africa and Kenya.

The explicit intention to produce clinker in Pakistan and then grind it in Sri Lanka before export to a third destination makes an interesting notion. The Pakistan cement producer may benefit from being able to export cement from Sri Lanka with the added security of knowing that the grinding plant is located in a growing market itself. A helpful strategy given Pakistan's cement production overcapacity.

The Hambantota project is also noteworthy because another Pakistan-based company, Thatta Cement, announced in April 2013 that it had signed an agreement with the Sri Lanka Ports Authority to a build a grinding and bagging plant at Hambantota. Also in 2013 the Nepali entrepreneur Binod Chaudhary submitted a US$75m plan for a cement plant in the north of the island.

Of course all of this appears miniscule in comparison to the level of investment Semen Indonesia has chalked up to spend between now and 2016: up to a whopping US$2bn.

Elsewhere in the news this week the price of extending a US Environmental Protection Agency (EPA) deadline has revealed itself to be US$1.5m. Lafarge North America has succeeded in pushing back pollution controls at its Ravena plant by over a year in exchange for interim limits and an investment in air pollution projects in the local community. It's not a fine but the announcement follows other pollution-related payments at cement plants run by Holcim and Ash Grove. Let's hope that any new plants in Sri Lanka avoid these kind of payments.

New Cement Sustainability Initiative (CSI) data for 2011 shows that the global cement industry has reduced its specific net CO₂ emissions per tonne of cementitious product by 17% since 1990. This represents a serious amount of carbon prevented from entering the atmosphere. Using United States Geological Survey (USGS) world production data, if cement producers in 2011 were still emitting C0₂ at 1990 levels 456Bt of additional CO₂ would have been released between 1990 and 2011.

Unfortunately there are a couple of problems.

Firstly, submitting data for the project is voluntary. As the CSI points out in its press release the data set comprises 55% of cement production outside of China. A rough calculation based on global cement production capacity suggests that this could only account for about one third of cement made. So how much carbon does the other two-thirds of cement made emit?

Secondly, although CO₂ emissions per tonne of cement have gone down by a sixth since 1990, global cement production more than tripled (!) in the same time period. USGS data placed world production at 1.40Bt in 1990. It estimated 3.59Bt in 2011. In terms of net CO₂ released into the atmosphere, in 1990 this was 1058Bt. In 2011 it was 2260Bt.

The big cement producers compare as follows to the CSI data, which reports emissions of 629kg/t. Lafarge reported 592kg/t cementitious in 2011 and 585kg/t in 2012. Holcim reported 584kg/t in 2011 and 579kg/t in 2012. HeidelbergCement reported 621kg/t in 2011. Cemex reported 612kg/t in 2011 and 2012. No data on specific net CO₂ emissions were available for the major Chinese cement producers.

The CSI data shows that the cement industry has made an effort to reduce CO₂ emissions since 1990. Yet this has been counteracted by a rise in cement production. To compensate for the rise in production between 1990 and 2011 the specific net CO₂ emissions per tonne of cementitious product would have had to have fallen to below 300kg/t, a drop of 60%.

Environmentally sensitive readers shouldn't despair yet though as the CSI has demonstrated that emissions and production are gradually separating in the cement industry. From 2010 to 2011 specific net CO₂ emissions per tonne of cementitious product fell from 638kg/t to 629kg/t. If this trend continues - and if it is representative for the cement producers the CSI doesn't cover – then the industry may be getting a handle on its emissions. We may be about to hit peak emissions for the cement industry sooner rather than later.

Following on from last week's analysis column (Global Cement Weekly #107: Gimmie Water - water conservation in the cement industry) Irish cement producer CRH has released its 2012 Sustainability Report.

Unfortunately, no comparable figures for water usage per cement production were published and CRH noted usage measurement as a group objective. Its best estimate was that the group used 36Mm³ of water in 2012, with 12% of that figure (4.4Mm³) used in cement production.

Otherwise plenty of good news filled the report with improvements shown for most of the key indicators. Notably chief executive office Myles Lee pointed out that CRH had substantially increased alternative fuel usage in its European cement operations in 2012 and that this helped with rising energy costs.

Sticking with CRH, the Irish cement producer recently released information on its development strategy for the first half of 2013.

Despite - or perhaps because – of decreasing profits in 2012, CRH's development spend has nearly doubled year-on-year to Euro470m from Euro250m. The increase is mainly due to the asset swap with Cementos Portland Valderrivas (CPV), which was announced in February 2013. CRH agreed to transfer a 26% stake in Corporacion Uniland to CPV. In return, CPV agreed to transfer its 99% stake in Cementos Lemona to CRH, as well as giving CRH its UK-based cement importer Southern Cement.

In its press release CPV specifically mentioned that the asset swap would reduce its exposure to the Spanish cement market. On CRH's side the inclusion into the deal of a UK cement importer may be incidental but having an additional destination for potential excess Spanish cement production capacity can only be prudent.

Elsewhere this week, Turkmenistan's decision to protect domestic cement production with a 100% import duty raises interesting implications for exporters in the region such as Iran. It is unclear whether Turkmenistan is blocking Iranian exports altogether or just taxing them more. Either way, following news of a Iraqi block on Iranian exports, it seems likely to dent Iran's ambition to reach 18Mt of exports in the 2013 – 2014 Iranian calendar year, which will end on 20 March 2014.

It's been a cold and rainy 'summer' so far in 2013 in the UK. So much so that crowds at the Glastonbury Music Festival watching the Rolling Stones this weekend were lucky they didn't get drenched during 'Jumpin' Jack Flash.' However, cement producers around the world are increasingly tackling the opposite problem as they concentrate on water conservation measures.

As we see this week, the Cement Manufacturers' Association of the Philippines (CeMAP) has started advocating the use of rainwater for cement production. According to figures put out by CeMAP, an average dry-process cement plant uses 100-200L of water per tonne of clinker produced. The Philippines uses around 3.2BnL/yr of water for its cement production capacity of 21Mt/yr, which operated at an 85% capacity utilisation rate in 2012. A simple calculation reveals a water usage rate of 179L/t of cement produced in the Philippines. Though close to the top of CeMAP's dry-process water use range, it is actually less than some of the multinational cement producers (see below).

Water conservation among multinational cement producers has become increasingly high-profile in recent years. In January 2013 Cemex announced that it had developed a methodology to standardise water measurement and management across all of the company's operations. This followed a three year partnership between Cemex and the International Union for Conservation of Nature (IUCN). In its 2012 Sustainability Report Cemex reported that 12% of its cement operations were in water-scarce or water-stressed locations. Its water consumption for cement was 305L/t. This compares to Holcim's water consumption for cement of 260L/t in 2012.

Other multinational cement producers have put into place similar measures. Lafarge started to assess its 'water risk' in 2011. It found that 25% of its cement production sites were located in areas of water scarcity or high water scarcity, based on 2025 projections of annual renewable water supplies per person. A follow-up with the WWF Water Risk Filter (WRF) continued the assessment, identifying 15 Lafarge cement sites as being located in 'high-risk' basins, with 10 particular sites identified in Pakistan, India, Algeria, Mexico, Jordan, China, South Africa, Iraq and Uganda.

It is worth noting here that most of these countries are currently growth areas for cement demand and so producers with plans to expand in these regions need to tread a careful line. Cement makers that use vast amounts of water in water-scarce regions will be less desirable neighbours for local populations than those that use less water. This, like consumer and regulatory pressures in developed markets, could turn into a major driving factor for improved environmental performance in developing regions. Investing in water conservation measures therefore appears to make sense socially, environmentally and (ultimately) economically.