Analysis

If you have any spare cement this week – send it to Ghana!

First, HeidelbergCement announced plans for a new cement mill on the coast at Takoradi. Then, Dangote officially started to export cement to the west African nation.

HeidelbergCement's strategy in the region is telling because it is starting to head inland. The press release on Ghana indicated that the German-based cement producer intends to expand its capacity to 4.4Mt/yr by late 2014. This follows a recent announcement that HeidelbergCement are building their first grinding plant in Burkina Faso, directly north of Ghana. Previously the producer imported cement there. Now it intends to build a US$50m plant with a production capacity of 0.65Mt/yr.

Since most of HeidelbergCement's existing infrastructure in the region is based on the coast, building a plant in a landlocked nation - Burkina Faso - is a huge vote of investor confidence in west Africa. "In particular the countries of sub-Saharan Africa have a very high growth potential due to their early stage of industrialisation and rich natural resources," said Dr Bernd Scheifele, chairman of the managing board of HeidelbergCement in the statement accompanying the Ghana expansion.

The move also provides a clue as to how competitive the cement market is becoming in territories near the coast in Africa. Currently HeidelbergCement holds a mostly coastal presence in western Africa, in Benin, Democratic Republic of the Congo, Gabon, Ghana, Liberia, Sierra Leone and Togo. It has four cement plants and nine grinding plants. Its cement business made a year-on-year increase in revenue of 12% to Euro612m in 2012.

Roughly calculated, HeidelbergCement is paying US$77/t in Burkina Faso compared to US$38/t in Ghana to build its new production capacity. HeidelbergCement must be paying double for a reason.

Meanwhile, Dangote Cement announced on the same day (11 March 2013) that a fleet of cement trucks were heading to Ghana. Already the Nigerian cement producer holds a cement terminal with a bagging capacity of 1.5Mt/yr in the country. Dangote intends to start exporting 5000t/week of cement. Its eventual target is 5000t/day when the logistics are in place, or up to 1.8Mt/yr. Not a bad start in unloading Dangote's self-declared overcapacity of 20Mt/yr in Nigeria upon the neighbouring nations in the Economic Community of West African States (ECOWAS).

One of the ironies of the on-going Eurozone crisis is that several of the affected multinational cement producers hold a presence in Egypt. Egypt, which has a population of over 80m and growing demand for cement, should be hauling these balance sheets out of a hole. Instead it teeters on the edge of one. The country, one of the few well-performing countries in Titan's 2012 results this week, came with a sting in its tail.

According to Titan, cement consumption in Egypt reached 'new highs' in 2012 justifying the group's new capacity. Although Titan declined to publish actual figures, it stated that turnover declined only slightly despite the greater total supply of cement in the market. Overall, Titan's Eastern Mediterranean region, which includes Egypt, saw turnover increase by 7% to Euro296m. Yet Titan's operating margins in Egypt were impacted by increases in energy costs. In addition the country's political and economic instability negatively affected the group's outlook there for 2013.

Italcementi commented too in its annual results about how much cement consumption grew in 2012. The Italian-based multinational stated that it grew by 5% from 2011 supported by the residential sector. Revenue grew in Egypt by 2% to Euro564m despite domestic sales volumes falling as much as 15%. As a whole, operating results were slightly lower than in 2011, partly due to the strong increase in the cost of energy factors, notably gas.

Titan and Italcementi are clearly both trying to play up their achievements in Egypt in otherwise dismal annual reports. Other players have no such compunctions.

Cemex encountered a 10% decline in sales volumes for 2012, half its Mediterranean region average of 19%. Lafarge reported that its sales were down by 5% in 2012 and its domestic volumes were down by 12%. It pointedly mentioned the impact of new cement production capacity on its sales. Cimpor in its third quarter results to September 2012 reported a 2% fall in sales volumes and a rise in turnover of 8% to Euro138m.

Looking back at Egyptian cement industry news stories on GlobalCement.com reveals two regular issues echoed by the annual reports: fuel concerns and labour unrest. This week is no exception, with the Egyptian government reacting to price rises related to energy input issues.

A question occurs. How much better would the Italcementi and Titan balance sheets be without the problems in Egypt? It's almost impossible to tell, but one solution would be to tackle energy supply issues by increasing the use of alternative fuels. This is covered by the Global CemFuels Conference & Exhibition that takes place on 11-14 March 2013 in Istanbul, Turkey. For more information and to register visit: www.cemfuels.com.

With the annual results for 2012 in from Lafarge, Holcim and CRH we now return to look at how the European markets coped.

Holcim summed up the mood perfectly in its media release on its annual results for 2012. First it pushed the big positive (net sales up overall) but then finished its first (!) sentence with: '...despite the difficult economic environment in Europe.'

Overall in Europe, Lafarge saw its cement volumes fall by 9% to 29.6Mt from 32.5Mt. Notably sales volumes fell significantly in Spain and Greece, by 26% and 37% respectively.

Holcim saw its cement volumes fall by 2% in Europe to 26.3Mt from 26.8Mt. There were specific country figures from Holcim but it did comment that the 'severe crisis' in southern Europe had 'contaminated' economies further north such as a France, Benelux, Germany and Switzerland.

CRH was less candid about its cement business in Europe although it did report that its sales revenues fell by 10% to Euro2.69bn in 2012 from Euro2.99bn in 2011. Notable losses occurred in Poland (11% volume decline), Ireland (17% decline) and Spain (30% decline).

These figures compare against a 4% decline in volumes in Western and Northern Europe to 22.1Mt from 21.3Mt by HeidelbergCement, a 13% drop in overall net sales to Euro3.05bn in Cemex's Northern Europe section and a 16% drop in volumes to 16Mt from Italcementi in its Central Western Europe region.

The question to ask at this point is how HeidelbergCement and Holcim managed to suffer smaller losses compared to everybody else. Less exposure to southern Europe is one answer. Depressingly though they both suffered similar drops in profit indicators such as earnings before interest, taxes, depreciation, and amortisation (EBITDA) to the others (20% and 33% respectively).

Both Holcim and CRH are expecting continued tough conditions in Europe in 2013. However, both companies are mildly optimistic that the worst has passed, with talk of the work of the European Central Bank supporting peripheral Eurozone economies showing some effect. Lafarge doesn't even mention Europe in its outlook.

As mentioned in Global Cement Weekly #87 on 13 February 2013, EU regional GDP growth is forecast to become positive in 2013. Everybody is going to be watching the European quarterly results for the cement majors in 2013 very carefully indeed. In the meantime all every cement producer with a presence in Europe can do is to carry on cutting costs.

One of the comments on the Global Cement LinkedIn group about last week's column posted the US Geological Survey's (USGS) estimated cement production list for 2012.

John Kline commented that the report highlighted the increasing weight of developing countries. There is nothing surprising here, but it is worth noting the implications of this in Lafarge's financial results for 2012, which we report on today. 27% (Euro4.28bn) of the group's sales came from its Middle East and Africa region.

By cement volumes sales 63% or 89.5Mt came from its Middle East/African and Asian regions. Lafarge CEO Bruno Lafont explicitly acknowledged this in his statement accompanying the announcement saying, "Emerging markets continue to be the main driver of demand and Lafarge benefits from its well-balanced geographic spread of high-quality assets".

One of the other commentators remarked on the massive difference between the estimated productions of China (2.15Bnt) and India (250Mt). India was second in the list but has only an eighth of China's production!

Talking of India, our recent article 'The incredible Indian cement industry' in the February 2012 issue of Global Cement Magazine presents a good overview of the situation there. This week's news item on Madras Cements' third quarter results picks out a couple of threads from the complex Indian Picture. Firstly, Madras Cements was fined US$48m by the Competition Commission of India (CCI) for alleged price-fixing. Although the producer is growing its sales, this fine hangs ominously over the balance sheet.

Secondly, the producer's transportation and handling costs grew by a massive 37% year-on-year in the quarter. Rail freight prices increased in India in 2012. These kinds of increase cannot be welcome on cement producers' balance sheets. Unsurprisingly a 'marginal' reduction for cement is under consideration by the Indian Railways.

The Global Cement India Conference, was held in Mumbai this week on 18-19 February 2013, will update us on situation in India. Look out for the report soon.

Three of the big multinational cement producers - HeidelbergCement, Cemex and Italcementi - have already released preliminary reports for 2012. Here's what they tell us.

Geographically, performances in the Americas and Asia propped up balance sheets. Europe, however, continued to ruin the party in 2012.

In its Western and Northern Europe section HeidelbergCement saw a 3.9% decrease in sales of cement and clinker to 21.3Mt from 22.1Mt in 2011. However this was still higher than the sales in 2010 of 19.7Mt.

Cemex's Northern Europe section witnessed a 13% drop in overall net sales to Euro3.05bn. Its Mediterranean section did worse, with a 15% drop in net sales to Euro1.08bn. Both declines were similar to the falls in cement volumes in these regions. Italcementi watched its Central Western Europe region plummet by 16.1% to 16Mt.

To demonstrate the comparative exposure to Western Europe, 25% of HeidelbergCement's sale volumes came from Western Europe and 35% of Italcementi's sale volumes came from Western Europe. Cemex hasn't released any figures for sales of cement in its preliminary results but overall in cement, aggregates and concrete, 37% of its sales came from its two European regions.

HeidelbergCement noted that demand for construction materials remained stable in Germany and Northern Europe. However it weakened in the UK and the Netherlands. By contrast Cemex noted a decrease in cement volumes for the year in Germany although it became stable by the fourth quarter. For the UK it had the same experience as HeidelbergCement, with a similar downturn in France and Poland. In its Mediterranean region Cemex recorded a whopping 40% decrease in cement volumes. Although light on detail, Italcementi pointed out a 25% drop in cement consumption in Italy and a 8% drop in France and Belgium.

In November 2012 the European Commission forecast that gross domestic product (GDP) would fall by 0.3% in the European Union (EU) in 2012. Broadly in line with the national situations reported above, Germany's GDP is forecast to have risen in 2012; the UK's, the Netherlands', Belgium, Italy and Spain's GDPs looks to have fallen in 2012. Curiously though, both France and Poland were forecast to have improving GDPs in 2012. HeidelbergCement and Cemex's experiences suggest that this didn't happen in the French construction industry. The (next) light at the end of the tunnel for 2013 is that EU regional GDP growth is forecast to become positive again.

With Lafarge and Holcim due to release their annual report for 2012 in late February 2012, we'll revisit this topic in a few weeks time.