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Vietnam - Cement overload
Written by Global Cement staff
25 July 2012
The news this week that Vietnam's state-owned cement producer, Vicem, has made a first half profit 75% larger than that of the first half of 2011 is a surprising statistic from a country with so much spare cement.
The country has spent most of the past decade building cement plant after cement plant. According to research conducted for the April 2012 issue of Global Cement Magazine, Vietnam now has a cement capacity of over 70Mt/yr! Vicem says that it sold 9.7Mt of cement in the first six months of 2012 and reports that this level represents 44% of its intended production for the year. This makes its 2012 cement production target somewhere in the region of 22Mt.
How much of the non-Vicem cement capacity is being utilised in Vietnam is unknown, but it is certainly too much for Vietnam's current needs. When the country's own government owned cement producer announces that it expects to have 6Mt of cement stockpiled by the end of 2012 (enough to supply the UK for the whole of 2013), it is clear that there is a serious cement surplus. Oversupply has not been met by demand, cement prices are depressed and attempts to export, to countries both near and far, are on the up.
To help curb the problem, one cement plant project has been halted in the past week. The Kinh Bac City Development Share Holding Corp (KBC) has received permission from its state to not build its planned 5Mt/yr plant.
Halting new projects is one way for the country to reduce its overcapacity, but in the short term the industry is looking at exports. While its lengthly coastline makes getting cement to ports for export fairly straightforward, Vietnam is badly located to exploit its current situation in this way. It's proximity to China, which itself is starting to face an oversupply scenario despite its efficiency gains, leaves Vietnam at a cost disadvantage.
As well as there being China on Vietnam's doorstep, many other countries in the region, (Indonesia, Malaysia, Japan, South Korea, Philippines, etc), are also self-sufficient in terms of cement and are able to export extra capacity as necessary. Additionally, East Asian countries have often seen Africa as a good export market but the recent rise of Nigeria as a major producer may reduce this opportunity.
Amid all of these numbers the Vietnam News Brief Service commented that the current oversupply in the socialist state was down to the 'unplanned' construction of cement plants over recent years.
Is it worth producing cement in the UK?
Written by Global Cement staff
18 July 2012
According to government advisors cement producers pay more in the UK than other nations for their electricity and it's getting worse.
A Department for Business, Innovation and Skills (BIS) report published on Friday 13 July 2012 has shown that firms in the UK will be forced to pay an extra Euro36 in green taxes on top of the market price they pay for every megawatt hour of electricity by 2020 due to climate policies. This compares with Euro22 in Germany, Euro20 in Denmark, Euro19.3 in France and Euro12.7 in China.
As the Mineral Products Association (MPA) put it, "...cement is an internationally traded commodity and, if it costs more to make it here than to import it, then we are threatening a strategic indigenous manufacturing industry for no environmental gain." Or to put it more bluntly, if the cost of importing cement from France to the UK is less than the energy saving then say 'goodbye' to the UK cement industry. The issue raises one of the core problem of any carbon tax in a global economy. If your neighbours don't have the same tax as you then they can undercut you. Similar arguments rage in Australia and the US.
The UK will be the first country with legally binding targets for greenhouse gas emissions beyond 2020, with a pledge to introduce a carbon floor price of Euro19.98/t in 2013. As Edwin Trout explained in his recent article in Global Cement Magazine on the British Cement Industry in 2011 and 2012 the government took steps to address this in November 2011 with a Euro318m package for energy-intensive industries. Unfortunately as the MPA has now pointed out, the cement industry is ineligible for the first Euro140m of this package because the EU has ruled against such support for the sector in relation to the EU Emissions Trading Scheme.
Unsurprisingly alternative fuels trials are thriving in the UK, such as that at Lafarge UK's Aberthaw plant, which celebrates 100 years of operation this weekend.
Camargo wins battle for Cimpor
Written by Global Cement staff
11 July 2012
The news that Brazil's competition regulator, Cade, has approved Camargo Corrêa's attempt to control Portugal's Cimpor after over two years of poker-faced mergers, acquisitions and deals, has significantly changed the cement landscape of the country. Camargo will now be allowed a controlling stake in the Portuguese producer assuming that Votorantim, Cimpor's other major shareholder, sells its Brazilian Cimpor assets to a third player.
The deal looks likely to happen fairly quickly, with Votorantim stating that it never intended to remain as Camargo's partner in Cimpor. Lafarge appears to have first refusal as the original seller of the stake to Votorantim, but Cade may want to avoid this due to Lafarge's strong Brazilian position.
With its Cimpor interests now set to go to another producer, the regulator is clearly looking to spread the cement wealth in the country. Cade also said that Camargo must sell some assets in Brazil's heavily developed São Paulo state - presumably not to Votorantim! An asset swap will see Cimpor assets abroad transferred to Votorantim.
The Brazilian cement market has become increasingly concentrated since 1990. At that time there were 19 different producers; by 2000 there were 12. That number has since increased slightly, but Votorantim, Cimpor, Camargo Corrêa, Holcim and Lafarge still have 85% of the integrated capacity between them. Cade's attempts to moderate their influence is understandable, given that some regions are currently now supplied by Votorantim-owned production to the tune of 70%. Accusations of cartels have been rife in Brazil for many years.
Consumers, both large and small, will be hopeful that the deal will go through smoothly and that a drop in market concentration will reduce prices in the country. Even the Brazilian government is affected. It is seeking to spend hundreds of billions of dollars on road, port and home construction and for expansion of its mines, farms and factories. If prices of building materials can be reduced, it will be able to accelerate its general development and ramp up extraction and production of its valuable natural resources.
Chinese halftime profit warning
Written by Global Cement staff
04 July 2012
Cement industry results from China have all told an alarming story this week: profits for the first half of 2012 look set to fall by more than 50% year-on-year.
China Resources Cement Holdings warned that its first-half earnings were down sharply. China National Materials Co. Ltd. (Sinoma), the cement equipment and engineering services provider, and Gansu Qilianshan Cement, a small Shanghai-listed cement producer, have both forecast similar drops. Sinoma blamed its drop in profit partly on an overseas project but 'interestingly' no further information was released detailing which project.
Previous to this in June 2012 Anhui Conch Cement warned that its net profit would fall by more than 50% due to weak demand and falling product prices. In May 2012 China National Building Material Co Ltd (CNBM) reported that its net profit for the first quarter of 2012 was down by 45% year-on-year. In April 2012 Jidong Cement reported an increase in its net loss for the first quarter and a year-on-year revenue drop of 14%.
Each of the Chinese big players in the cement industry have issued profit warnings of a similar scale suggesting that the Chinese market faces a uniform downturn or that a slowdown is being centrally managed. Official signs that the Chinese industry faced a slowdown emerged in March 2012 when the national growth target was lowered, analysts' predictions were released forecasting weakened profits for the nation's main producers and government officials admitted that overcapacity loomed within five years.
According to OneStone Research data on the Chinese market in 2010 CNBM, Anhui Conch, Jidong and Sinoma represented over 20% of Chinese capacity. To give these figures some perspective, in 2011 CNBM's profit was US$1.7bn. Holcim's operating profit for the same period was US$2bn and Lafarge's operating income was US$2.74bn. Even halved, CNBM's profit is a massive figure for a company with less of an international presence than the European multinationals.
Cartel fine will cast a long shadow
Written by Global Cement staff
27 June 2012
India: The announcement last week that 11 Indian cement producers face a combined US$1.1bn penalty for a price-fixing cartel will cast a long shadow over the country's increasingly vulnerable-looking cement industry.
For years the Indian cement industry has been beset by suspicions of over-capacity despite a constant stream of new capacity. Now the Competition Commission of India (CCI) thinks that it has got to the heart of the paradox by accusing manufacturers of limiting production amid high demand and colluding to artificially raise prices.
The amount that the CCI has fined the companies, 50% of their net profits for the two fiscal years to 31 March 2011, is quite astonishing. If enforced in its entirety the fine effectively negates a large portion of the sector's profits for an entire fiscal year. This is clearly not a slap-on-the-wrist from the CCI.
In the 1990s and early 2000s a similar cartel case involving European (and specifically German) cement producers led to fines in the order of hundreds of thousands of US Dollars. The industry has since cleaned up its act considerably as a result. Indian producers would be foolish not to follow suit. What are the likely effects in the Indian case?
Removing the cartel that the CCI purports to have found would reduce prices, which are inflated by an oft-quoted 25% median in a cartel. This is clearly good news for consumers and potentially the development of the Indian economy in general. The obvious losers in this situation would be the producers, which would see a reduction in profitability. Some of the smaller producers would find such a situation very challenging, with the risk of going bust or being absorbed into larger companies.
Another possibility is that the accusations will spread along the value chain. Shortly after the announcement of the fine, the Builders' Association of India (BAI), announced that it wants the fine increased to accommodate compensation claims from contractors and consumers that it feels are out-of-pocket as a result of the cartel. Many will feel aggrieved now that they 'know' the cement companies were profiteering - sorting out claims from affected parties could be a long and costly exercise.
The effects of the fine could also extend to outside of India. Indian cement producers, very good customers of the Chinese and European cement plant manufacturers in recent years, will have to deal with lower revenues. This will clearly dampen their enthusiasm to contract further capacity and may cause knock-on-effects for Sinoma, KHD, Polysuis and other major suppliers. The cement industries of neighbouring countries, like Pakistan, may also be affected.
Whatever happens in the Indian cement industry as a result of the CCI's fine, the authority, only formed in 2009, has shown that it is serious about taking on corruption in India. In the long run that can only help develop the potential of the country.
"The first thing for any new competition regulator is to go out and find the cement cartel. My experience of this subject is, it is always there, somewhere," wrote Richard Whish, a Professor of Law at King's College London in 2001. "The only countries in which I had been unable to find the cement cartel is where there is a national state-owned monopoly for cement."