Analysis
Search Cement News
Update on Zimbabwe, January 2023
Written by David Perilli, Global Cement
04 January 2023
Lafarge Cement Zimbabwe (LCZ) received an unwelcome present before Christmas when the US Office of Foreign Asset Control (OFAC) placed the company buying it on its economic sanctions list. OFAC made its announcement on 12 December 2022. However, the cement producer said that its parent company, Associated International Cement, had concluded its sale of a 76% stake in LCZ to Fossil Mines on 6 December 2022. Local press reports that the Zimbabwe Stock Exchange halted trading in the cement company on 23 December 2022. Then, LCZ said on 29 December 2022 that the OFAC sanctions had “impacted some processes” within it. It added that it was considering various courses of action to protect the business and the interests of all stakeholders.
OFAC took action against Fossil Agro, Fossil Contracting and the group’s chief executive officer, Obey Chimuka, due to alleged links to a previously sanctioned individual, Kudakwashe Tagwirei, and his company, Sakunda Holdings. OFAC said that Tagwirei had “materially assisted, sponsored, or provided financial, material, logistical, or technical support for, or goods or services in support of, the Government of Zimbabwe.” It accused him of using his relationships with government officials to gain state contracts, to receive access to currencies, including the US Dollar, and of supplying luxury items such as cars to ministers. It added that Chimuka was a “longtime business partner” of Tagwirei. Fossil Agro was also linked to a mismanaged agricultural subsidy scheme.
When a company says it has concluded a divestment or acquisition the expectation is that everything has finished. However, LCZ has admitted that the OFAC action has caused it some problems. We’ll have to wait for more information to be released to appreciate the full extent of these ‘problems.’ However, it is worth noting that government capital controls caused delays for the handover of a new vertical cement mill ordered from China-based CBMI to LCZ in mid-2022. At the time it was reported that the cement producer still owed the supplier around US$5m but was unable to make the payment due to economic measures the government had taken to avoid depreciation of the local currency. Other potential issues could also lie in any continuing services or materials that Associated International Cement and its parent company Holcim might have agreed to supply to Fossil Mines in the future as part of the divestment deal.
Looking at LCZ’s business more generally, in its third quarter trading update it said that revenue was down by 43% year-on-year due to suppressed cement and mortar sales volumes. Yet, this was due, in part, to a roof collapse at the company’s plant in late 2021 and the commissioning and ramp-up of that new mill in the fourth quarter of 2022. So the company expects ‘significant’ recovery in its sales volumes in 2023. In a sobering aside illustrating the realities of doing business in Zimbabwe, it also mentioned that the local interest rate jumped to above 200% in July 2022! Despite all of this though, it noted that both residential and government-based infrastructure markets were driving market demand.
South Africa’s PPC reported a fall in its cement sales volumes from its subsidiary PPC Zimbabwe in the six months to September 2022 with knock-on declines to revenue and earnings. It blamed this on a planned kiln shutdown, noted the negative role of hyperinflation and forecast that volumes would improve subsequently due to ‘robust’ cement demand. It pointed out that its earnings were hit during the maintenance period because it had to import clinker from South Africa and Zambia and that this was more expensive than locally manufactured clinker. The other thing that both LCZ and PPC raised were power cuts, although LCZ reported that unscheduled outages had decreased in the third quarter of 2022.
The growing demand for cement in Zimbabwe as reported by both LCZ and PPC helps to explain how Holcim was able to finalise a deal to sell its local subsidiary in 2022. Operational and financial hurdles such as coping with hyperinflation and power cuts show the problems these companies have also faced running a business in the country. Merger and acquisition deals in the cement sector often face travails as they are proposed, negotiated, made public and then put to the scrutiny of regulators. It seems unusual though for a divestment deal to run into problems after it has seemingly been closed.
2022 in cement news
Written by David Perilli, Global Cement
21 December 2022
Taking a look at the most read news stories on the Global Cement website in 2022 reveals what readers have been interested in. The usual bias applies due to the prominence of countries where English is prevalent and there is a concentration on stories from earlier in the year. Yet, even with these constraints, key trends identified elsewhere emerge. Read the December 2022 issue of Global Cement Magazine for a roundup of what we think has been noteworthy.
Top 10 news stories on Global Cement website in 2022
1. Holcim receives bids for Ambuja Cements
2. JK Lakshmi Cement and TARA to launch limestone calcined clay cement production
3. Ramco Cements to commission new plant at Kurnool in February 2022
4. CalPortland to buy Redding cement plant from Martin Marietta
5. ACC launches Houses of Tomorrow in India
6. CRH exits Russian market
7. HeidelbergCement freezes investments in Russian operations
8. US facing cement shortage
9. HeidelbergCement, Holcim and Sabancı Holding are potential buyers for Sika’s US assets
10. Jaiprakash Associates seeking to sell all assets
The two large India-based acquisition and merger (M&A) stories are both present at early stages of their development. Firstly, Adani Group went on to buy Holcim’s two subsidiaries, Ambuja Cements and ACC, becoming the second largest cement producer in the country. Secondly, Jaiprakash Associates was reported to be in dire financial straits in the autumn and looking to sell off more assets. This came to pass in mid-December 2022 when Dalmia Cement (Bharat) reached a deal to buy Jaiprakash Associates’ cement assets for US$684m. Incidentally, Adani Group made the news this week when it published plans to suspend production at two of its newly acquired cement plants in Himachal Pradesh due to high freight rates. The state government responded with a court order requiring the cement producer to justify its actions that, in its view, would detrimentally affect the lives of many. While it seems unlikely that the plants will close permanently, this incident does demonstrate that Adani Group is starting to take action with its new cement business.
The other M&A story concerns cement companies buying assets outside of the standard cement, concrete and aggregates triad. Global Cement has covered this business shift increasingly since Holcim acquired Firestone Building Products in 2021. The story in 2022 that readers were interested in concerned potential buyers for Sika US, an admixture manufacturer. This one also has a sustainability angle because admixtures can be used to make cement and concrete more efficient in different ways. A more obvious example of cement production becoming more environmentally friendly was that of an India-based cement producer preparing to start production of limestone calcined clay cement (LC3). The increased production of blended cements around the world has been a big story in 2022, particularly in the US.
Cement shortages in parts of the US were a theme we picked up on a few times in 2022. Nationally it followed supply issues in the southwest in early 2021 that led Cemex to restart a mothballed kiln at a plant in Mexico with the express aim of serving the export market.
In April 2022 shortages were being reported on the other side of the country in Alabama and South Carolina. Ultimately this was blamed on labour and supply chain issues in the aftermath of the coronavirus shutdowns. The other big US story in 2022 was back in California where CalPortland agreed to buy the Redding cement plant from Martin Marietta. The subsidiary of Japan-based Taiheiyo Cement later struck a further deal to buy the Tehachapi plant, also from Martin Marietta, in August 2022. Both of these integrated plants were previously sold by Lehigh Hanson to Martin Marietta in 2021. In November 2022 Lehigh Hanson announced that its remaining integrated unit in California, the Permanente plant near Cupertino, was going to be transitioned to a distribution and quarry site.
Finally, the top news stories in 2022 where not immune to the effects of the Russian invasion of Ukraine. The big underlying narrative has been a jolt to global energy prices. What could be seen here though were the efforts of the multinational cement producers to limit their exposure to the market in Russia and any potential legal action. CRH led the exodus, although it had a relatively small business to offload. Heidelberg Materials froze its investments in its Russia-based subsidiary in March 2022. Holcim completed the divestment of its business to local management in mid-December 2022. Buzzi Unicem withdrew from any operational involvement with its subsidiary SLK Cement in May 2022.
That’s it from Global Cement Weekly for 2022. Enjoy the seasonal and New Year break if you have one.
Global Cement Weekly will return on 4 January 2023
Dalmia Bharat goes central
Written by David Perilli, Global Cement
14 December 2022
Further consolidation of the Indian cement sector looked closer this week with the news that Dalmia Bharat’s cement subsidiary has agreed to buy the remaining cement plants from Jaiprakash Associates. The US$685m deal covers cement and power plants in Madhya Pradesh, Uttar Pradesh and Chhattisgarh. It includes clinker production capacity of 6.7Mt/yr, cement capacity of 9.4Mt/yr and 280MW of captive power capacity.
Chart 1: Map of Dalmia Bharat’s cement plants in November 2022 with region of proposed new plants highlighted in orange. Source: Adapted from Dalmia Bharat investor presentation.
The acquisition gives Dalmia Bharat the opportunity to draw level with Shree Cement in terms of cement production capacity. If the deal completes, then both cement companies will hold a capacity of around 46Mt/yr. This puts them behind UltraTech Cement and Adani Group nationally. In terms of the cost, the proposed acquisition works out at around US$73/t of cement capacity, although this doesn’t take into account the additional captive power generation capacity. This compares to US$119/t for UltraTech Cement’s purchase of Jaiprakash Associates plants in 2017 and US$97/t for Adani Group’s purchase of Holcim’s Indian-based business in September 2022.
Dalmia Bharat’s rationale for its move this week was that it wants to grow in the Central Region of the country and work towards a capacity target of 75Mt/yr by the 2027 financial year and at least 110Mt/yr by the 2031 one. It backed this up in an investors’ presentation by saying that cement consumption was around 170kg/capita locally and that the region represented about 15% of national demand at 54Mt/yr. This roughly checks out with regional integrated/clinker production capacity distribution analysis that Global Cement Weekly carried out in June 2022. Only the East region was lower, but this didn’t take into account grinding plants or new projects.
Completion of the agreement is planned by December 2023 and is subject to the usual regulatory approvals. However, readers may recall the difficulties UltraTech Cement had in the mid-2010s when it attempted to buy two plants from the subsidiary of Jaypee Group. Problems stemming from an amendment to the Mines and Minerals (Development and Regulation) (MMDR) Act caused the original proposal to be rejected by the Bombay High Court in early 2016. UltraTech Cement bounced back though with a deal to buy far more plants instead. This deal completed successfully in mid-2017.
Jaypee Group’s debts have also caused problems along the way. Indeed, this is the reason why it has finally decided to leave the cement business altogether. In early December 2022 it reported its latest default on interest payments towards some of its loans. Overall its outstanding debt was US$3.39bn. Due in part to this, there have been plenty of stories in the local press over the last decade on whoever was reputedly buying the Jaypee Group’s cements assets. In October 2022, for example, Adani Group was reportedly in advanced talks to buy Jaypee Group’s remaining cement business until it denied it publicly. One deal that did reach fruition was Dalmia Bharat’s purchase of Bokaro Jaypee Cement back in 2014 from a joint-venture majority controlled by Jaypee Group. That agreement gave it full control of the 2.1Mt/yr Bokaro grinding plant in Jharkhand. Looking at the current proposed acquisition, one commentator from HDFC Securities in the local business press noted that detail on the transaction is lacking, such as what will happen to existing limestone reserves. Another pointed out that the deal was probably 30 – 40% below the replacement cost because the plants were old, lack of interest from potential buyers and due to the “likely need for additional CAPEX to run operations.”
If the Dalmia Bharat - Jaiprakash Associates deal completes then it marks the end of an era for the Indian cement industry as one of the big players bows out of the sector. It shows once more that, despite the mounting fuel and raw material costs in 2022, companies are still seeing big opportunities. In its December 2022 report, the ratings agency ICRA found that cement sales volumes grew by 11% year-on-year to 187Mt in the first half of the 2023 financial year. The acquisition might also, hopefully, put an end to the endless speculation about who Jaypee Group might be selling its cement plants to! Although, of course, the question then becomes who else might be considering divesting cement assets.
Update on Ethiopia, December 2022
Written by David Perilli, Global Cement
07 December 2022
Derba MIDROC Cement signed a contract with Sinoma International Engineering in recent weeks to build a US$282m upgrade at its integrated Derba cement plant in Oromia. The move is the latest in a steady stream of projects that have been announced in Ethiopia over the last few years. Other recent developments include a deal in July 2022 by businessman Getu Gelete to buy PPC’s stake in Habesha Cement and plans in August 2022 by investor Worku Ayetenew to build a US$1bn cement plant with a production capacity of 12,000t/day. Alongside these capital intensive projects, the government has been trying to regulate the price of cement through measures such as setting fixed prices, limiting the volumes that individuals can buy and asking producers to cut distributors out of the supply chain.
To summarise some of the plant projects over the last couple of years, the Derba MIDROC Cement upgrade project intends to double the production capacity of the integrated Derba cement plant in Oromia to 15,000t/day. The other big ongoing project was announced in early 2021 when East African Holding and China-based West China Cement agreed to build a 10,000t/day plant at Lemi in Amhara Region. East African Holding is the parent company of National Cement, one of the larger producers in the country. Then in July 2021 Sinoma International Engineering’s subsidiary Suzhou Sinoma signed an initial deal with Western International Holdings, West China Cement’s international arm, to build the plant. Prime Minister Abiy Ahmed visited the construction site in March 2022 to lay the foundation stone but no commissioning date has been disclosed so far. Based on Sinoma’s assessment when it signed the contract, construction would take around 20 months, so a commissioning date by late 2023 seems reasonable. There are also a number of other projects that have been announced in the local press such as Abay Industrial Development Share Company plant at Dejen. FLSmdith said that the contract to build the 5000t/yr plant became effective in late 2020. However, not much more has been released publicly. Another project at Berenta in Amhara is also reportedly under construction.
The Global Cement Directory 2022 places the country’s production capacity at around 12Mt/yr. This compares to 15Mt/yr from 13 companies as reported by a local news source although this figure is likely to also include grinding plants. Yet the same source also placed the actual working capacity at 6Mt/yr due to old machinery and poor maintenance. As for the market in Ethiopia, Dangote Cement said that the sales from its Mugher plant rose by 1.8% year-on-year to 1.7Mt in the first nine months of 2022 and that the unit was running at full capacity in the third quarter. It reckoned that it held a 42% market share during this period, out of a total market of around 4.2Mt. Previously it said that the total market for the whole year was 7Mt in 2021.
Unfortunately it also mentioned issues with security in the region. This became a live issue this week with news that at least 30 employees of Dangote Cement were reportedly kidnapped in early December 2022 by an armed group that calls itself the Oromo Liberation Army. This is particularly sad for the company given that its country manager was shot dead in 2018. Two employees of the Mugher Cement plant were also taken hostage by the same group in October 2022 although thankfully they were later freed.
A number of projects have been announced in Ethiopia over the last few years but they appear to be taking a while to materialise. This time though a couple of the projects do seem to be on the way and the change in ownership of Habesha Cement seems to suggest a renewed vigour to the local construction market since the government opened up investment. Unfortunately, security concerns are pressing as demonstrated by what happened to some of Dangote Cement’s staff this week.
Energy for the European cement sector, November 2022
Written by David Perilli, Global Cement
30 November 2022
This week’s Virtual Global CemPower Seminar included an assessment on how interventions in European power markets might affect efforts to decarbonise industry. The presentation by Thekla von Bülow of Aurora Energy Research outlined how different countries in the European Union (EU) were implementing the forthcoming electricity price cap on ‘inframarginal’ producers to 180Euro/MWh. Each of these different proposals will entail differing levels of structural change to the wholesale energy market. For example, the Agency for the Cooperation of Energy Regulators (ACER) has recommended establishing a series of frameworks including a stronger focus on Contracts for Difference (CfD) schemes to promote renewable energy sources.
These changes are a consequence of the EU’s response to the Russian invasion of Ukraine. Gas prices surged and then pushed up other energy prices in turn to record levels. As this column covered in September 2022, the price of electricity shot up in the summer of 2022 whilst at the same time Russian gas imports ceased. Cembureau, the European Cement Association, called for urgent action to be taken to support cement production due to large increases in the cost of electricity. For example, in its latest overview of the German cement industry, the German Cement Works Association (VDZ) said that the sector has an electrical consumption of 30TWh/yr. Clearly energy policy is of great interest to the industry.
Since then, in late September 2022, Heidelberg Materials’ chief executive officer Dominik von Achten told Reuters that his company was preparing to shift production at its Germany-based plants to times and days when power prices are lower including at the weekend. However, this was dependent on negotiations with the unions. Von Achten also warned of plant closures being a possibility. Then, in November 2022, it emerged that Zementwerk Lübeck’s grinding plant in northern Germany had reportedly been only operating its grinding plant at night and at the weekend due to high electricity prices. Also in November 2022 European energy news provider Energate Messenger reported that Heidelberg Materials was preparing its cement plants in Germany with emergency backup power to keep critical services running in the case of electricity power cuts. One view from the outside came from equipment supplier FLSmidth’s third quarter results where it noted it had, “...started to see the first cases of budget constraints imposed by customers to counter the increasing energy cost. A high utilisation is still driving service activity in Europe, but some customers have put large capital investments on stand-by and we have experienced a slowdown in decision-making processes.” On the other hand it also pointed out that this trend is driving sales of products that helped reduce energy usage and/or switch to alternative fuels.
On the financial side, Holcim reiterated in its half-year report that, on the country, level the group uses a mixture of fixed price contracts, long-term power purchase agreements, on-site power generation projects and increased consumption of renewable energy at competitive prices to reduce the volatility from its energy bills. Both Cemex and Heidelberg Materials said similar things in their third quarter results conference calls. Cemex said that nearly 70% of its electricity requirements in Europe were fixed in 2022 with nearly 30% fixed for 2023. It went on to reveal that around 20% of its total costs for cement production in Europe derived from its electricity bill. Interestingly, it added that a higher proportion of its electricity costs in Germany were fixed than elsewhere in Europe, due to the use of a waste-to-electricity system owned by a third party that is fed with refuse-derived fuel (RDF), but that it was more exposed to floating fuel rates in Spain. Heidelberg Materials added that it supported energy price caps in both Germany and the EU whether they affected it directly or not.
So far it has been a mild start to winter in Europe. This may be about to change with colder weather forecast for December 2022. This will stress test the EU’s energy saving preparations and in turn it could force the plans of industrial users, such as the cement sector, to change. Some of the cement producers have commented on the financial implications of rising fuel costs but they have been quieter publicly about how they might react if domestic consumers are prioritised. Plant shutdowns throughout cold snaps are the obvious concern but it is unclear how likely this is yet. The variety of energy policies between fellow member states, their own supply situations and the differences between cement plants even in the same country suggest considerable variation in what might happen. If large numbers of cement plants do end shutting throughout any colder periods, then one observation is that it will look similar to winter peak shifting (i.e. closure) of plants in China. The more immediate worry in this scenario though is whether these plants actually reopen again.
The proceedings pack from the Virtual Global CemPower Seminar is available to buy now