Analysis

Cemex announced last week that it will stop producing clinker at its Lloseta plant in Mallorca. Grinding activity at the site will continue, along with the shipment of bagged and bulk cement products. The company has framed the closure as part of its decarbonisation plans. The dismantling of the two preheater towers at the plant is scheduled to take place by the end of 2030. Cemex said that it will take this long to allow the cement plant to continue operating, as well as a neighbouring hydrogen unit and other nearby industrial units. The status of the Lloseta plant has been in question before. It was closed in early 2019 due to reduced cement demand and mounting European CO₂ emissions regulations. However, it reopened in 2021.

Readers may recall that Cemex España participated in the Power to Green Hydrogen Mallorca project. Land by the Lloseta cement plant was used to hold solar panels and a solar-powered hydrogen unit. Other partners in the project included energy suppliers Enagás and Redexis and renewable power and infrastructure company Acciona, among others. When the unit was commissioned in early 2022, it said it was the first solar power-to-green hydrogen plant in Spain. The link between Cemex and hydrogen is noteworthy given the cement company’s adoption of hydrogen injection as part of its alternative fuels strategy. Interestingly, Acciona planned to use a blockchain method to certify that hydrogen produced at the site was made using renewable energy sources. Heidelberg Materials also plans to use the same process to verify its evoZero brand of net-zero cement products in 2025. Another recent sustainability sector news story in Spain is the commissioning by Çimsa of a 7.2MW solar plant supporting its Buñol white cement plant in Valencia. The new installation is expected to supply about 18% of the plant’s energy needs.

On the corporate side of things, FCC revealed in mid-May 2024 that it was preparing to spin-off its cement and real estate subsidiaries into a new company called Inmocemento. The cement part of this is Spain-based Cementos Portland Valderrivas. The move is intended to bolster the values of the different parts of the business. The proposal will be put to FCC’s shareholders in late June 2024, with any resulting action taking place by the end of the year. The decision to separate FCC’s cement assets is reminiscent of the financial engineering Holcim has proposed with its US business. However, in this case the driver does not appear to be the disparity between the European and US stock markets.

Graph 1: Domestic consumption and exports of cement in Spain, 2013 - 2023. Source: Oficemen.

Market data was also out this week from Oficemen, the Spanish cement association. Domestic cement consumption grew year-on-year in April 2024 but the year so far is looking weaker with consumption from January to April 2024 down by 4.5% year-on-year to 4.65Mt. This is below Oficemen’s forecast for 2024 where it expected a stagnant situation. However, there are eight more months to go. In 2023 cement consumption fell by 3% to 14.5Mt and exports declined by 7.5% to 5.2Mt. The association blamed continued underinvestment in both the public and private sectors due to economic instability since the Covid-19 pandemic. Graph 1 above shows the wider situation in the Spanish cement market over the last decade. The share of exports has declined and local consumption rebounded after 2020 but has declined since then.

These news stories provide a snapshot of what’s been happening in Spain recently in the cement sector. Oficemen’s prediction for 2024 is gloomy but local consumption has risen over the past 10 years. Exports have fallen but the cement association has started to spin the country’s decarbonsiation drive as a potential positive for the industry’s competitiveness generally. It’s hard to discern right now but there might be an advantage for an export-focused country that conforms to European standards in the future if it can hold onto its capacity. Admittedly, that’s a big if. This thinking along sustainability lines could be seen earlier in May 2024 when Cementos Molins Group rebranded itself as Molins. It described the rebranding as a bid to represent the wider range of construction products it manufactures and sells beyond cement. Oficemen has also pointed out that the local market has room for development given the relatively low cement consumption per capita in Spain compared to its peers. So, whatever happens next, there is likely to be room for improvement in the cement market.

Delegates at the Global CemCCUS Conference last week applauded when Anders Petersen, the Senior Project Manager Brevik CCS, Heidelberg Materials said that the Brevik cement plant will be capturing CO₂ and permanently storing it within the year. Rightly so. This moment will mark a historic milestone for the sector when it arrives. Net zero cement production is coming.

Last week’s event in Oslo delivered an overview of the current state of carbon capture in the cement and lime industries. It explored the practical challenges these industries face in capturing CO₂ emissions and - crucially – then working out what to do with them afterwards. Incredibly, delegates were able to view the construction site of Heidelberg Materials’ forthcoming full-scale carbon capture unit at its Brevik plant in Norway. On the same day as the tour, Holcim broke ground on the Go4Zero carbon capture project at its Obourg plant in Belgium.

The key takeaway at the conference was that a (dusty) bulk solids sector is starting to work with handling (clean) gases in a way it hasn’t before. This recurred repeatedly throughout the conference. Petersen summarised it well when he described Brevik as a meeting pointing between the cement industry and the petrochemical one. It looks likely at present that there will not be a single predominant carbon capture technology that the majority of cement plants will deploy in the future. Similarly, CO₂ storage infrastructure and sequestration sites differ. Utilisation plans are less developed but also offer various options. Yet, if carbon capture becomes common at cement and lime plants, then these companies will need to learn how to filter and handle gases regardless of the capture method and destination for the CO₂. So presentations on filtration and compressors were a revelation at CemCCUS.

The key obstacle remains how to pay for it all. By necessity, most of the big early projects have received external funding, mostly from governments. Although, to be fair, the private companies involved are often investing considerable amounts of their own money and taking risks in the process too. In the European Union (EU) CO₂ is being priced via the Emissions Trading Scheme and investments are being made via the EU Innovation Fund and other schemes. In the US the approach lies in tax breaks, on-shoring and investment in new sustainable technologies.

However, other countries have different priorities. Or as a South Asian contact told Global Cement Weekly at a different conference, “How can our government think about sustainability when it can’t feed everyone?” The world’s biggest cement producing countries are China and India, and then the EU and the US follow. Brazil, Türkiye and Vietnam are at similar levels or not far behind. The EU and the US represent about 9% of global cement production based on Cembureau figures for 2022. China and India cover 61% of production. Neither of these countries has announced a plan to encourage the widespread construction of carbon capture units. Once China ‘gets’ cement carbon capture though, it seems plausible that it will dominate it as it has in many other sectors such as solar panel production. Exporters such as Türkiye and Vietnam will have to adapt to the rules of their target markets.

The march by the cement and lime sectors towards carbon capture has been long, difficult and expensive. It also has a long, long way to go. Yet, the next decade promises to be exciting as new technologies are developed and tested, full-scale projects are commissioned and CO₂ pipelines, sequestration sites and usage hubs come online. The next key milestones to look out for include the first full-scale installations using other capture methods (such as oxy-fuel kilns), the first CO₂ pipeline network that hooks up to a cement plant, the first land-based sequestration site, the first industrial hub that uses CO₂ at scale to manufacture a product, new government policies in China and India, and the first large unit that is funded entirely from private finance. To end on a positive note, a Cembureau representative at the Global CemCCUS Conference reckoned that Europe will be able to capture 12Mt/yr of CO₂ by 2030. If it happens, this will be a major achievement and a serious statement of intent towards net zero for the sector.

This short recap of the event barely touches the surface of what happened so be sure to read the full review of the 1st Global CemCCUS Conference.

The 2nd Global CemCCUS Conference will take place in Hamburg in May 2025

Before Russia invaded mainland Ukraine on 24 February 2023, many predicted that full-scale conflict would be averted. When the attack began, Russian President Vladimir Putin himself expected a 10-day war, according to think tank RUSI. 15 May 2024 marks two years, two months and three weeks of fighting, with no end in sight.

Ukrcement, the Ukrainian cement association, recently published its cement market data for 2023, the first full year of the war. The data showed domestic cement consumption of 5.4Mt, up by 17% year-on-year from 4.6Mt in 2022, but down by 49% from pre-war levels of 10.6Mt in 2021. In 2023, Ukraine’s 14.8Mt/yr production capacity was 2.7 times greater than its consumption, compared to 1.4 times in 2021. Of Ukraine’s nine cement plants, one (the 1.8Mt/yr Amwrossijiwka plant in Donetsk Oblast) now lies behind Russian lines. Four others sit within 300km of the front line in Eastern and Southern Ukraine. Among these, the 4.4Mt/yr Balakliia plant in Kharkiv Oblast, the largest in the country, first fell to the Russians, but was subsequently liberated in September 2022.

Before the war, Ukrcement’s members held a 95% share in the local cement market. Their only competitors were Turkish cement exporters across the Black Sea, after the Ukrainian Interdepartmental Commission on International Trade successfully implemented anti-dumping duties against cement from Moldova and now-sanctioned Belarus and Russia in 2019. Since then, Turkish cement has also become subject to tariffs of 33 – 51% upon entry into Ukraine, until September 2026. The relative shortfall in consumption has led Ukraine’s cement producers to lean on their own export markets. They increased their exports by 33% year-on-year to 1.24Mt in 2023, 330,000t (27%) of it to neighbouring Poland.

Russia’s invasion has made 3.5m Ukrainians homeless and put the homes of 2.4m more in need of repair. In a report published in Ukrainian, the US Agency for International Development (USAID) set out its three-year rebuilding plan for the country. USAID projects an investment cost of €451bn, with the ‘main task’ besides homebuilding being to increase the share of industrial production in the economy. Ukraine is 90% equipped to produce all building materials required under the plan. Their production, in turn, will create or maintain 100,000 jobs and US$6.5bn in tax revenues. Reconstruction will also involve the Ukrainian cement industry returning to close to full capacity utilisation, producing 15 – 16Mt/yr of cement.

CRH, an established local player of 25 years, looks best set to claim a share of the proceeds. Stepping down an order of magnitude from billions to millions, Global Cement recently reported CRH’s total investments in Ukraine to date as €465m. Since war broke out, the company has more than tripled its rate of investment, to €74.5m. The Ireland-based group is in the protracted administrative process of acquiring the Ukrainian business of Italy-based Buzzi. If successful, the deal will raise its Ukrainian capacity by 56%, to 8.4Mt/yr – 57% of national capacity. This unusual clumping of ownership may be made possible by the participation of European Bank for Reconstruction and Development in partly acquiring the assets, as per a mandate letter signed with CRH in 2023.

Leading Ukrainian cement buyer Kovalska Industrial-Construction Group bemoaned the anticipated increase in market concentration. On the one hand, this sounds like a classic tiff between cement producers and users with shallow pockets. On the other hand, an antebellum allegation of cement industry cartelisation should give us pause for thought. Non-governmental organisation The Antitrust League previously reported Ukraine’s four cement producers to the government’s Anti-Monopoly Committee for alleged anticompetitive behavior. This was in September 2021, when Ukraine was barely out of lockdown, let alone up in arms. With all that has happened since, it may seem almost ancient history, yet the players are the same, CRH and Buzzi among them.

Ukrcement and its members have secured favourable protections from the Trade Commission, and, for whatever reasons, evaded the inconvenience of investigation by the Anti-Monopoly Committee – a state of affairs over which the Antitrust League called the committee ‘very weak.’ The league says that producers previously raised prices by 35 – 50% in the three years up to 2021. In planning a fair and equitable reconstruction, Ukrainians might reasonably seek assurance that this will not happen again.

All these discussions are subject to a time-based uncertainty: the end of the war in Ukraine. A second question is where the finances might come from. The EU approved funding for €17bn in grants and €33bn in loans for Ukraine on 14 May 2024. Meanwhile, countries including the UK have enacted legislation to ensure Russia settles the cost of the conflict at war’s end. If Ukraine achieves its military aims, then the finances may flow from the same direction as did the armaments that demolished Ukrainian infrastructure in the first place.

The first piece of Ukraine annexed by Russia was Crimea in February 2014, making the invasion over a decade old. Against such a weight of tragedy, the country cannot lose sight of the coming restoration work, and of the need to ensure that it best serve Ukrainians.

Kenya-based East African Portland Cement (EAPCC) made the news this week with the reopening of the company’s Athi River cement plant after a month-long shutdown. The closure was conspicuous because the company is gradually working towards increasing the integrated plant’s production capacity. The first phase of the maintenance and upgrade project saw the replacement of the production line’s kiln shell in September 2022. The current aim is to increase the unit’s cement production capacity to 1Mt/yr by mid-2026. The recent shutdown appears to have been a more normal annual renewal and repair job but EAPCC has used it as a promotional opportunity. Notably, a spokesperson for EAPCC described clinker as the “new gold” in a recent video explaining what was going on.

It’s an improvement on the financial trouble EAPC found itself stuck within in the late 2010s before the government ended up taking a controlling share in the cement producer. On this front local media reported in July 2023 that the government had found a 'strategic investor' to buy a 30% stake in the company. Nothing more has been said on this topic since then though.

The highlighting of the recent shutdown is likely to be a public relations exercise intended to project stability, but that focus on clinker is telling given that the government introduced its Export and Investment Promotion Levy in July 2023. This legislation imposed a 17.5% fee on imported clinker in order to encourage the local industry. Cement producers that rely on imported clinker - including Rai Cement, Bamburi Cement, Savannah Cement, Ndovu Cement and Riftcot - attempted to lobby against the levy but it remains in place. This business environment helps to explain EAPCC’s renewed focus on clinker production.

One company that stands to benefit from the levy is National Cement, producer of the Simba Cement brand and a subsidiary of Devki Group. It made the news at the start of April 2024 when its subsidiary Cemtech commissioned a 6000t/day clinker plant at Sebit in West Pokot. National Cement already operates an integrated plant near Athi River, south of Nairobi. However, hot on the heels of the West Pokot plant, it is already considering building another integrated plant in the north of Kitui County, to the east of Nairobi. As reported in the local press this week, Cemtech has submitted an environmental impact assessment for the project to the local authorities.

The country has two other clinker producers: Holcim subsidiary Bamburi Cement and Mombasa Cement. The former company announced at the end of 2023 that it had signed a contract to build solar plants at its integrated plant in Mombasa and its grinding plant in Nairobi. The deal was framed as a money saver but additionally it may have been in response to a less than reliable local grid. It also said that it was removing Ordinary Portland Cement (OPC) from its product line from the start of 2024. This move challenged expectations about sustainability initiatives outside of richer countries. Yet, considering how Bamburi Cement argued against the clinker levy, there might have been some commercial thinking here too in order to sell products that use less clinker. Finally, despite completing its divestment of Uganda-based subsidiary Hima Cement for US$84m in March 2024, Bamburi Cement reported a loss of US$2.99m in 2023 compared to a profit of US$1.36m in 2022. Although it reported a rise in turnover and operating profit, it appears that taxes and legal costs related to the sale of Hima dragged the company into a loss.

Graph 1: Rolling annual cement production in Kenya, 2019 - September 2023. Source: Kenya National Bureau of Statistics (KNBS).

It’s been a difficult business environment in Kenya over the last decade given the number of companies that have faced serious financial difficulties. This list includes ARM Cement, EAPCC and Savannah Cement. The last of these companies, Savannah Cement, is currently in administration and is trying to sell its integrated plant. Yet, rolling annual cement production in Kenya has remained above 9.5Mt/yr since early 2022. The government is sticking to promoting local clinker production, and companies like Bamburi Cement, EAPCC and National Cement are making investments of varying scales. The focus, for now at least, is on clinker production in Kenya.

Cemex announced this week that it is preparing to sells its operations in the Philippines to a consortium comprising Dacon, DMCI Holdings and Semirara Mining & Power. Rumours of the divestment first started to appear in the media in February 2024.

The main part of the deal covers Cemex’s cement subsidiaries, APO Cement and Solid Cement, which have been valued at an enterprise value of US$660m. However, this becomes confusing because the actual selling price is the enterprise value minus the net debt and adjusted for the minority shareholding of one of the parent companies, Cement Holdings Philippines (CHP). The deal also includes the sale of a 40% stake in APO Land & Quarry and Island Quarry and Aggregates. Based on a press release issued by CHP to the Philippine Stock Exchange, the actual cost of the divestment appears to be around US$305m. It is hoped that the divestment will complete by the end of 2024 subject to regulatory approval from the Philippines Competition Commission and other bodies.

Cemex entered the market in 1997 when it acquired a minority stake in Rizal Cement. It then built the business up to a cement production capacity of 5.7Mt/yr from its two main integrated plants, the Solid Cement plant in Antipolo City, Rizal and the APO Cement plant in Naga, Cebu. However, CHP has endured a hard time of late, with falling annual operating earnings before interest, taxation, depreciation and amortisation (EBITDA) since 2019 and falling net sales in 2022 and 2020. The bad news continued into 2023, with net sales falling by 17% year-on-year to US$300m in 2023 from US$356m in 2022. It reported a loss of US$35m in 2023, double that of 2022. The company blamed the fall in sales on lower volumes. It noted that prices were also down and energy costs had grown.

The three companies buying CHP are all controlled by the Consunji family so effectively DMCI Holdings is acquiring Cemex’s operations in the Philippines. The group focuses on construction, real state, energy, mining and water distribution. It previously announced in the late 2010s plans to build one integrated cement plant on Semirara and three cement grinding plants at Batangas, Iloilo and Zamboanga but these plans didn’t seem to go anywhere. Later it was linked to the proposed Holcim Philippines sale in 2019, although the subsidiary of Holcim eventually gave up on the idea.

This latest attempt to enter the cement business underlines DMCI Holdings’ intent and the group has immediately started saying what it plans to do next. In a statement chair and president Isidro A Consunji admitted that cement demand in the country was ‘soft’ but that it is expected to rebound due to the Build Better More national infrastructure program and an anticipated fall in internet rates. Consunji added, “We recognise CHP's operational and financial issues, but we are positive that we can turn it around by 2025 because of its ongoing capacity expansion and the clear synergies it brings to our group.” He was also keen to play up that CHP is currently building a new 1.5Mt/yr production line at its Solid Cement plant with commissioning scheduled by September 2024. DMCI plans to reduce CHP’s costs through various synergies including supplying it coal, electricity and fly ash from Semirara Mining & Power.

The acquisition of CHP by DMCI Holdings is the biggest shake-up in the local cement sector in a while. DMCI has long harboured ambitions in heavy building materials and now it’s close to becoming a reality. As evidenced by its statements following the official announcement of the deal it is already thinking ahead publicly to soothe shareholder concerns. What will be interesting to watch here is whether it can actually pull it off and whether it will face trouble from imports. Readers may recall that the Philippines cement sector has long battled overseas imports, particularly from Vietnam. Despite anti-dumping tariffs though the Cement Manufacturers Association of the Philippines (CEMAP) warned in January 2024 that workers could be laid off due to continued competition from imports. Good luck to DMCI.