Global Cement Weekly

Thank you to everyone who commented on the column in last week's Global Cement Weekly (GCW132, MINTed cement industries). Amongst the more interesting thoughts was that in a large cement producing country like the US, there are regional areas of focus. So, returning to neologisms, FACT might refer to, say, Florida, Alabama, California and Texas, four southern states with the highest cement production capacities in the union. Similar regional breakdowns could be applied to countries such as China, India or Brazil.

Following last week's look at the MINT (Mexico, Indonesia, Nigeria and Turkey) economies in the context of cement we now take a quick recap on what has been happening in the 'I' of the MINT, Indonesia.

Indonesia has a population of 238m, a cement production capacity of 47Mt and a Gross Domestic Product (GDP) of US$1.29tr. Both its cement consumption per capita and GDP per capita are low by international standards suggesting that it has considerable growth potential for its cement industry as its wider economy grows.

Indonesia's biggest cement producer, the state owned Semen Indonesia (formerly Semen Gresik) has reported to local media that its unaudited net profit rose by 14% year-on-year in 2013 to US$410m. Its revenue rose by 12% to US$1.8bn. Its new 1.5Mt/yr cement plant in Tuban, East Java has been reported as being operational, bringing Semen Indonesia's cement production capacity up to 31.8Mt/yr in 2014.

The country's second biggest cement producer, Indocement, has not reported any figures for 2013 as a whole yet. However parent company HeidelbergCement did note that the Indonesian economy had slowed down as a result of falling commodity prices. Cement and clinker sales including exports rose by 0.6% in the first nine months of 2013. Around mid-2013 local media reported that Indocement was losing market share in Indonesia.

Holcim Indonesia has also not revealed its financial situation in 2013. However, like Indocement, Holcim Indonesia reported with its third quarter results that economic growth had 'temporarily' flattened in the country. Operating results had not improved on levels in 2012.

Overall domestic cement sales rose by 5.8% year-on-year to 47Mt for the first 10 months of 2013 according to data from the Indonesian Cement Association. Previous annual rises in cement production and cement consumption had started to slow in 2012.

Growth in the Indonesian cement industry is also having an effect on the larger geographical region. Australian cement producer Boral suspended clinker production at its Waurn Ponds plant in late 2012 due to cheaper imports from countries such as Indonesia. New Zealand followed suit in mid-2013 when Holcim announced plans to build cement import terminals instead of building a new cement plant at Weston.

In summary it seems likely that the cement market in Indonesia slowed down in the first half of 2013 but it still appears to be generating growth none-the-less, true to the MINT pattern. Market analysts from Kim Eng agree, pinning issues with domestic cement consumption in 2013 on capacity bottlenecks and over-crowded ports. Growth in the cement markets for the MINT countries may seem likely but in the case of Indonesia it cannot be assumed.

Denmark: FLSmidth has announced the appointment of Eric Thomas Poupier to a newly created position in group executive management, as group executive vice president, business development. Poupier will take up his new position on 15 January 2014.

Since 2011 Poupier has been a manager at Bain and Company in Stockholm, managing projects for Nordic clients. From 2007 to 2011 he was a consultant for Bain and Company and specialised in reorganisation, growth strategy, sales force effectiveness and performance improvements. Over 2005 to 2007 Poupier completed a full time MBA study in the USA and in 2005 he held the position of purchasing manager for Bosch Group in Changzhou, China. Previous to 2005 Poupier had a number of managerial positions in strategic purchasing within the Bosch Group in Germany.

Eric Poupier brings with him a broad experience within business and strategy development as well as within purchasing and change management. The new business development position in group executive management was created in an effort to strengthen FLSmidth Group's competitiveness by focusing more on effectiveness, strategy development and integration.

Sri Lanka: Holcim Lanka has appointed Nirmala GihanWickremeratne as chairman and Premila Perera as director.

Wickremeratne has a long and distinguished career at one of Sri Lanka's most respected conglomerates, the Hayleys Group, where he served as managing director / CEO of Dipped Products Group and later as chairman and chief executive of the Hayleys Group. He is credited with the establishment of Dipped Products plc and its evolution into a world leader in its field. Wickremeratne was the founder chairman of the Sri Lanka Association of Manufacturers and Exporters of Rubber Products (SLAMERP) and has been a committee member of the Ceylon Chamber of Commerce, the Chamber's representative on the National Labour Advisory Council and president of the Sri Lanka-France Business Council. Following his retirement, he served as an independent non- executive director of a premier private sector bank.

Premila Perera, formerly partner and head of tax at KPMG in Sri Lanka, is a fellow of the institute of Chartered Accountants of Sri Lanka. She has served as regional tax director of KPMG Asia Pacific in Singapore, a member of KPMG International's 'Firm of the Future' Task Force and on the faculty of the Tax Business School of KPMG International.

UK: The Competition Commission (CC) has demanded that Lafarge Tarmac sell one of its cement plants in the UK to create a fifth cement company in the country to increase competition in the market. The CC also intends to increase competition in the supply chain for ground granulated blast furnace slag (GGBS) by forcing Hanson to sell one of its GGBS production facilities. The CC is also introducing measures to limit the flow of information and data concerning cement production and price announcements.

"We believe that the entry of a new, independent cement producer is the only way to disturb the established structure and behaviour in this market which has persisted for a number of years and led to higher prices for customers," said CC Deputy Chairman and Chairman of the Inquiry Group, Professor Martin Cave.

The measures follow a two year investigation which found that both structure and the conduct in the cement sector restricts competition by aiding coordination between the three largest producers: Lafarge Tarmac, Cemex and Hanson. Competition problems also arose from the UK having only one domestic producer of GGBS in the UK (Hanson) with exclusive rights to use the output of Lafarge Tarmac, the single domestic producer of granulated blast furnace slag (GBS), which is the main raw material input into GGBS. The CC estimates that the lack of competition for both of these issues may have cost UK customers up to Euro60m/yr.

The final report follows the publication of the CC's provisional findings in May 2013 and an Addendum to the provisional findings and its provisional decision on remedies in October 2013.

Cameroon: Dangote Cement has signed an agreement with Gaz du Cameroun for the provision of gas for its 1.6Mt/yr cement plant in Douala, Cameroon. Commissioning of the cement plant is planned in January 2014 and the gas supply is scheduled to start in the second half of 2014. Construction at the Douala cement plant was delayed by a land dispute in 2012. The new plant is expected to reduce cement prices in the country.

India: The Cement Corporation of India's (CCI) Bokajan cement plant has halted production since 1 January 2014 due to a shortage of funds to purchase coal. Employees, unions and other local bodies have threatened to thwart any 'conspiracy of management' to close down the plant on 'insubstantial grounds' and have sought the intervention of Assam's Chief Minister to restore production.

Previously, the Board for Industrial and Financial Reconstruction (BIFR) declared that the state-owned CCI was a 'sick' industry but following good revenues from the cement producer's plants in Rajbon, Tendur and Bokajan the Indian government decided to keep the plants running.

China: Construction of the No. 1 rotary kiln at the Shaaxi Fuping cement plant, Shaaxi Province has been completed by the China 20MCC Construction Group (20MCC Group). Construction started in March 2013.

The range of the masonry work covered by 20MCC Group included the rotary kiln, grate cooler, hot kiln hood, tertiary air duct, hot-blast stove and the other equipment of the two production lines, casting of wear-resistant ceramic materials for the raw mill, cement grinding mill and the pipelines on the top of the slag mill.

Clinker production capacity at the plant will be 4.03Mt/yr, ground slag capacity will be 1.2Mt/yr and cement capacity will be 3.35Mt/yr.

UK: Cement production is due to restart at Cemex's South Ferriby plant in February 2014. The 0.8Mt/yr cement plant was flooded on 5 December 2013 with water from the neighbouring Humber Estuary causing considerable damage to the site's electrical network, according to the Scunthorpe Evening Telegraph.

"From our other UK sources we have been able to ensure a continued supply to all of our customers since the flooding took place and will continue to do so, ensuring that all receive the excellent service they expect from Cemex UK," said a spokesperson for Cemex. "The work entailed clearing up the site from the debris and silt deposited by the flood water, drying out buildings and components and working closely with our insurers, developing and starting to implement a plan to get the plant back to production as soon as possible." Silos at the site were not damaged in the flooding.

US: Lafarge has announced the sale of five aggregates quarries and related assets in Maryland to Bluegrass Materials for a total enterprise value of US$320m, subject to relevant regulatory approvals.

With these divestments, Lafarge has largely completed its strategy of refocusing on its core markets in the US. The company now operates a strong network of integrated positions mainly located in the Great Lakes and Mississippi River regions. These include nine cement or grinding plants and associated cement terminals with a combined capacity of 11Mt/yr, as well as related aggregates and concrete businesses in these markets.

Saudi Arabia: Saudi cement producer Najran Cement said that it launched trial operations of the first phase of its waste heat recovery (WHR) on 11 January 2014. The trial will take 10 days to complete and the commercial launch is yet to be announced. The US$45m WHR project is being installed by China's Sinoma Energy Conservation on a turnkey basis.

China: Dongwu Cement and Hengtong Group have agreed to establish a 50:50 joint venture company with a registered capital of US$24.8m.

The joint venture scope includes highways, urban roads, bridges, tunnels, foundation works, sewage treatment and drainage works. It also covers the construction and management of industrial and civil buildings and landscaping projects, including engineering technical consultation, project supervision, project bidding agency, property management, sales of building materials and domestic trade.

Russia: Russian government-owned Rostec is exiting a collaborative arrangement with Siberian Cement Holding Company (SibCem). The plan to build a regional cement superpower in Siberia has 'run its course,' according to local press.

In 2010 SibCem chairman Oleg Sharykin proposed creating a cement mega-producer in Siberia 'to counter the Chinese expansion' and to 'cartelise' the cement market to prevent sharp price fluctuations.

Rostec assisted SibCem to build its cement group, starting with building the cement giant in 2010 using the Russian Cement Company LLC as a platform for consolidation. The Russian Cement Company went on to acquire a 50.52% stake in Angarsk Cement, affording the government and SibCem a greater than 98% stake in Angarsk Cement. The Russian Cement Company established a 100% subsidiary in September 2011, the Russian Nephrite Company, which the Russian Cement Company has since exited.

Market analysis by RBNN Analytical Centre suggests that the three-year partnership between SibCem and Rostec yielded no significant results. In the autumn of 2013 Rostec representatives resigned from the Angarsk Cement board, while the Russian Cement Company divested its stake in the Russian Nephrite Company.

A Rostec source has indicated that the government will retain a stake in the Russian Cement Company by personal request from Sharykin, who, despite antitrust objections from the Federal Antimonopoly Service (FAS), made a deal to buy a controlling stake in Iskitimcement in 2013, which suggests that SibCem is still interested in increasing its influence in the region. SibCem sources added that Rostec is expected to divest its shareholding in the Russian Cement Company completely in 2014 and that the sale is to be channelled through companies controlled by Sharykin and domiciled in offshore jurisdictions.

US: Texas Industries Inc's (TXI) fiscal second-quarter loss widened as the construction materials company reported higher product costs and a jump in interest expenses, masking broad sales growth that boosted the top line. Though TXI reported higher sales for cement, concrete and the company's aggregate operations, the results were weaker than expected.

The company, which sells cement and other building materials in Texas and California, has struggled to compete against more geographically diverse peers. However, TXI has reported stronger sales so far this fiscal year.

For the quarter that ended on 30 November 2013 TXI reported a loss of US$17.6m compared to a loss of US$11.1m in the quarter that ended on 30 November 2012, while net sales grew by 25% to US$209m. Its gross margin narrowed to 6.8% from 7%. Sales by its cement segment, the company's largest top-line contributor, increased by 12% on higher shipments and a slight increase in prices. TXI announced that while pricing has improved, its prices still remain well below levels seen prior to the recession.

Poland: Poland's cement production totalled 846,500t in December 2013, up by 42% year-on-year, according to statistics from the country's Cement Producer Association.

Cement sales jumped to 725,500t in December 2013, marking a 55.3% year-on-year increase on December 2012. For the 12 months to December 2013, cement output declined by 7.5% to 14.5Mt, while sales dropped by 7.6% to 14.6Mt.