Displaying items by tag: Asia Cement

South Korea: Asia Cement has awarded a contract to Germany’s Humboldt Wedag, a subsidiary of KHD Humboldt Wedag International, to supply and provide engineering for the modernisation of its third clinker production line at its Jecheon plant. The target of the upgrade project is to increase the alternative fuel substitution rate to above 85% of calciner fuel, as well as the reduction of NOx to satisfy local emission limits.

KHD’s scope includes the engineering and supply of mechanical equipment for the clinker production as well as electrical equipment for the overall modernisation of the production process. During the project, the existing preheater will be modernised with the installation of a new Pyroclon R calciner, as well as a Pyrorotor rotary combustion reactor for low-processed alternative fuel.

The overall project scope consists of: a Pyroclon R calciner with Pyrotop mixing chamber; a Pyrorotor alternative fuel combustion reactor; a Pyrobox coal firing system for process start-up and operation balancing; replacement of stage five cyclones with new high-efficiency cyclones for calciner connection and an overall pressure drop reduction; bypass mixing chamber installation; and a new kiln inlet chamber with orifice.

The commissioning of the modernised production line is planned for the first quarter of 2021.

China: Asia Cement (China) Holdings has reported a net profit of US$320m in the nine months to 30 September 2019, up by 40.2% year-on-year from US$228m. The company attributed this to steady earnings growth.

Taiwan: Taiwan Cement Corp has reported that its net income for the first half of 2019 increased by 11.7% to US$356m. However, its cement sales were lower year-on-year compared to the first half of 2018. The income was improved by contributions from its coal-fired power plant in Hualien County.

The company said that it remains positive with regards to the second half of 2019, as the rainy season is over, which is expected to boost cement demand and prices.

Separately, Asia Cement reported that net income soared by 46.5% year-on-year in the first half of 2019, predominantly thanks to record-high profits generated by its Chinese operations.

Taiwan: Asia Cement has appealed a ruling by the High Administrative Court in Taipei to revoke an extension of its mining rights at a quarry in Xincheng Township. Its right to operate the quarry was blocked in early July 2019 despite a 20-year extension granted in 2017, according to the Taipei Times newspaper. The cement producer also said it had received signatures from local residents will support continued mining at the site. The quarry supports an integrated plant at Huanlien.

Taiwan: Asia Cement’s union has taken out advertisements in major local newspapers protesting against a ruling by the Taipei High Administrative Court blocking its right to operate a cement quarry located in the Taroko National Park. It says that the cement producer applied for the permit extension in line with the Mining Act in 2016, according to the Taipei Times newspaper. It added that the court’s decision could negatively affect industrial operations, labour rights as well as the government’s credibility for boosting the economy. Environmental groups have called on the company to negotiate with local people living near the quarry.

China: Asia Cement (China) said that its profit attributable to owners for the six months that ended on 30 June 2018 surged by a factor of 10.7 to reach US$139.3m compared to the same period of 2017. Revenue amounted to US$718.8m, an increase of 47% from a year earlier.

Meanwhile, China Resources Cement (CRC) announced that its net profit for the first six months of 2018 was US$2.0bn, a rise of 145.5% year-on-year. CRC’s turnover amounted to US$2.36bn, an increase of 40.4% from a year earlier.

The Chinese government has once again reiterated that it will continue to strictly prohibit cement companies from adding new capacity, despite improving profits. Years of efforts to cut excess capacity in the sector have helped to improve the industry's profits, but signs are emerging that some factories are increasing new capacity, according to Ministry of Industry and Information Technology, which released a joint statement with the state economic planning agency. It said that expansion projects to produce more cement, won't be approved. In addition, factories' plans to replace out-dated capacity with new capacity must comply with government rules.

Taiwan: Protestors have called for the closure of Asia Cement’s quarry in Hualien. The government proposed an amendment to the Mining Act in December 2017 that would require quarries in aboriginal territories to obtain the consent of aboriginal communities, according to the Taipei Times newspaper. However, the quarry has been exempted because the Bureau of Mines extended the company’s mining rights by 20 years in early 2017. Aborigines from the Taroko National Park area said that the government’s approval of the amendment was ‘illegal’ and demanded that their traditional land, which is occupied by the quarry, be returned to them. Asia Cement said it would ensure that the mine is environmentally sound, that water sources near the mine are protected and that mining safety standards meet regulations. It added that it would also work with aboriginal communities and continue talks with them and the government as necessary.

Asia Cement has completed its purchase of Halla Cement this week for US$723m. The deal has created the third largest cement producer in South Korea with a cement production capacity. This includes one integrated plant at Okgye, three slag grinding plants and a distribution network.

Graph 1: Cement producers in South Korea by cement production data from 2016. Chart includes mergers in 2017 and 2018 to represent current market share. Source: Korea Cement Association.

The Halla Cement transaction marks an on-going consolidation process in the local industry. 2017 proved a busy year with the purchase of Daehan Cement by Ssang Yong Cement and Hyundai Cement by Hanil Cement. Assuming the dust has settled this now leaves Ssang Yong Cement and its new subsidiary in the lead by cement production data from 2016 with 12.9Mt or a 23% market share, Hanil Cement next with 12.4Mt or a 22% share and Asia Cement with 10.8Mt or a 19% share. Overall the country produced 56.7Mt of cement in 2016, according to Korea Cement Association data. The remainder of production is shared between six producers.

Fears that the construction industry may have been about to slow down might have prompted Glenwood Private Equity and Baring Private Equity Asia to sell Halla Cement a little earlier than expected. However, they don’t appear to have done too badly out of this. The two private equity firms that bought Halla Cement from LafargeHolcim in 2016 seem to have made a cool US$180m on the deal. At the time it was reported in the local press that they paid US$542m for the cement producer. Glenwood Private Equity was the lead investor followed by Baring Private Equity Asia. They bought Lafarge Halla Cement in May 2016 and then were looking for buyers a year later in August 2017.

Cement consumption in South Korea has followed a rollercoaster path since 1992 hitting a high of 61.7Mt in 1997 and a low of 43.7Mt in 2014. It then rose to 55.8Mt in 2016. The consolidation behaviour by the cement producers suggests either a poor performing market or an uncertain one. Since the gap between the peak and the trough is more than Halla Cement’s production capacity no wonder its private equity owners were keen to get shot of it at the first sign of trouble. So let’s end with the words of Han Chul Kim, Managing Director of Baring Asia, from the time of the purchase from LafargeHolcim in 2016: "We couldn’t imagine a more solid platform from which to access the growth opportunities in the Korean market in the coming years.”

South Korea: Baring Private Equity Asia has sold Halla Cement to Asia Cement for US$723m. The combined business will be the third largest cement player in Korea, with a combined market share of 19%.

Baring Private Equity Asia bought Lafarge Halla Cement from LafargeHolcim in 2016. It took full control of the cement producer in 2017. It was then reported to be shortlisting potential buyers for the company in September 2017.

Halla Cement operates one cement plant at Okgye and three slag cement grinding plants. It has a cement production capacity of 7.6Mt/yr. It also runs 11 distribution centres in the country, consisting of seven coastal and four inland centres.

People matter in cement companies. Just ask Bruno Lafont, the originally proposed CEO of LafargeHolcim before the merger plans between Lafarge and Holcim changed in mid-2015. Another example is Zhang Bin, the chairman of Shanshui Cement. Some of the shareholders at Shanshui Cement are working hard to remove him. The next attempt has been scheduled for 1 December 2015.

Shanshui Cement, one of the biggest Chinese cement producers, called for the liquidators this week possibly in response. It decided to apply for provisional liquidation after determining that it would default on onshore debt payments due on 12 November 2015. Earlier in the month it had announced doubt whether it could pay its debts.

The scale of this liquidation is monumental for the cement industry. It is broadly similar to a producer at least the size of Dangote going bust. Shanshui Cement is one of China's top ten cement producers. It defaulted on a US$314m onshore debt payment on 12 November 2015.

Based on Global Cement Directory 2015 data, Shanshui Cement is the seventh largest cement producer in the country with 15 cement plants and a cement production capacity of 30.5Mt/yr. Shanshui Cement itself reports that it has a production capacity of 102.6Mt/yr making it the country's fourth largest cement producer. In its 2014 annual results Shanshui Cement reported sales revenue of over US$2.4bn. Its net profit was over US$48m. Sales and profits were down year-on-year in 2014 compared to 2013 and its interim report for 2015 reported the same downward trend. Sales revenue fell by a third to US$793m year-on-year for the first half of 2015. In 2014 its total debt was reported to be US$2.5bn with a gearing ratio of 56.9%, a relatively high figure leaving it vulnerable to decreasing profits.

As the Wall Street Journal and others have reported, the situation has as much to do with corporate politics as it does with over-borrowing. Hot on the heels of Shanshui's liquidation announcement came an offer of help to pay the debts from local rival Tianrui Group if its attempts to change the board of Shanshui were finally successful. Tianrui became the largest shareholder of Shanshui in April 2015 when it increased its stake to 28%. In the process it beat China National Building Material Company and Asia Cement Corporation, who hold 16.7% and 20.9% stakes in Shanshui respectively.

The heart of the Shanshui debacle is the 'key man' clause as reported by Reuters. Borrowing to the company is dependent on current chairman Zhang Bin retaining his position. As soon as he leaves it triggers the repayment of offshore bonds worth US$500m. Normally not due for payment until 2020, the bonds contain a clause that forces the company to sell them within 30 days should Zhang Bin depart.

Shanshui seems likely to be able to pay its debts judging from its sales revenue, assets and the strength of its main shareholders. However, it has chosen to default for the moment. The question for analysts watching this from outside China is whether it masks deeper problems in the Chinese economy as growth continues to slow and industrial overcapacity lingers. Shanshui is the sixth mainland Chinese company known to have defaulted on a bond this year, according to Bloomberg. It's also likely to be operating at a cement production utilisation rate of around 50%.

If the Shanshui Cement situation is more to do with markets than personalities, then it may represent an alarming acceleration of the slowdown of the Chinese economy for the cement industry. If personalities matter more, then the situation is a battle comparable to the politics on the television show 'Game of Thrones.'