Displaying items by tag: Buzzi

Italy: Buzzi Unicem’s net sales fell slightly to Euro2.41bn in the first nine months of 2020 from Euro2.42bn in the same period in 2019. Its cement sales volumes declined by 1.8% to 21.7Mt from 22.1Mt. The group said that sales volumes recovered during the third quarter of 2020 due to a rebound of demand in Italy, stability in Germany and a ‘trend reversal’ in Russia. Net sales also increased in the US during the third quarter.

Eurocement changed owners this week when Sberbank took control of the company’s parent organisation. Due to a ‘difficult financial situation’ the state-owned bank said it had consolidated 100% of the shares of Eurocement’s parent company GFI Investment Limited. It’s uncertain quite how difficult this situation is but in 2016 the cement producer owed the bank Euro700m. Local media agency RosBiznesConsulting (RBC) reported in September 2020 that the ‘problem borrower’ that had caused a record increase in overdue debt at Sberbank in July 2020 was none other than Eurocement. Whilst Sberbank has said so far that it does not have operational control of the group, it is seeking a strategic investor for the asset.

This is a major story given that Eurocement is Russia’s largest cement producer and it operates 19 cement plants Russia, Ukraine and Uzbekistan. It said it produced 16.5Mt of cement domestically in 2019 but this compares to a production capacity of around 50Mt/yr suggesting a considerably low utilisation rate of just one third! The producer has embarked on a modernisation programme in recent years but many of its plants are old and use wet-process production lines.

2019 finally saw the Russian cement market turn around following decline since 2015. Unfortunately, CM Pro reports that cement production in Russia as a whole fell by 5% year-on-year to 25.1Mt in the first half of 2020. Cement shipments fell by a similar rate. This trend appears to have carried on through July and August 2020. Cement consumption has fallen fairly uniformly in most regions with the exception of the Northwestern Federal District, which has seen a modest increase. In the middle of the year, Soyuzcement - the Union of Russian Cement Producers, was expecting wildly different scenarios ranging from falls of up to 10% in a negative situation to rebound of up to 3% in a positive one. It was pinning its hopes on government support for the construction industry in various ways. With the trend to August 2020, record breaking numbers of new coronavirus cases in early November 2020 and the onset of winter, it seems unlikely that Soyuzcement’s positive thinking will come to pass.

With this in mind who might want to buy into Eurocement? No doubt various private equity firms and local producers are watching the oil price carefully while they plan their next move. Internationally, LafargeHolcim seems the obvious western multinational contender with a presence in the country. Yet it seems unlikely it would want to take the risk, following its departure from certain regions like South-East Asia in recent years and persistent rumours about other divestment targets. HeidelbergCement’s balance sheet, credit lines and appetite for risk might not yet withstand a major investment in Russia. Buzzi Unicem has actually been expanding recently with an acquisition in Brazil but whether it’s prepared to bet on another market disrupted by coronavirus is unknown. China National Building Materials Group Corporation (CNBM) was reportedly planning on becoming a shareholder of Eurocement Group in 2016 but this may have just been bluster surrounding geopolitical links between Russia and China, and general cooperation between the companies on upgrading Eurocement’s old production lines. However, Russia is the next location in China’s Belt and Road initiative so it’s not ridiculous. Whoever steps up can expect the Russian government to take a keen interest, depending on how much control Sberbank wants to offer up of Eurocement. The story continues.

Italy: The pilot plant for the Cleanker project was inaugurated at Buzzi Unicem’s Vernasca cement plant in early October 2020. The purpose of the calcium looping technology project is to demonstrate a technology for capturing carbon dioxide (CO₂) in cement plants. Tests will be run for around 10 months with a total actual operating time of one month at most.

Buzzi Unicem beefed up its presence in Brazil this week with the announcement that it is buying CRH’s local cement plants through its Companhia Nacional de Cimento (CNC) joint-venture with Grupo Ricardo Brennand. The deal covers CRH Brazil’s three integrated plants at Cantagalo in Rio de Janeiro, and, Arcos and Matozinhos in Minas Gerais. It also throws in two grinding plants including the Santa Luzia Plant in Minas Gerais for a total of US$218m, although the final figure may change depending on conditions such as the net financial situation at the closing date.

The purchase brings up two trends. Firstly, it’s a continuation of CRH’s refocus on safe havens in Europe and North America. The Ireland-based building materials producer originally picked up these plants in the wake of the formation of LafargeHolcim in 2015 as part of a package deal for Euro6.5bn in its ‘bolt-on’ acquisition expansion phase. Most of the assets in that deal were in Europe and North America, although it did see CRH also build a presence in the Philippines.

Since late 2019 reports have emerged in the press about plans to sell up in Brazil and the Philippines. Whether CRH has made any profit on its sale in Brazil is hard to tell given the scale of its purchases from Lafarge and Holcim in 2015. The focus was likely on those key markets closer to home. Yet cement sales in Brazil peaked in 2014 before the national economy were hit by falling commodity and oil prices that contributed to a recession as well as the Petrobras political crisis. Sales bottomed out in 2018 and have been building steam since. Now is certainly the time to consider departure with a good price given the National Cement Industry Union’s (SNIC) glowing data for September 2020.

For Buzzi Unicem, the proposed acquisition represents the next step on its multinational ambitions, pushing Brazil into its fifth biggest territory in terms of cement production capacity after Italy, the US, Mexico and Germany. Its timing was good in September 2018, when it agreed to buy a 50% stake in the Brazilian company BCPAR from Grupo Ricardo Brennand for Euro150m, because local sales were finally starting to pick up. Once again Buzzi Unicem has also picked up cement production assets for a capacity price just below US$100/t. This time it faces a similar balance of uncertainty with the Brazilian cement industry reporting continuing growth but facing an uncertain future from the economic effects, locally and worldwide, from the coronavirus pandemic.

One point to note here is that as part of its deal with Grupo Ricardo Brennand in 2018, Buzzi Unicem had the right to buy the remaining 50% of BCPAR from Grupo Ricardo Brennand until 1 January 2025. Presumably, though, the option to buy Grupo Ricardo Brennand out of BCPA remains valid. This makes it interesting that Buzzi Unicem chose further expansion over consolidation of its existing business. Four years remain for it to buy the rest of BCPAR if it wants to.

Given the concentration of the Brazilian business in the south-east of the country it seems unlikely that the acquisition would be turned down since the enlarged BCPAR will hold a production base behind larger producers like Votorantim or InterCement. However, Cimento Nacional’s Sete Lagoas plant and CRH Brazil’s Matozinhos plant are both close in Belo Horizonte and this may cause concerns. Now it’s over to the Brazilian regulators to approve or decline the deal and the various parties to finalise.

Brazil: Ireland-based CRH has agreed to sell its Brazilian business to Companhia Nacional de Cimento (CNC), a joint venture between Italy-based Buzzi Unicem and Grupo Ricardo Brennand, for US$218m. The related assets include three integrated cement plants and two grinding plants. The sale is subject to approval by the Brazilian Competition Authority (CADE). CRH Brazil sold approximately 2.5Mt of cement in 2019.

In 2019 CRH sold its 50% stake in India-based My Home Industries for US$354m. Outside of Europe and North America it retains subsidiaries in the Philippines and China.

Ed Sullivan was present to tell Global Cement Live viewers about the Portland Cement Association’s (PCA) autumn forecast last week. The PCA expects US cement consumption to drop by 1.5% year-on-year on 2020. This is a weighted average of its three projections, which cover a gradual recovery from coronavirus-related economic disruption, a less controlled scenario and one where wide-spread vaccination has a positive effect in the second half of 2021. The first scenario is the PCA Market Intelligence’s most likely one but only the fast vaccination scenario predicts a return to growth in 2021. This is wide but understandable deviation from the PCA’s autumn forecast in 2019 that expected moderate growth albeit a slowly weakening economy. Almost nobody seriously expected 2020 to turn out like it has. Follow the link at the bottom of this article to view the presentation in full.

Graph 1: Portland & Blended Cement shipments by US region in 2019 and 2020. Source: United States Geological Survey (USGS).

We’ll now take a general look at the US cement industry so far in 2020 to compliment Sullivan’s economic overview. Up until 2020 cement consumption, production and imports had been growing steadily since the financial crash in 2008. Using August 2020 data the PCA says this is changing. Graph 1 above shows a general reverse of the position in the autumn of 2019 [LINK] with declines in the South and North-East and growth in the West and Midwest. Imports alongside this have continued to build. Overall, national cement shipments increased by 2.2% year-on-year to just under 50Mt in January to July 2020 from 48.9Mt in the same period in 2019. This was driven by growth of 10.8% in the Midwest. Missouri is the standout in the region, behind only Texas and California nationally as the third biggest cement shipping state so far in 2020.
From the corporate side, LafargeHolcim, the US’ biggest cement producer, described North America as having, “…the most resilience of all regions despite Covid-19 restrictions in some areas.” It reported an overall fall in cement volumes of 1.4% year-on-year to 8.9Mt in the first half of 2020. However, it didn’t go into specifics for the US. Cemex’s experience seemed to be doing better with an 8% rise in cement volumes supported by the infrastructure and residential sectors. HeidelbergCement went further and described the impact of coronavirus on the US economy as ‘significant.’ It reported a decrease in cement deliveries at its North American plants of 4.9%, to 7.1Mt. Both Buzzi Unicem and CRH reported cement sales growth of 4 – 5%, with CRH noting that, “strong volume trends in West supported by growth in our downstream businesses drove performance.”

Perusing the industry news reveals a slew of environmental stories. So far in 2020, Holcim US said it was going to run a carbon capture and storage (CCS) study at its Portland cement plant in Colorado, Alamo Cement signed a deal to build a solar farm, Grupo Cementos de Chihuahua’s (GCC) Rapid City plant in South Dakota announced plans for a wind farm, CalPortland launched a sustainable product line with a lower clinker factor, LafargeHolcim launched its ECOPact low-carbon concrete range, LafargeHolcim US also said it was adopting new environmental product declarations and Holcim US opened a solar power plant at its Hagerstown cement plant. There have been a few upgrade stories, like the new line being built at National Cement’s Ragland plant in Alabama or Lhoist’s new lime kiln projects, but Lehigh Hanson said it was suspending work on the upgrade to its Mitchell plant in Indiana in April 2020.

At this point all eyes are on the US Presidential election scheduled to run on 3 November 2020. Donald Trump’s long promised but never delivered infrastructure still hasn’t arrived although blame could be apportioned to both sides of the local political divide for this. The PCA believes that both presidential candidates will probably see it through although the Republicans’ interpretation might well involve more cement! In the interest of balance though, it also expects the Democrats to focus on low-income housing construction. At this stage it seems more likely that the early arrival of a coronavirus vaccine will have more impact on the cement industry in the short to medium term than the results of the election.

View Ed Sullivan’s presentation at Global Cement Live

Ukraine: The Interdepartmental Commission for International Trade (ICIT) has pursued a complaint by multiple domestic cement producers including Buzzi-Unicem subsidiary Dyckerhoff, HeidelbergCement subsidiary Kryvyi Rih Cement and CRH subsidiary Podilsky Cement in opening an investigation into imports of cement from Turkey. The Uriadovy Kurier newspaper has reported that, on its preliminary assessment, the ICIT deemed the complaint to provide “sufficiently substantiated evidence on the basis of which it can be considered that the importation of cement into Ukraine originating in Turkey could be at dumped prices, the margin cannot be considered minimal and the import volumes are not insignificant in accordance with the law.” It added, “The complaint also provides sufficiently substantiated evidence that imports were made to an extent and under conditions such that they may cause material injury to the domestic producer.”

Italy: Buzzi Unicem says that it has implemented a number of measures to enable it to deal with any economic downturn resulting from the financial impacts of the coronavirus outbreak. The Il Sole newspaper has reported that the company’s strategies fall under two headings, namely increasing efficiencies and improving products and services. As such, the company is targeting a medium-term increase of Italian cement plant capacity utilisation of 70 - 75% from 55 - 60%, while also increasing its product range to offer custom concrete blends “to best suit the needs of the customer.”

Russia: The Ministry of Finance of Sverdlovsk Oblast has named Buzzi Unicem subsidiary SLK Cement amongst the winners of Best Taxpayer of the Year 2019, an award that recognises commercial contributions to the regional economy by taxpaying in order to “raise the profile of companies and increase their role in the socio-economic development of the territory.” SLK Cement paid US$23.0m in taxes in 2019, up by 2.4% year-on-year from US$22.5m in 2019.

General director Andrey Immoreev said, “Honesty and compliance with the law are one of the key values of the Buzzi Unicem business code, in accordance with which we work. In our activities, we strictly follow the legal norms in the field of labour protection, industrial, fire, sanitary and epidemiological, environmental safety, taxes and Gosudarstvenii Standart (GOST) and international cement quality standard regulations, as well as retaining a customer focus in the company. In addition, despite the external factors associated with the coronavirus pandemic, we confidently continue to implement investment projects to modernise production equipment and provide assistance to the territories in which we are present.”

There has been good news from the German Cement Works Association (VDZ) this week. Following a strong start to the year, the association expects cement consumption in 2020 to remain similar to the level, 28.7Mt, reported in 2019. VDZ president Christian Knell acknowledged the difficulty in making forecasts, this year of all years, but said that the association remained positive since demand had held up so well. He noted the continued operation of construction sites, despite the local coronavirus-related lockdown from March 2020, and the ‘quick action’ of politicians.

Graph 1: German cement deliveries, 2015 – 2019: Source: German Cement Works Association (VDZ).

The year certainly started well, with a 33% year-on-year increase in domestic cement deliveries to 1.43Mt in January 2020 from 1.07Mt in January 2019. This was due in part to good weather, although it also looks good because 2019 started badly compared to 2018. Yet, the VDZ’s assessment has been supported by the results of the main producers operating in the country. HeidelbergCement reported that Germany bucked the trend of its Western and Southern Europe Group area in the first half of 2020 with a ‘positive market development’ whereas deliveries declined significantly everywhere else. Similarly, LafargeHolcim noted a ‘resilient’ performance in Germany. Buzzi Unicem released a more detailed assessment, with shipments of hydraulic binders down in April and May 2020 but then back up with a recovery in June 2020. Overall its cement plants reported a slight decline in sales for the first half of the year. Concrete production grew however, by 6% year-on-year, possibly aided by the plants that the group purchased in 2019.

Germany’s success appears to be down to two factors. The first, as Knell mentioned above, is that it was able to keep much of its construction industry open through its lockdown. Dieter Babiel, the head of Hauptverband der Deutschen Bauindustrie – the main German construction industry association - reckoned that the industry was operating at about 80% capacity in May 2020 compared to the situation in other large European countries like France, the UK, Spain and Italy where building sites totally closed at the height of local lockdowns before gradual reopening. Bauindustrie has since reported falling monthly order intake as coronavirus-effects on the general economy filter through to construction. The other reason is that the country has managed to control its outbreak better compared to other European countries. It has reported the third most cases in Europe but its fatality rate is only 4% compared to 14% in the UK, Italy and France. This has been attributed to strong public health measures and high levels of testing, particularly with respect to elderly residential care.

It’s not all plain sailing though since the International Monetary Fund (IMF) has projected a 7.8% decline in Germany’s gross domestic product (GDP) in 2020. Likewise, the VDZ is predicting weakening construction markets and cement demand in the fourth quarter of 2020. It cited falling orders and requests for building permits as mounting evidence for this trend. From here a gloomier outlook is foreseen for 2021 as construction budgets for commercial and government projects are cut. At the same time uncertainty in the labour market is expected to drag down the residential market. With this in mind the VDZ is predicting cement demand to drop by 3 – 5% in 2021.

To end on an upbeat note, if the VDZ’s forecasts are accurate, then the German cement sector looks like it might weather the coronavirus-downturn better than other industries. It knows a downturn in construction is coming and it can prepare for it.