Displaying items by tag: CNBM

Vietnam: China-based Sinoma International Engineering has announced its receipt of a provisional acceptance certificate (PAC) from the owner of the 1.8Mt/yr Tonglin cement plant, signifying the handover of the finished plant. The parties originally signed the engineering, procurement and construction (EPC) contract for the plant in August 2009.

Consolidation of the Chinese cement industry looks set to take a major step forward this week. China National Building Material Company (CNBM) announced that it is restructuring its cement production assets and companies under one subsidiary, Tianshan Cement. The move is significant since CNBM is the world’s largest cement producer, with a production capacity of over 500Mt/yr. That’s more than the total output of any single country except China. It’s also between a quarter and a third of national capacity domestically.

Little information has been revealed except that it concerns most of CNBM’s cement producing subsidiaries. Namely: China United Cement, South Cement, North Cement, Southwest Cement and Sinoma Cement. Note that this leaves out Ningxia Building Materials and Qilianshan Holdings, although some commentators have suggested that they may be merged in later on. It was announced to stock markets as a proposal with a ‘letter of intent of cooperation’ exchanged between CNBM and Tianshan Cement. CNBM will remain the controlling shareholder of Tianshan Cement after the restructuring. However, the assets concerned - the cement companies are still being discussed and considered. The aim of the reorganisation is to ‘facilitate resolving industry competition’ among the subsidiaries of CNBM.

The move is expected to significantly increase operational efficiency at the cement companies as they start to act in a more coordinated manner. It also fits the government-requested drive for the industry as a whole to consolidate and follow supply-side reform initiatives by, hopefully, eliminating old production assets and other measures. Indeed as CNBM’s president Peng Shou said in the company’s report for 2019, “Production overcapacity of the industry has not been fundamentally resolved. The task of cutting production overcapacity was arduous, and the supply-side structural reform remains the major task.” The company says it is committed to building a three-pillar development platform of cement, new materials and engineering services.

How much more operational efficiency the world’s largest cement producer will need to do this is a key question. In 2019 the sales revenue from its cement business rose by 12% year-on-year to US$18.7bn and its earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 19% to US$5bn. Growth at this level is novel to western-based multinational cement producers! So the implication might be that CNBM is hoping to turbo-charge its financial performance before (or if) the serious government-forced supply side cuts occur or a general economic slowdown happens so that it can return to ‘normal’ Chinese performance afterwards.

The Chinese Cement Association presented a good overview of the history of CNBM that you can read here. The quick version is that it’s the embodiment of the Chinese government’s desire to build and merge its cement industry since 2005. The latest restructuring with Tianshan Cement is the latest chapter in this 15 year story. What the reorganisation means internationally is ‘probably not much’ in the short term. Better coordination between CNBM’s cement companies could have implications in the longer term if they acted together on an international strategy, such as a strategy on exports for example, or if group-wide suppliers were agreed upon.

That’s all on China but finally if readers were not able to join us for Global Cement Live last week on 23 July 2020, we recommend watching the playback of Arif Bashir, Director (Technical/Operations) of DG Khan Cement Nishat Group Pakistan. He gave a great overview of Pakistan’s cement industry and the challenges it is facing and overcoming. Be sure to tune in for this week’s guest speaker, Regina Krammer from Loesche who will be discussing how the coronavirus crisis will change communications in the sector.

To register for Global Cement Live visit: www.globalcement.com/live

China: Song Shoushun has resigned as the chairman of China National Materials International Engineering (CNBM Engineering). He has left the position for personal reasons. The company is part of CNBM Group and it provides engineering services and equipment to the international cement, housing, industrial equipment and light industry sectors.

China: China National Building Materials (CNBM) has shared plans for a restructuring. Under the new arrangement, its subsidiary Tianshan Cement will take control of China United Cement, North Cement, Sinoma Cement, South Cement, Southwest Cement and CNBM Investment. The reorganisation awaits internal negotiations and finalisation and regulatory approval.

Huaxin Cement’s deal to buy ARM Cement’s assets in Tanzania has reportedly completed this morning. The Chinese cement producer will pour US$116m into Maweni Limestone to settle its liabilities and add another US$30m to complete plant construction and an upgrade, according to Reuters. Kenyan-based ARM Cement operates an integrated plant at Tanga and a grinding plant at Dar es Salaam.

Given the state of the world at the moment due to coronavirus the timing seems almost prophetic. There have been plenty of jingoistic warnings in Western media about renewed Chinese global dominance in the wake of the crisis. However, this agreement dates back to at least September 2019 when it was publicly announced, well before the current health scare. This is part of the Chinese expansion plan in Sub-Saharan Africa that’s been happening informally and formally since at least 2013. ARM Cement has seriously suffered since 2017 when cement demand fell in Kenya, a coal import ban in Tanzania caused production issues at its Tanga plant and increased competition hit both countries. It entered administration in the summer of 2018 and previous owner Pradeep Paunrana has been fighting PricewaterhouseCoopers’ attempts to sell the business to local rival National Cement. In some respects the timing of this deal may also be bad for Huaxin Cement given that it’s just suffered a 36% year-on-year drop in sales revenue to US$542m in the first quarter of 2020, related to the coronavirus outbreak. If the company can’t absorb this through the rest of the year then it might have a problem.

The real trend here in Chinese expansion strategy by its cement sector is a move from imports, building plants and co-financing projects to outright asset acquisition. This isn’t the first example either. West China Cement completed its purchase of a majority stake in Schwenk Namibia for US$104m in January 2020. This gave it control of Ohorongo Cement. Other recent Chinese moves in Sub-Saharan Africa include the supply of a modular grinding mill in Guinea by Sinoma and the competition of construction of a 1Mt/yr integrated plant in Lubudi Territory in Democratic Republic of Congo by another CNBM subsidiary, Tianjin Cement Industry Design and Research Institute.

An outlier from the more ‘traditional’ Chinese routes of either supplying equipment and/or co-financing cement plants in Africa has been the CNBM/Sinoma plan to build a 7Mt/yr ‘mega’ plant in Tanzania. Once completed it will nearly double local clinker production! Unsurprisingly, when it was first announced it was pitched towards the export market. Cement producers in East Africa might do well to remind themselves what has happened in Egypt since the 13Mt/yr government/army-run El-Arish Cement plant at Beni Suef opened in 2018: the over-supplied market collapsed. Together with the Huaxin Cement purchase, once the CNBM project completes, Chinese companies will own the majority of cement production capacity in Tanzania.

Looking at Sub-Saharan Africa, Chinese cement producers look set to benefit from any potential economic realignment following the coronavirus pandemic due to their conservative approach in expanding overseas. By investing cautiously and generally avoiding large-scale international acquisitions and mergers they have insulated themselves relatively well from any potential economic crisis. One weakness though is a reliance on the strong Chinese domestic market. If, say, it declines over a longer period due to the coronavirus crisis or ever reaches more ‘normal’ per-capita cement consumption figures then expanding too slowly overseas might look like the wrong strategy in retrospect. Yet, if western competitors start retreating further then the temptation to start to buy assets in bulk may grow. Another risk is how badly the coronavirus outbreak hits countries in Africa. The combination of poor healthcare systems, younger populations and warmer climates make it extremely unpredictable. Fortune may favour the bold but slow success seems to be working well for Chinese producers so far.

Many of the first quarter financial results are in from the multinational cement producers and a few points are worth discussing. As usual a few caveats are worth mentioning such as seasonal and geographical variations between companies, such as producers in the northern hemisphere experiencing a generally slower period. It’s also worth noting that this is a selective look at some of the larger cement producers as not all of them release detailed figures at this stage and others have been delayed. However, the economic effects of the coronavirus lockdowns are clearly showing an effect in a kind of wave as the pandemic has spread.

Graph 1: Sales revenues in the first quarter of 2020 from selected cement producers. Source: Company financial reports.

Graph 1 above shows the effects of the earlier lockdown in China upon the results of the Chinese producers like CNBM, Anhui Conch and China Resources Cement (CRC). What’s interesting with these companies is that they have all suffered revenue hits of 20 – 25%. Huaxin Cement, a producer based in Hubei province near Wuhan where the Chinese lockdown was strictest, is not shown in Graph 1 but its revenue fell by 35% in the first quarter. See GCW452 for more on coronavirus effects on the Chinese cement industry.

Looking more widely, both LafargeHolcim and HeidelbergCement suffered declines of around 10%. This is somewhat misleading as both companies are constantly selling assets making the like-for-like results not quite as bad, particularly in the case of LafargeHolcim with its South-East Asian divestments. Although note this week that LafargeHolcim’s deal to sell its majority stake in Holcim Philippines lapsed this week due to the local competition regulator not granting permission in time. Yet, they are also beneficiaries and victims to an extent of their wide geographical spread with worse performance in Asia and better results in North America. For a fuller look at LafargeHolcim’s first quarter results see last week’s column. The rest of the producers featured generally reflect their tighter market spread with Buzzi Unicem particularly benefiting from the relatively untouched market in the US. Shree Cement, an Indian producer, escaped relatively unscathed, possibly as the Indian lockdown only started in late March 2020. All eyes will be on the results of UltraTech Cement, the largest producer in India, when they finally emerge.

Graph 2: Cement sales volumes in the first quarter of 2020 from selected cement producers. Source: Company financial reports.

Cement sales volumes tell a similar story, although a few different companies are featured in Graph 2. Note CRC’s year-on-year fall of 26% to 11.2Mt in the first quarter. It’s the only larger Chinese cement producer that we’ve found so far that has released sales volumes. Semen Indonesia is interesting too because its figures jumped in January 2020 as its acquisition of Holcim Indonesia only went on the books in February 2019. It’s February and March sales volumes have each been 4 - 5% down year-on-year but it’s far from clear whether this is due to general production overcapacity in the country or from the global health crisis. Despite this, its export volumes from both the mainland and its TLCC subsidiary in Vietnam have held up well. Unfortunately though, its performance in Vietnam may be an outlier if data from the General Department of Vietnam Customs is to be believed this week. It indicated that overall cement exports from the country fell by 9.7% year-on-year to 7.73Mt in the first quarter of 2020. Cementos Argos is also worth looking at as it suffered from the government lockdown in Colombia despite having an international presence in the Caribbean and the US.

Most of the world’s largest cement producers are preparing for the economic shockwaves from lockdowns to hit balance sheets in the second quarter of 2020. Many have said exactly this and have paraded their liquidity levels in preparation. Alongside this the results of the Chinese producers in the next quarter may offer some light on what kind of recovery is possible from easing lockdown measures. Yet the risk of second waves of infections from coronavirus potentially jeopardises any kind of fast or easy recovery without a vaccine. Today’s news that Cemex is considering mothballing its integrated plant at South Ferriby in the UK has been blamed on an analysis of the company’s European cement supply chain. The company says it is not related to coronoavirus but it does suggest the company is making savings.

This week has seen international press coverage return to Wuhan, China and South Korea where small numbers of infections have started to build despite being thought mostly eradicated. No one wants the so-called ‘W’ economic recovery with its rollercoaster ride of crests and dips or indeed the ‘L’ with its slow tail of recovery. Yet, for better or for worse, some form of normality has to return after the lockdowns end. The UK, for example, the country with the worst death rate from coronanvirus in Europe, has allowed its construction workers to pick up tools this week. If and when they can do so in the UK and everywhere else without causing the basic reproduction number (R₀) to rise then the future starts to look a little brighter.

The Coronavirus Disease 2019 (COVID-19) took on direct implications for the international cement industry this week when an Italian vendor infected with the virus visited Lafarge Africa in Ogun state, Nigeria. The cement producer said that it had ‘immediately’ started contact tracing and started isolation, quarantine and disinfection protocols. This included initiating medical protocols at its Ewekoro integrated plant, although local press reported the unit’s production lines were still open. Around 100 people were thought to have had contact with the man.

Global Cement has been covering the epidemic since early February 2020 when the virus’ effect on the construction industry in China started to become evident. First, an industry event CementTech was postponed, financial analysts started forecasting negative financial consequences for producers and plants started going into coronavirus-related maintenance or suspension cycles. Then at least one plant started to dispose of clinical waste and now China National Building Material Group (CNBM) is considering how to restart operations at scale. Also, this week Hong Kong construction companies reportedly laid off 50,00 builders due to a lack of cement due to the on-going production suspension in China.

The major cement companies have identified that their first business risk from coronavirus comes from simply not having the staff to make building materials. LafargeHolcim’s chief executive officer Jan Jenisch summed up the group’s action in its annual financial results for 2020 this week when he said, “We are taking all necessary measures to protect the health of our employees and their families.” Other major cement producers that Global Cement has contacted have placed travel restrictions for staff and reduced access to production facilities.

The next risk for cement companies comes from a drop in economic activity. The Organisation for Economic Co-operation and Development (OECD) forecasts a global 0.5% year-on-year fall in real gross domestic product (GDP) growth to 2.4%, with China and India suffering the worst declines in GDP growth at around 1%. The global figure is the worst since the -0.1% rate reported by the International Monetary Fund (IMF) in 2009. The OECD blamed the disease control measures in China, as well as the direct disruption to global supply chains, weaker final demand for imported goods and services and regional declines in international tourism and business travel. This forecast is contingent on the epidemic peaking in China in the first quarter of 2020 and new cases of the virus in other countries being sporadic and contained. So far the latter does not seem to have happened and the OECD’s ‘domino’ scenario predicts a GDP reduction of 1.5%. All of this is likely to drag on construction activity and demand for cement and concrete for some time to come.

Moving to cement markets and production, demand is likely to be slowed as countries implement various levels of isolation and quarantine leading to reduced residential demand for buildings directly and as workforces are restricted. Business and infrastructure projects may follow as economies slow and governments refocus spending respectively.

The UK government, for example, is basing its coronavirus action plan on an outbreak lasting four to six months. This could potentially happen in many countries throughout 2020. This has the potential to create a rolling effect of disruption as different nations are hit. Assuming China has passed the peak of its local epidemic then its producers are likely to report reduced income in the first quarter of 2020. The effect may even be reduced somewhat due to the existing winter peak shifting measures, whereby production is shut down to reduce pollution. Elsewhere, cement companies in the northern hemisphere may see their busy summer months affected if the virus spreads. The effect on balance sheets may be visible with indebted companies and/or those with more exposure to affected areas disproportionately affected. The wildcard here is whether coronavirus transmits as easily in warmer weather as it does in the cooler winter months. In this case there may be a difference, generally speaking, between the global north and south. Exceptions to watch could be cooler southern places such as New Zealand, Argentina and Chile. Shortages, as mentioned above in Taiwan, potentially should be short term, owing to global overcapacity of cement production, as end users find supplies from elsewhere.

The cement industry is also likely to encounter disruption to its supply chains. Major construction projects in South Asia are already reporting delays as Chinese workers have failed to return following quarantine restrictions after the Chinese New Year celebrations. As other countries suffer uncontrolled outbreaks then similar travel restrictions may follow. Global Cement has yet to see any examples of materials in the cement industry supply chain being affected. On the production side, raw mineral supply tends to be local but fuels, like coal, often travel further. Fuel markets may prove erratic as larger consumers cut back and suppliers like the Organisation of the Petroleum Exporting Countries (OPEC) react by restricting production.

On the maintenance side cement plants need a wide array of parts such as refractories, motors, lubricants, gears, wear parts for mills, ball bearings and so forth. Some of these may have more complicated supply chain routes than they used to have 30 years ago. On the supplier side any new or upgrade plant project is vulnerable if necessary parts are delayed by a production halt, logistics delayed and/or staff are prevented from visiting work sites. Chinese suppliers’ reliance on using their own workers, for example, might well be a hindrance here until (or if) international quarantine rules are normalised. Other suppliers’ weak points in their supply chains may become exposed in turn. This would benefit suppliers with sufficiently robust chains.

Chinese reductions in NO₂ emissions in relation to the coronavirus industrial shutdown have been noted in the press. A wider global effect could well be seen too. This could potentially pose problems to CO₂ emissions trading schemes around the world as CO₂ prices fall and carbon credits abound. This might also have deleterious effects on carbon capture and storage (CCS) development if it becomes redundant due to low CO₂ pricing. In the longer-term this might undesirable, as by the time the CO₂ prices pick up again we will be that much nearer to the 2050 sustainability deadlines.

COVID-19 is a new pandemic in all but name with major secondary outbreaks in South Korea, Iran and Italy growing fast and cases being reported in many other countries. The bad news though is that individual countries and international bodies have to decide how to balance the economic damage disease control will cause, versus the effects of letting the disease run unchecked. Yet as more information emerges on how to tackle coronavirus, the good news is that most people will experience flu-like symptoms and nothing more. Chinese action shows that it can be controlled through public health measures while a vaccine is being developed.

Until then, frequent handwashing is a ‘given’ and many people and organisations are running risk calculations on aspects of what they do. It may seem flippant but even basic human interaction such as the handshake needs to be reconsidered for the time being.

China: China National Building Material Group (CNBM) has started to resume its operations in various sectors following the outbreak of the novel coronavirus. Priority has been given to activities related to epidemic control, according to the China Daily newspaper. Its plans are aligned with instructions from the Assets Supervision and Administration Commission of the State Council to ensure stable production and operations to back the country's economic development while preventing the virus from spreading further.

Zhou Yuxian, chairman of CNBM, said that the company is aiming at grasping ‘the first market share’ after the epidemic. The state-owned company intends to watch market demand and the reactions of companies from the upstream and downstream supply chain. CNBM also released guidelines of resuming work and epidemic prevention for different sectors earlier this month.

For its cement business, CNBM has urged the resumption of full production by subsidiaries related to life and medical waste handling. CNBM has asked its other subsidiaries to restart work gradually in different batches based on market demand.

UK: The Global Cement and Concrete Association (GCCA) has launched ‘Innovandi,’ a research network between industry and scientific institutions. The network intends to research the areas of process technology, including the impact of co-processing, efficiency of clinker production and implementation of CCUS/ technologies, and products. This will include the impact of clinker substitutes and alternative binders in concrete, low carbon concrete technology and improve the understanding of CO₂ reduction through re-carbonation.

“Our industry is fully committed to taking action to reduce CO₂ emissions. As such, Innovandi is an industry led initiative and will bring together the best minds from all corners of the cement and concrete world, academia and business. Together we will truly collaborate on a global scale and use our expertise to find new ways of working and developing effective innovations,” said Benjamin Sporton, the chief executive officer (CEO) of the GCCA.

24 companies from the cement and concrete industry, including cement and concrete manufacturers, admixture specialists and equipment suppliers, have committed to the initiative, with scientific institutions and additional companies set to join as its work begins work. These include Buzzi Unicem, Cementir Holding, Cementos Argos, Cementos Molins, Cementos Pacasmayo, Cemento Progresso, Cemex, CNBM, Chryso, CRH, Dalmia Cement, FLSmidth, Grupo Cementos de Chihuahua (GCC), GCP Applied Technologies, Mapei, HeidelbergCement, LafargeHolcim, Nesher Israel Enterprises, SCG Cement, Titan Cement, Refratechnik Cement, Sika Technology, Subote New Materials and Votorantim.

As part of the new initiative, the GCCA also intends to establish an annual Innovandi global conference to promote collaboration on innovation and research in the sector.

The publication of CNBM’s financial results presents a good opportunity to take stock of the Chinese cement industry in the first half of 2019. Looking at the big picture first, cement sales rose by 5% year-on-year to 1.03Bnt in the first half of 2019 from 0.98Bnt in the same period in 2018. Graph 1 below shows the sales over the last five years since 2014. Generally, sales are decreasing each year but there has been some variation in the half-year periods.

Graph 1: Cement sales in China, 2014 – 2019. Source: National Bureau of Statistics of China.

As the China Cement Association (CCA) pointed out in its summary for the first half of 2019, the cement industry ‘swelled in volume and price’ as industry efficiency grew but that the growth rate dropped ‘significantly’ compared in 2018. By region, as Graph 2 shows, variation can be seen between the south-east of the country where growth was slow or even fell compared to stronger performance elsewhere. Cement production increased by above 20% in Jilin, Shanxi, Shandong, Tibet and Heilongjiang and by over 10% in Hebei, Gansu, Tianjin, and Liaoning. However, it fell in Hainan, Beijing, Qinghai, Guizhou, Guangxi, Hunan, Guangdong and Ningxia. Most of these changes were attributed to either rising or falling demand for cement, except for Jilin where reduced imports from neighbouring provinces pushed up its demand. In most of these latter regions it attribute the decline to falling demand for cement.

Graph 2: Cement production growth by province in first half of 2019. Source: China Cement Association.

Other points of note from the CCA include the surge in imports to China. Imports of cement and clinker rose by 149% year-on-year to 8.97Mt in the five months from January to May 2019. Vietnam supplied 68% of this followed by 11% from Thailand. On the production side, 10 new production lines with a total capacity of 15.5Mt/yr were commissioned in the period. These were fairly scattered across nine provinces, in Shanxi, Anhui, Hubei, Fujian, Guangxi, Hunan, Guizhou, Gansu and Yunnan respectively.

Sales and profits were supported by growing demand and prices on the corporate side. CNBM’s operating income for its cement businesses grew by 16% to US$8.14bn from US$7.04bn. Its adjusted profit increased by 40% to US$2.76bn from US$1.98bn. Anhui Conch’s sales rose by 17.9% to US$2.15bn from US$2.11bn. It blamed poorer profits in the south of the country on adverse weather leading to weakened demand.

The weaker sales in the south could be seen in China Resources Cement’s (CRC) results with its turnover down by 6% to US$2.22bn from US$2.36bn. Likewise, its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 8.5% to US$820m from US$896m. The majority of its cement plants are based in Guangxi, Guangdong and Fujian. Jidong Cement was also reported as having received US$30m in subsidies from the government during the first half of 2019 in relation to its ‘daily activities.’

As is usual for these kinds of roundups the dynamic in China is between government industrial policies, like peak shifting and pollution mitigation, and local demand and price trends. One of the latest spins on peak shifting, for example, is a rating system that is being considered to decide which companies should be subject to production limits and for how long. General cement sales are slowly falling each year but the rise of imports into the word’s biggest cement producing nation (!) mark an interesting trend. Also, it may not be connected, but lots of those provinces with falling demand so far in 2019 are those on the south coast facing the heavy clinker exporting nations of South-East Asia. Given the decisiveness with which the Chinese government dispensed with imports of waste materials under its National Sword initiative since 2017, those countries importing cement to China should beware. It could change very quickly. The Chinese cement market is never dull.