Displaying items by tag: Cimpor

One of the more interesting news stories in recent weeks was the completion of Oyak Cement’s acquisition of Cimpor. Previously we focused on the connection to Taiwan Cement (GCW377). Around the same time that the Oyak-Cimpor deal was announced in late October 2018 the Taiwanese company bought a 40% stake in the Turkish cement producer for around US$640m. However, as the world’s sixth largest cement producer by cement production capacity, Turkey is always a country worth keeping an eye on for both the Oyak deal and the wider industry.

Graph 1: Turkish domestic cement sales, 2007 - 2017. Source: Turkish Cement Manufacturers' Association (TÇMB).

Graph 2: Turkish cement and clinker exports, 2007 - 2017. Source: Turkish Cement Manufacturers' Association (TÇMB).

Data from the Turkish Cement Manufacturers' Association (TÇMB) shows that domestic cement sales have been rising steadily to 72.2Mt in 2017 after a blip in the late 2000s. So far 2018 has not kept the trend, with a drop of 2.01% year-on-year to 50.8Mt for the first nine months of 2018 from 51.8Mt in the same period in 2017. Turkey is also a major exporter of cement so these are the other figures to watch. After hitting a high of nearly 18Mt in 2010 they dropped for five years before rising again. The ratio of clinker in the exports total has also been growing recently. LIke domestic production ,exports were down at the nine month mark in 2018, by 1.8% to 9.9Mt, but the ratio of clinker exports has continued to grow.

Given the focus on exports for the Turkish market Oyak Cement’s international purchases via Cimpor widen its options. The deal covered assets in Portugal and Cape Verde including three integrated cement plants and two mills, with a total cement production capacity of 9.1Mt/yr. It’s not clear yet how Oyak wants to run its new foreign plants but it might be tempting to focus on a grinding model abroad using imported Turkish clinker depending on running costs. Back home in Turkey Oyak Cement is the largest local producer with a 15% market share. It operates seven integrated plants with a production capacity of 16Mt/yr according to Global Cement Directory 2019 data.

As for the other major companies, Akçansa, a joint venture of Sabancı Holding and HeidelbergCement, saw its sales rise by 4% to US$277m in 2017. Its sales volumes of cement and clinker rose but its exports fell by 13% to 1.3Mt. In its third quarter report for 2018 HeidelbergCement highlighted issues with the local economy such as high inflation, a currency crisis and a resulting loss of confidence.Sabancı also holds a majority stake in the other major producer, Çimsa Çimento. At the six month mark Çimsa Çimento reported that its sales grew by 35% year-on-year to US$162m and its net profit increased by 55% to US$23.2m. Notably, Çimsa also runs a number of international terminals in Germany, Italy, Spain, the disputed Turkish Republic of Northern Cyprus and Russia, with distribution operations in Romania and the US also.

As mentioned above the general Turkish economy faced problems in 2018 when the value of the Turkish Lira dropped sharply in mid-2018 and interest rates soared. This led to a reduction in industrial output. On the cement side this is likely visible in falling local sales in 2018 and the switch to exports. Raw materials have also risen in this environment leading the president of the TÇMB to reassure the construction industry that the price of cement would not rise too sharply in 2019. Some of the eye-watering input hikes that he cited included a 76% rise in electricity costs, a 182% rise in the price of coal and a 170% rise in the price of petcoke. With this kind of backdrop the 2018 annual results for the Turkish producers may not make easy reading. Yet this also may explain why Oyak Cement moved overseas and allowed Taiwan Cement to invest in it when it did. Looking more widely it seems exports are likely to grow in the near future.

Portugal: Turkey’s Oyak Cement has completed it acquisition of Cimpor. The completion of the transaction follows the approval of the European Commission in mid-January 2019, according to the Expresso newspaper. The purchase includes three integrated cement plants, two grinding plants, 20 quarries and 46 ready-mix concrete plants in Portugal and Cape Verde.

Belgium: The European Commission has approved the acquisition of sole control over Cimpor Portugal by Turkey’s Oyak. The commission ruled that there are no competition concerns between the cement producers given that they operate in different geographic markets. The deal was announced in late October 2018.

Portugal: Proença de Carvalho has resigned as the president of Cimpor. Three independent directors of the cement producer have also resigned, according to the Jornal de Negócios. The departures follow OYAK Cement’s acquisition of Cimpor’s assets in Portugal and Cape Verde from Brazil’s InterCement.

The long expected move by a Chinese cement producer outside of East Asia took a step closer this week with the news that Taiwan Cement is negotiating with OYAK Cement over a joint venture in Turkey. Taiwan Cement says it is prepared to invest up to US$1.1bn in the subsidiary that will operate OYAK Cement’s business in Turkey. In its press release Taiwan Cement said, bluntly, that government peak production limits and market saturation in China had forced it to expand internationally.

This isn’t Taiwan Cement’s first flirtation with a Turkish cement producer. Back in June 2018 local press reported that it had signed a memorandum of understanding and a confidentiality clause with Sanko Holding about potential investment. However, the timing is curious this time because almost simultaneously Brazil’s InterCement announced that it was selling its operations in Portugal and Cape Verde to OYAK Cement. This sale alone deserves more attention given that it is the third by a Brazilian producer since September 2018 but that’s a discussion for another week. Back on OYAK Cement, whilst nothing is certain at this stage, a pledge of US$1.1bn from a foreign investor would certainly come in handy helping to raise the money at the Turkish company.

Whoever, if anybody, Taiwan Cement ends up pairing up with, the level of the investment suggests a multi-plant move. Indeed, the suggested OYAK Cement deal involves a 40% share in 13 integrated cement plants in Turkey with a production capacity of around 12Mt/yr or a 16% local market share. This isn’t far off the regular international price of US$200/t for integrated production capacity.

For a Chinese company to choose Turkey is resonant historically because it is towards the western end of the Silk Road. Marco Polo, for example, travelled from Venice to China via the territory of modern-day Turkey. The modern day version, the Belt and Road Initiative, seeks to evoke this trade route as China attempts to expand internationally.

Pertinent to the cement industry, both China and Turkey are both major exporters. Turkey is the bigger exporter by proportion of production, at 10% in 2017. Both countries were in the top five exporters to the US in 2017 with 2Mt from China and 1.4Mt from Turkey. The commonly accepted wisdom is that the Chinese industry faces major hurdles to exporting its overcapacity. Yet its production base is so large, 15 times larger than Turkey’s, that the little clinker and cement it has the infrastructure to export is still significant. It’s interesting that a major Chinese producer seeking to overcome structural and market obstacles to its expansion at home is targeting a major exporting nation. Typically, when a foreign cement producer buys local companies, one strategy is to use the new assets to ‘naturalise’ its clinker imports as ‘local’ product. Given Turkey’s already large export market this seems unlikely in this case.

The highly public nature of Taiwan Cement’s latest attempt to strike it lucky in Turkey smacks of bolstering investor confidence as much as closing the deal. Normally, this kind of thing gets announced once everything has been agreed, possibly bar the regulatory approval. Putting some money up front may make Taiwan Cement seem serious but OYAK Cement also stands to benefit from its acquisition of the former-Cimpor assets in Portugal and Cape Verde, since it gives it a toehold within the European Union (EU). This one could go either way.

Taiwan/Turkey: Taiwan Cement plans to spend up to US$1.1bn on setting up a new joint venture with Turkey’s OYAK Cement. Through a new subsidiary, Dutch TCC Holdings, it intends to create a new business that will be 60% owned by OYAK Cement and 40% by Taiwan Cement. It will hold talks with OYAK Cement and if an agreement is reached the new company will operate OYAK Cement’s business in Turkey giving Taiwan Cement its first presence outside of Asia.

OYAK Cement is owned by Ordu Yardimlasma Kurumu (OYAK), the pension fund of the Turkish Armed Forces. It operates 13 integrated cement plants in Turkey with a production capacity of around 12Mt/yr. It holds a 16% market share. The plans with Taiwan Cement follow OYAK Cement’s purchase of InterCement’s operations in Portugal and Cape Verde.

Taiwan Cement hopes to gain access to the local market and the wider Mediterranean region. It said that, although it holds a production capacity of 75Mt/yr in the Greater China Region, government peak production limits and market saturation had forced it to expand internationally.

Brazil/Portugal/Cape Verde/Turkey: Brazil’s InterCement has sold its operations in Portugal and Cape Verde to Turkey’s OYAK Cement for an undisclosed amount. The sale includes three integrated cement plants and two mills, with a total cement production capacity of 9.1Mt/yr, 46 concrete units, two dry mortar units, 17 quarries and a cement bagging plant. The completion of the agreement is dependent on regulatory approval.

InterCement, part of Camargo Corrêa group, purchased a majority stake in Portugal’s Cimpor in 2012, including assets in Portugal and Cape Verde. It says it will allocate a portion of the net proceeds from the sale to reduce its debts. Following completion of the transaction the Brazilian building materials company intends to focus its cement business in South America and Africa. In these regions it holds 39Mt/yr of installed production capacity at 35 cement plants.

Portugal: Portuguese cement producer Cimpor has appointed Luiz Roberto Ortiz Nascimento and André Pires Oliveira Dias as members of the board of directors. The move follows the resignations of Erik Madsen and Walter Schalka.

Ortiz Nascimento, aged 62 from Brazil, holds a degree in economics from Mackenzie University in São Paulo. He became the chief executive officer of construction and trade at Camargo Corrêa, the owner of Cimpor, in 1992.

Oliveira Dias, aged 31 and also from Brazil, holds a degree in Business Administration and International Business from the American Intercontinental University in London. He has worked for Camargo Corrêa since joining its trainee program in 2005. Most recently he was the strategy and planning department manager since 2009.

India: Sagar Cements has appointed K Rajendra Prasad as its nominee director on the company's board. Previous to this Prasad was working as the deputy general manager (EPM) at the Andhra Pradesh Industrial Development Corporation in Hyderabad.

Shree Digvijay Cement Company, a subsidiary of Cimpor, has reported that Antonio Carlos Custodio de Morais Varela resigned as a director of the company on 17 July 2012. The move follows Custodio de Morais Varela's assignment to the executive committee of Cimpor following the takeover of the Portuguese producer by Brazil's Camargo Corrêa.

The news that Brazil's competition regulator, Cade, has approved Camargo Corrêa's attempt to control Portugal's Cimpor after over two years of poker-faced mergers, acquisitions and deals, has significantly changed the cement landscape of the country. Camargo will now be allowed a controlling stake in the Portuguese producer assuming that Votorantim, Cimpor's other major shareholder, sells its Brazilian Cimpor assets to a third player. 

The deal looks likely to happen fairly quickly, with Votorantim stating that it never intended to remain as Camargo's partner in Cimpor. Lafarge appears to have first refusal as the original seller of the stake to Votorantim, but Cade may want to avoid this due to Lafarge's strong Brazilian position.

With its Cimpor interests now set to go to another producer, the regulator is clearly looking to spread the cement wealth in the country. Cade also said that Camargo must sell some assets in Brazil's heavily developed São Paulo state - presumably not to Votorantim! An asset swap will see Cimpor assets abroad transferred to Votorantim.

The Brazilian cement market has become increasingly concentrated since 1990. At that time there were 19 different producers; by 2000 there were 12. That number has since increased slightly, but Votorantim, Cimpor, Camargo Corrêa, Holcim and Lafarge still have 85% of the integrated capacity between them. Cade's attempts to moderate their influence is understandable, given that some regions are currently now supplied by Votorantim-owned production to the tune of 70%. Accusations of cartels have been rife in Brazil for many years.

Consumers, both large and small, will be hopeful that the deal will go through smoothly and that a drop in market concentration will reduce prices in the country. Even the Brazilian government is affected. It is seeking to spend hundreds of billions of dollars on road, port and home construction and for expansion of its mines, farms and factories. If prices of building materials can be reduced, it will be able to accelerate its general development and ramp up extraction and production of its valuable natural resources.