Displaying items by tag: Coal

Indonesia: Donny Arsal, the chief executive officer of Semen Indonesia, has told the government that the ongoing war in Ukraine has negatively affected supplies of coal and kraft paper to the cement industry.

The head of the state-owned company said that the international price of coal had driven local mines to export it rather than sell it locally at capped prices, according to the Jakarta Post newspaper. This had made it more difficult for cement producers to buy coal at the lower price. The Indonesian coal index (HBA) price rose to high of US$288/t in April 2022 following the introduction of international economic sanctions but the local domestic market obligation (DMO) price is US$70/t. Around 160Mt of coal is sold at the capped price. The majority of this goes to power generation and the remaining quarter of this is made available to cement and other industries.

Arsal lobbied the government to clarify its supply policy for DMO. He said that the cement sector needs 16Mt/yr of coal. Semen Indonesia needs about half of this. However, at present, it is only receiving about 63% of its coal requirements at the DMO price.

Arsal also mentioned that imports of kraft paper from Russia had stopped since the war started. Semen Indonesia uses the paper to make cement bags. Most of its kraft is sourced from Russia. The company spends around US$68m/yr on paper. It is now switching to using a woven material instead.

US: A fire has been contained within the alternative fuels system at Holcim US’ integrated Whitehall cement plant in Pennsylvania. Suppression systems were activated and then fire fighters attended the scene, according to the Express-Times newspaper. The plant has notified the US Mine Safety and Health Administration about the incident. No injuries have been reported and an investigation is ongoing. A fact sheet about the plant says that it uses 2m tires/yr as part of its alternative fuels mix. It uses coal and petcoke for 50% of its mix.

Vicat’s plans to buy another 42% stake in Sinai Cement became public this week. Once completed, the France-based company should own 98% of the Egyptian company, based on previously published ownership figures. The announcement heralds a rapprochement in the relationship between the cement producer and the Egyptian government.

Last year Vicat raised a case against the government with the International Centre for Settlement of Investment Disputes (ICSID) over an argument about how it could invest in Sinai Cement as a foreign company. All seems forgiven and forgotten now with a settlement agreement signed in March 2022 between Rania el Mashat, the Minister of International Cooperation on behalf of the Egyptian government, and Guy Sidos, the chairman and chief executive officer of Vicat Group. Local press reported that the government is trying to attract more direct foreign investment. Sinai Cement reported a loss attributable to its parent company of around US$19.1m in 2021, down from a loss of US$30.3m in 2020. However, its sales rose by 63% year-on-year to US$78m.

Sinai Cement has some specific operating issues related to its geographic position in the Sinai Peninsula and ongoing security concerns. Yet its mixed fortunes also sum up some of the continuing challenges the Egyptian cement industry is facing. After years of overcapacity, the government introduced reduced cement production quotas in July 2021 and this is mostly perceived to have improved prices in the second half of the year. Vicat described the arrangement as having capped the local market at 65% of its production capacity and it said that prices recovered ‘significantly’ as a result in the second half of 2021. Cemex’s regional chief Carlos Gonzalez told local press that the move had given plants “A glimmer of hope for the return of balance to the cement market.” The company has also announced a US$20m local investment backing up this view. Not all the foreign multinational companies entirely agreed, with HeidelbergCement reporting a ‘sharp’ decline in sales volumes although chief executive officer Dominik von Achten did describe the country as ‘coming back’ in an earnings call about his company’s financial results in 2021. Solomon Baumgartner Aviles, the chief executive officer of Lafarge Egypt, was also cooler about the production cap in a press interview in October 2021, describing it as too early to assess how well the cap was working and noting that the gap between supply and demand was still large.

Vicat said in its annual report for 2021 that, “Provided no further adverse geopolitical, health or security developments occur, the current climate is unlikely to jeopardise the prospects of an improvement in the subsidiary’s profitability, which should begin to gradually occur.” The geopolitical bit was timely given that Russia’s war in Ukraine started on 24 February 2022. It also targets the latest problem hitting Egyptian cement producers: energy costs. The head of Arabian Cement told Enterprise Press that initially some producers had opted to temporarily stop production and use stocks instead to attempt to try and wait until the energy price volatility ended. However, it stayed high so the cost of cement has gone up generally. Producers are now trying to switch to using a high ratio of natural gas, such as 10%, but this is dependent on the government letting them.

The Egyptian government, for its part, is facing a decision whether to supply subsidised gas for domestic industry or to export to Europe. The backstory here is that Egyptian cement producers are facing yet another step change in fuel supply. In the mid-2010s lots of plants switched from heavy fuel oil and gas to coal. High international coal prices could be heralding another change.

Alongside this the value of Egypt’s cement exports rose by 151% year-on-year to US$456m in 2021 from US$182m in 2020. The Cement Division of the Federation of Egyptian Industries has attributed this to growth mainly on the African market. This trend continued in January and February 2022 with cement exports up by 141% year-on-year to US$104m from US$43m. The main destinations were Ghana, Cameroon, Ivory Coast and Libya.

HeidelbergCement summed up the current state of the Egyptian cement market in its 2021 annual report as follows “The development of the Egyptian cement market continues to be determined by government intervention.” What happens next is very much in the hands of the state as it decides whether to extend the production cap, which fuels to subsidise, whether to allow exports and where to invest in infrastructure projects. One variation on this theme may be local decarbonisation targets. At the end of March 2022 the Global Cement and Concrete Association (GCCA) launched a series of Net Zero Accelerator initiatives, including one in Egypt. How a country that produces more cement than it needs reduces its CO₂ emissions presents another challenge for manufacturers and the government to grapple with.

Europe: The Council of Europe has banned imports of cement from Russia as part of a fifth set of economic and individual sanctions. The import ban, in response to the war in Ukraine, also includes wood, fertilisers, seafood and alcoholic spirits. It has been valued at Euro5.5bn/yr. Other measures within the European Union (EU) include blocking coal and other solid fossil fuel imports from August 2022, stopping access of Russian flagged ships at ports, banning Russian or Belorussian road transport within the region and additional restrictions on the export on materials such as jet fuel, computer parts and certain types of machinery. Imports of coal into the EU are currently valued at Euro8bn/yr.

Josep Borrell, High Representative for Foreign Affairs and Security Policy at the European Council said, “These latest sanctions were adopted following the atrocities committed by Russian armed forces in Bucha and other places under Russian occupation. The aim of our sanctions is to stop the reckless, inhuman and aggressive behaviour of the Russian troops and make clear to the decision makers in the Kremlin that their illegal aggression comes at a heavy cost.”

Vietnam: Vicem Hoàng Mai Cement has announced a full-year sales target of US$79.2m for 2022, down by 1.5% year-on-year from 2021 levels. Its target net profit for the year is US$656,000, more than five times its 2020 figure. The company forecasts cement production of 1.73Mt, up by 11% from 1.56Mt, and clinker production of 1.4Mt, down by 4.1% from 1.46Mt, for the year. It plans to replace 30 – 40% of the natural gypsum currently used in cement production with synthetic gypsum. It will also increase the proportion of ash and slag in its raw materials mix.

The Chúng Khoán newspaper has reported that Vicem Hoàng Mai Cement said that it is experiencing increased costs due to high raw materials and fossil fuel prices. A coal shortage has also disrupted production.

South Korea: Seven cement producers have agreed to produce 3.77Mt of cement in the second quarter of 2022, up by 36% quarter-on-quarter from first-quarter 2022 levels, to alleviate a shortage. 380,000t of cement which would previously have been exported will now supply the domestic market instead. The Yonhap News Agency has reported that bituminous coal supply issues have hampered the domestic cement industry's ability to increase its production in line with demand growth. In the first quarter of 2022, South Korea's coal imports consisted of 54% Russian coal and 46% Australian coal, compared to 75% Russian and 25% Australian coal in 2021.

The government plans to invest US$764m between 2023 and 2030 in improving the sustainability of South Korean cement production, including moving it away from reliance on coal through increased alternative fuel use.

Pakistan: Lucky Cement plans to install a 34MW solar power plant at its Pezu power plant in Khyber Pakhtunkhwa. The Balochistan Times newspaper has reported that the 48GWh/yr installation will be equipped with a 5.59MWh Reflex energy storage system. Both the power plant and energy system will be the country’s largest when commissioned. Fossil fuel generation will remain online, but be shut down in the daytime, saving 26,600t/yr of CO₂ emissions.

Malaysia: Sharuddin Omar Hashim, the managing director of Cement Industries of Malaysia Berhad (CIMA), says that rising input materials, especially coal, are driving up the cost of cement. He blamed the mounting price of coal on Indonesia’s export ban and the war in Ukraine, according to the Malaysian National News Agency. Sharuddin said that coal had previously cost up to US$70/t but it was now US$200/t, with the possibility of reaching US$400/t. Other raw material costs were also reported to have risen sharply due to logistic problems following the Covid-19 pandemic. Sharuddin added that his company is trying to optimise production and reduce production costs through the use of other alternative materials.

Australia: Boral has updated the market that ‘exceptional’ wet weather on the East coast of Australia ‘significantly’ disrupted its New South Wales and South East Queensland operations in February and early March 2022. The Australian newspaper has reported that CEO Zlatko Todorcevski has forecast that the disruption to cement production and deliveries will have a negative impact of US$17.1m on the producer’s earnings in the first quarter of 2022. Coal and diesel costs have also risen ‘sharply’ so far in the quarter, to partly offset which the company has raised its cement prices. It now forecasts full-year earnings from continuing operations, excluding property, of US$108 – 115m.

Cement producers in the north of Pakistan have started to increase their use of coal from Afghanistan in response to the ongoing volatility in energy markets. Research from a report by Darson Securities found that companies were already using up to 70% Afghan coal in their fuel mix with a further 20% being considered. Most of the northern producers are reported to have secured the cheaper Afghan coal for about two months of inventory, although Maple Leaf Cement was said to have four to five months of inventory. Meanwhile in the south of the country, producers were reported to be facing a tougher situation as Afghan coal costs more for them due to higher logistics charges and export orders were being reduced due to the low cost of clinker internationally. So they are focusing on the domestic market instead.

Graph 1: Cement despatches in Pakistan, 2015 – 2021. Source: All Pakistan Cement Manufacturers Association.

Data from the All Pakistan Cement Manufacturers Association (APCMA) shows that cement despatches have been steadily growing since the mid-2010s with a blip in 2020 caused by the start of the Covid-19 pandemic. The upward trend has been driven by local sales. Exports have generally grown at the same time, with more variance, but they are yet to regain the high of nearly 11Mt reported in 2009. On a rolling annual basis, local sales have remained steady since mid-2021 but exports have been slowly falling. In April 2021 they were 9.17Mt but by February 2022 they were 7.33Mt. For the February 2022 figures APCMA blamed this on the growing cost of production, rising international freight rates, mounting coal prices and a trade ban with India. On that last point for example, Pakistan-based producers exported 1.21Mt of cement to India in the 2017 – 2018 financial year before exports stopped after February 2019. Despite a brief respite in the spring of 2021 talks are still ongoing to resume trade with India.

On the corporate side the country’s largest cement producer by capacity, Lucky Cement, drew the same conclusion as the APCMA with its half-year results to 31 December 2021. Its local sales volumes were down a little but its exports were down a lot. It noted that the reason its local sales were falling but national industry local sales were up slightly was due to some competitor plants being non-operational in the previous year. However, the company managed to keep sales revenue and earnings increasing year-on-year by successfully combating growing input costs with price rises. Bestway Cement, the country’s other large producer, reported a tougher situation in the second half of 2021, with both local sales and export volumes down. This was attributed to a boom in construction activity in the second half of 2020 as Covid-19 lockdowns were eased. Demand for cement since then was said to be ‘sluggish’ due to inflation and high commodity prices. It also pinned its marked fall in exports on political and economic instability in Afghanistan. However, turnover and operating profit were both up due to higher selling prices.

Elsewhere in the sector news since the start of 2021, Pakistan’s exports to South Africa remained stymied in early 2020 due to a review of ongoing tariffs and the government decision to restrict infrastructure projects to only using locally produced cement. On the sustainability front the APCMA started to set out its decarbonisation strategy in November 2021. It may have a long way to go given that a think tank reported earlier in the year that the cement sector was the largest emitter of coal-related CO₂ emissions in the country, even more than power generation. Alongside this plenty of capacity additions have been announced. Lucky Cement started commercial cement production at its 1.2Mt/yr integrated Samawah cement plant in March 2021. Various new cement plants and upgrades to existing plants have been proposed by Bestway Cement, Cherat Cement, Fauji Cement, Kohat Cement Company, Lucky Cement and Maple Leaf Cement. Finally of note to a sector troubled by energy prices, in September 2021 the Pakistan International Bulk Terminal said it was going to upgrade its coal handling capacity to around 17Mt/yr by 2024.

Last week’s Global Cement Weekly covered Turkey. The contrasts are interesting because both of these countries have high cement exports and have raised energy concerns recently. This leads to the question of whether other cement exporters may be vulnerable to the current situation. Pakistan isn’t the only country where the cement industry is facing the negative effects of growing energy costs. This week in the sector news, Spain-based Tudela Veguín has shut down the kiln at its La Robla plant down for 10 days due to high electricity prices, Thailand-based Siam Cement Group (SCG) announced it was reviewing its investment plans and the UK-based Mineral Products Association lobbied the government on the issue.

The shift to Afghan coal by Pakistan’s cement producers is rational given the current situation. No doubt fuel buyers all over the world are doing similar things. In January 2022 the International Monetary Fund (IMF) forecast that Pakistan’s gross domestic product would grow by around 4% for 2021, 2022 and 2023 but current geopolitical events may test these estimates. Over the last year domestic cement demand has remained strong but inflation, growing input costs and the impetus to further rise prices may change this. Meanwhile, lots of new production capacity is in the pipeline and, if or when it is built, it may add additional competition pressure. This may present a problem in Pakistan if capacity utilisation levels drop but input costs keep on going up.