Displaying items by tag: Coal

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.

Pakistan: Cement plants in North Pakistan are using 70% Afghan coal in their fuel mix, and may increase the figure to 90%. Afghan coal costs US$170 – 200/t, in line with local Pakistani coal prices. The News International has reported that fossil fuel supply disruptions ensuing from the on-going war in Ukraine have increased global coal prices. Additionally, Indonesian coal is subject to a ban on exports, while bad rains have disturbed Australian coal production. On 14 March 2022, the price of South African coal exported from Richard Bay, Umhlathuze Municipality, was US$460/t, up by 95% month-on-month from US$236/t on 10 February 2022. South Africa has previously been a major source of coal for Northern Pakistani cement production. Cement producers in the region have on average 4 – 5 months’ supply of coal in inventory.

Türkçimento’s Volkan Bozay took to the airwaves last week to raise the issues that the war in Ukraine is causing for Turkey-based cement producers. The head of the Turkish Cement Manufacturers’ Association explained, to the local Bloomberg HT channel, that the dramatic jump in the price of Newcastle Coal posed a serious threat to the sector. The price jumped nearly US$100/t in a single day in early March 2022. Bozay said that the cost of cement from a plant using imported coal would consequently rise by around US$15/t. He added that the association’s members had an average of 15 – 20 days of coal stocks.

Graph 1: Price of coal, March 2020 – March 2021. Source: Trading Economics.

In a separate press release Türkçimento revealed that Turkey, as a whole, imported approximately US$1.5bn of coal from Russia in 2021. The cement industry imported about 5Mt of coal in 2021, from all sources, although the majority of this came from Russia. Coal shipments from Russia since the start of the war were reported as ‘very limited or even not possible.’ It was further explained that each US$10/t increase in the price of coal put up plant production costs by US$1.5/t of cement.

Naturally Bozay’s appearance on a television news show carried a lobbying aspect. He called for government import standards – such as the sulphur ratio, lower heating values and volatile matter limits - to be relaxed to allow coal to be imported more freely from sources such as Colombia, Indonesia and South Africa. There was also a push to let in more alternative fuels such as tyres and waste-derived fuels. The bit that Bozay didn’t mention though was how many of his members had long term coal supply contracts in place to cushion them, from short term price inflation at least. Yet, if coal shipments from Russia have simply stopped, then the price is irrelevant. A cement kiln configured to run on coal stops when it uses up its stocks.

Turkey was the world’s fifth largest cement producer in 2021 according to the United States Geological Survey (USGS). Türkçimento data shows that in 2020 it exported 145,000t of cement to Russia by sea. Overall it exported 16.3Mt of cement and 13.5Mt of clinker. The US, Israel, Syria, Haiti and Libya were the top destinations for cement. Notably, Ukraine was the sixth largest recipients of cement, with 752,000t imported, although anti-dumping legislation introduced in mid-2021 looked set to reduce it until the war started. Ghana, Ivory Coast, Guinea, Cameroon and Belgium were the principal recipients of clinker. Cumulative cement exports for the year to October 2021 were up by 3% year-on-year compared to the first 10 months of 2020. Clinker exports were down by 27% though. Overall domestic production and sales in Turkey rose by 9.5%, suggested an estimated production figure of 79Mt for 2021.

Other fallout in the cement sector from the war in Ukraine this week included Ireland-based CRH’s decision to quit the Russian market. It entered the region in 1998 through a subsidiary based in Finland and was operating seven ready-mixed concrete plants via its LujaBetomix joint venture. CRH says that all operations in Russia have now stopped. In 2021 it sold its lime business in Russia, Fels Izvest, to Russia-based Bonolit. Although selling concrete plants is not trivial, these are far cheaper assets than clinker production lines. Germany-based HeidelbergCement, Italy-based Buzzi Unicem and Switzerland-based Holcim each operate at least one integrated cement plant in Russia. So far these companies have publicly expressed dismay at the humanitarian crisis unfolding in Ukraine and made donations to the Red Cross.

Graph 2: European Union Emission Trading Scheme price, 2020 – March 2022. Source: Sandbag.

Finally, one more surprise this week has been a crash in the European Union (EU) Emission Trading Scheme (ETS) carbon price from a high of Euro96/t in early February 2022 to Euro58/t on 7 March 2022. As other commentators have stated, normally the carbon price would be expected to follow the energy market, but this hasn’t happened. Instead investors have pulled out, possibly to maintain liquidity for other markets.

With the US set to ban Russian oil, gas and coal imports and phase-outs to varying degrees promised by the UK and the EU in 2022, we can expect more turbulence from energy markets in the coming days. As the Turkish example above shows, all of this can... and will... have effects on cement production.

Pakistan: All Pakistan Cement Manufacturers Association (APCMA) members exported 405,000t of cement in February 2022, down by 34% year-on-year from 616,000t in February 2021. Domestic deliveries also dropped, by under 1% to 3.95Mt from 3.96Mt. Amid the declines, Pakistani cement producers have reported a steep rise in their costs due to increases in international freight rates and coal prices and the country’s on-going ban on trade with neighbouring India. Cheaper Iranian cement has undercut Pakistani cement sales to Bangladesh, while the Afghan market has yet to recover following the withdrawal of peacekeeping forces.

Cement markets have mostly recovered following the shock emergence of coronavirus in 2020. Most of the producers that have released their results so far for 2021 have reported strong boosts to sales revenue and racing earnings as something more like normality resumed. The following roundup covers a selective group of cement companies around the world.

The recovery in 2021 has made the outliers in the companies covered here noteworthy. UltraTech Cement, Semen Indonesia and Dangote Cement are all large regional companies with dominant positions domestically and varying degrees of international spread. As can be seen in Graph 1, UltraTech Cement and Dangote Cement both reported very large increases in sales, over 20% year-on-year. By contrast, Semen Indonesia sales fell very slightly.

Graph 1: Sales revenue from selected cement producers in 2020 and 2021. Source: Company reports. Note: Figures calculated for UltraTech Cement.

One reason for UltraTech Cement and Dangote Cement’s success can be seen in Graph 2 (below). Both companies managed to sell more cement in 2021. Semen Indonesia did not due to Indonesia’s production overcapacity and new competitors. It also blamed a significant rises in coal prices for a 9% drop in its earnings before interest, taxation, depreciation and amortisation (EBITDA).

UltraTech Cement has been wary of successive waves of coronavirus throughout its 2022 financial year, but generally the Indian regional markets have recovered and government-backed rural housing and infrastructure spending have supported growth. It did note rising coal prices earlier in the year, but these were reported to have somewhat softened during the quarter to 31 December 2021. It is worth noting that the ongoing war in Ukraine is affecting energy markets but more on this at the end of this article. Dangote Cement’s performance was slowed somewhat by the start of coronavirus but it has since resumed its turbo-charged trajectory with volumes, revenue and earnings growth all above 10% in 2021. Mostly this performance is supported by the Nigerian market but the company is doing well internationally too.

Graph 2: Cement sales volumes from selected cement producers in 2019 and 2020. Source: Company reports. Note: Figures calculated for UltraTech Cement.

Holcim and HeidelbergCement’s increase in sales revenue in 2021 are actually fairly similar on a like-for-like basis, both with around 10%. The former’s sales volumes were up across cement, ready-mixed concrete and aggregates in each of its regions around the world, as were sales revenue. Holcim’s big move in 2021 has been the expansion of its Solutions & Products segment with the acquisition of Firestone in April 2021. Now this has continued with the completion of the Malarkey Roofing Products purchase on 1 March 2022, a few days after it released its 2021 results. Chief executive officer Jan Jenisch described the move towards lightweight building materials as generating, “further double-digit growth engines for the company.” As an aside, it was fascinating to see CRH leave the building envelope business this week, mostly based in the US, with an agreement to sell up its division for US$3.8bn to private equity. The business CRH is divesting sells architectural glass, storefront systems, architectural glazing systems and related hardware to customers primarily in North America. CRH is clearly pursuing a different business strategy to Holcim.

HeidelbergCement has also reported a strong year in 2021 albeit without the Holcim razzle-dazzle of barging into new market areas. It noted significant increases in energy prices and pandemic‐related lockdowns in some key markets in Asia. It described a very slight cement sales volume decline in Africa and the Middle East and a drop in earnings in Asia. Its trump cards are its carbon capture projects coming down the pipeline. It’s keen to remind investors about this with the unspoken implication that it might save the company money in the future when carbon taxes bite further.

Both Cemex and Buzzi Unicem followed the growth pattern seen in sales and earnings by the other larger multinational producers covered above. Central and South American markets really took off for Cemex in 2021, starting with its home market in Mexico. However, growth was present, although slower, in both its largest markets in the US and its Europe, Middle East, Africa and Asia region. Notably cement volumes in the Philippines grew by 7% and that’s even with the devastation caused by typhoons at the end of the year taken into account. Similarly, Buzzi Unicem performed well in 2021 due to growth in Italy, the US and Eastern Europe compensating for a small sales decline in Germany. As mentioned in Update on Ukraine, February 2022 Buzzi Unicem has particular exposure to the war in Ukraine as it operates two cement plants in Ukraine and two units in Russia but this is a problem for the 2022 financial year.

To finish on Ukraine, first and foremost, a human tragedy is unfolding. Yet the war also presents many economic challenges to financial markets through sanctions and counter-actions. A recession in Russia looks likely as do energy price surges in the US and Europe leading to further inflation and, perhaps, recessions too. All this potentially lies ahead. For now, the dilemma for US and European-based cement companies and suppliers with operations in Russia is reputational. Should they continue to do business in Russia as public opinion hardens and companies like BP, Shell, Equinor, HSBC and AerCap head for the exit? The Russian government has blocked foreign companies and individuals from selling shares locally but pressure looks set to intensify for such companies to do something.

Indonesia: Semen Indonesia has blamed falling earnings in 2021 on increased competition, production overcapacity and mounting coal prices. Its revenue fell slightly to US$2.43bn. However, its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 9.3% year-on-year to US$572m in 2021 from US$630m in 2020. Its sales volumes were driven by international sales, with domestic sales remaining stable at 32.2Mt. Foreign sales grew by 7.7% to 8.3Mt. Overall sales volumes increased by 1.6% to 40.5Mt from 39.8Mt.

In order to tackle its fuel costs the company says it has increased its use of alternative fuels, both biomass and non-biomass, and is optimising its coal consumption index by maintaining stable coal quality. It has also integrated coal procurement into the group to help better secure competitive pricing, supply and quality.