Displaying items by tag: GCW215

The Chinese stock market volatility this week has not been a surprise for the cement industry. The question for both the local cement industry and the wider economy is how the current economic jitters are being managed. Are we witnessing the long expected hard landing of the Chinese economy or will the state planners been able to dodge it?

Growth in the housing market and infrastructure spending has been falling. The country's cement producers have reduced their production growth as the industry consolidates. First half profits in 2015 have fallen for many Chinese cement producers including China Resources Cement and Asia Cement. Anhui Conch, one of the top three cement producers in the world, reported that its first quarter profits in 2015 fell by 31%.

Chinese cement production figures have always seemed incompatible with other data suggesting incomplete information. For example, the Global Cement Directory 2015 reported China's cement production capacity at 1.48Bnt/yr. At full capacity utilisation this would suggest a national cement consumption of 1057kg/capita, a figure that bears no resemblance to any other country on earth with the exception of petrochemical giants like Saudi Arabia and Qatar. Although, to be fair to China, it's recent economic growth has been unprecedented. Poor reporting, the country's unique state regulated capitalism, language difficulties and other factors may all have contributed to confusion among western analysts.

In mid-August 2015 China devalued the Yuan in its biggest drop in 20 years. It is likely it was a strategy to boost exports to rally markets against a sliding stock market since mid June. At the time of writing the Chinese authorities have now tried cutting interest rates with a similar aim and the markets have rallied.

The effect of a devalued Yuan is relevant due to China's overcapacity in several heavy industries such as a steel and cement. Already European and North American steel bodies have cried out against the threat of fresh Chinese exports undercutting their business. Clinker exports are likely to pose less of a risk given its relative low value and high transport costs. Even so, China exported less than 15Mt in 2013, a tiny portion of its production capacity. Altering the exchange rate might well help that export figure creep up. This would be bad news for local cement producers in coastal areas of East Africa for example. Here, Chinese imports might be harder to resist than, say, southern Asian ones, due to Chinese investment in the region. Recent spats over Chinese cement imports in Kenya and Zimbabwe underline this issue.

More worrying for the wider cement industry will be the risk of Chinese cement plant manufacturers and suppliers further undercutting western firms. Eurocement signed a deal with Sinoma in November 2014 for the Chinese equipment producer to supply three 3Mt/yr production lines for US$93.3m each or just over US$30m per 1Mt of production capacity. Compare this to FLSmidth's charge to a Qatari firm of US$190m in October 2014 to build a 2.24Mt/yr production line or just over US$80m per 1Mt of production capacity. This is not a completely fair comparison due to the plants being in completely different regions, but it gives some idea of the price pressures non-Chinese equipment manufacturers face. In their defence the usual argument is that their equipment is better made. However, cement producers being able to buy even cheaper Chinese kit will not help their plight. Today we report on Dangote Cement signing yet more contracts with Sinoma to build new cement plants in Africa.

The actions of the Chinese financial authorities show that they are trying careful tweaks one-by-one to fix the situation. The real problem though is that, as China transitions from a developing nation into a developed one, broader structural changes to the general economy may be required instead of tweaks. A massively over-producing cement industry is a symptom of this and how the country copes with it is instructive to how it will succeed overall. Bold attempts to consolidate the industry have shown willingness in recent years. Unfortunately the current crisis may artificially prop up an industry that should be reducing in size.

Kenya: The board of directors of the East African Portland Cement company (EAPCC) has appointed Albert Sigei as its Chief Operating Officer with effect from 24 August, 2015. Sigei will be responsible for production operations, production engineering, supply chain management and sales and marketing. He will be based in the Athi River Office.

Sigei has worked in the cement industry for 18 years. His last role was as the Vice-President of Business Support & Ready Mix operations with Lafarge in Nigeria. He has previously worked with Pricewaterhouse Coopers. Sigei holds a BSc in Engineering from the University of Nairobi.

Nigeria: Dangote Cement will sign contracts with China's Sinoma International Engineering on 26 August 2015 to build new cement plants across Africa, as well as in Nepal. Aliko Dangote confirmed that the new plants, some of which have been announced previously, will be built in Mali, Kenya, Zambia, Senegal, Ethiopia, Cameroon, Niger and Nepal.

Nicaragua: Cemex has announced that it will open a new grinding plant in Managua department, Nicaragua by the end of August 2015. The facility required an investment of US$30m and is expected to double the firm's output in the country. This inauguration is part of an expansion strategy with a total allocation of US$55m, which will be developed by 2017.

Dominican Republic: Cementos Andino Dominicanos (CAD) has denied that it is planning to suspend work at its Pedernales factory after what the firm called 'a malicious media campaign.' Local reports claimed that CAD would stop production, hindering the construction of government-led tourism projects in one of Dominican Republic's most impoverished regions.

In response CAD underlined its commitment to help develop the area, where it invested US$150m to build the plant in 2002. The firm added that the facility had generated US$46.8m in cement exports and US$44m in exported added-value products since its opening.

Philippines: Aboitiz Equity Ventures Inc, a Philippine investment holding company, has signed a US$400m loan to help fund the acquisition of the Philippine assets and business of cement maker Lafarge SA. The loan is being provided by The Bank of Tokyo-Mitsubishi UFJ Ltd.

Aboitiz Equity signed a deal with CRH in May 2015 to allow it to join the Irish building materials company in buying Lafarge's cement plants in the Philippines. CRH earlier agreed to buy the assets as part of Lafarge and Holcim assets that were due to be sold off prior to the formation of LafargeHolcim. Aboitiz Equity had said the investment is part of efforts to expand in infrastructure development.

China: Jiangxi Wannianqing Cement has reported that its first half net profit fell by 61.2% year-on-year compared to the first half of 2014 at US$15.3m.

Indonesia: LafargeHolcim has completed its Tuban project in Indonesia with the official opening of the second kiln line at the cement plant. The new plant, part of LafargeHolcim's subsidiary Holcim Indonesia, will allow the group to tap into key developing markets in Indonesia's East Java Province. LafargeHolcim says that the plant's coastal location and jetty provides it with the flexibility to ship products to other important inter-island markets including Sumatra, Kalimantan and Sulawesi.

With the completion of the project, the construction of which was launched in 2011, LafargeHolcim says that it will be able to 'leverage its new footprint and asset base in Indonesia and in future thrive in a low investment environment.'

LafargeHolcim states that the Tuban facility is a state-of-the-art plant, which allows for the highly-efficient production of cement and better distribution. The plant has an annual cement capacity of 3.4Mt/yr and is located in Eastern Java around 200km from the city of Surabaya. The cement mill of the first line was put into commercial operation in December 2013 and the kiln followed in September 2014.

Cambodia: Siam Cement Group (SCG) expects to invest US$200-300m of additional investment into Cambodia over the next five years, according to Aree Chavalitcheewingul, vice president for regional business of SCG Cement-Building Materials.

The five-year investment plan includes adding a third production line to its cement plant in Kampot, southern Cambodia, where SCG commenced the second production line in mid 2015. SCG also plans to double its network of ready-mix concrete plants in the country.

The group expects sales from its Cambodian operations to approach US$140m in 2015. Including its exports to Cambodia, which are expected to reach US$200, SCG's Cambodian revenues are targeted to total US$40m for the year. About 80 - 90% of SCG's Cambodian sales are derived from its cement sector.

"The growth is at a satisfactory rate of 5 - 10%," Aree said. "We have seen a lot of opportunities, especially this year, as cement demand has increased remarkably. There are many new residential and commercial projects coming up in Phnom Penh." Cambodia's GDP has expanded by about 7%/yr in the past few years.

SCG employs 31 international staff and 461 SCG staff in Cambodia. It is expanding rapidly in the ASEAN markets, with its first cement plant in Indonesia opening in the third quarter of 2015. It will start its first cement plant in Myanmar in 2016 and SCG will start a plant in Laos in 2017.

Argentina: Mateo Aleman, the head of the Chaco Construction Company Centre (CEC) has requested that Argentina's national government review the conduct of cement firms Loma Negra and Holcim. He claims that they have been cutting back on cement supplies for several months, in breach of Argentina's Supply Law. According to Aleman, a lack of supply has created a huge price distortions in the market where speculators have been known to double prices, as in the case in the interior of Chaco province.