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Update on Oman

It’s been an interesting month for the cement industry in Oman with the announcement of various producer projects and a recent market report predicting steady growth in the country.

A late August 2016 sector report from Al Maha Financial Services concluded that government-backed infrastructure projects in the country have pushed cement demand over the production capacity of the two leading local cement producers, Oman Cement and Raysut Cement. The report tempered the good news though with fears that excess production capacity from neighbouring producers in nearby countries would continue to lower prices in Oman. This matches the situation Global Cement found when it visited Oman Cement’s plant in early 2015. Such was the demand-production gap that this producer sometimes imported clinker to keep its supply constant when it shutdown its kiln for maintenance.

Cement production capacity in Oman currently stands at 8.81Mt/yr according to Global Cement Directory 2016 data. The major cement producers hold most of the local market with Oman Cement’s 4.2Mt/yr plant at Rusayl and Raysut Cement’s 3Mt/yr plant at Salalah.

Raysut Cement has announced progress on a number of local projects throughout 2016 including launching a new 20,000t silo at Salalah in May 2016, building a new terminal at the Port of Duqm due to open by the end of the third quarter of 2016, installing a new 150t/hr rotary packing plant with auto truck loader for expected commissioning by the end of October 2016 and it is currently upgrading its gas supply station at Salalah, also to give cement production a boost.

This last project is of particular interest because when Global Cement visited Oman Cement the staff at the Rusayl plant were concerned about the rapidly rising price of natural gas. The plant used gas as its primary fuel and at the time of the interview in January 2015 they were considering diversifying into alternative fuels such as a tyres or using local coal instead. The issue also received a mention in the company’s first quarter report, where it attributed the rise in gas prices to a 26.8% hit in its operational profit taking it down to US$15.6m in the first quarter of 2015.

Meanwhile, both Raysut Cement and Oman Cement are in the process of building a cement plant together at Al Duqm. The latest news on this joint venture emerged in mid-August 2016 when the companies announced that they had registered Al Wusta Cement as the company designated to carry out the project. So far the plant is at the feasibility study stage with further progress to be released at a later date.

Operating in a full-capacity environment will be a dream to many cement producers around the world. However, it is not without its pitfalls from input issues such as gas supply or fighting off external competition who may want a piece of the pie. Oman's construction industry is expected to see growth of 3.4% to US$5.74bn in 2016 backed by government spending. It is there for the taking for the local producers.

Russia: Karel Okleshtek has been appointed the new general director of the Mordovcement plant (included in Eurocement Group). Previously, he headed a plant of the international group HeidelbergCement.

Ethiopia: The former governor of Nigeria's central bank, Sanusi Lamido Sanusi, has claimed that it was a cheap electricity deal that attracted Dangote to set up a cement plant in Ethiopia and that the cement market in East Africa will be impacted as the Adaberga wereda-based plant starts exporting cement costing almost 40% less than regional manufacturers, according to AFK Insider.

To attract Dangote to the East African country, the government offered to supply the company with electricity at a discounted rate of US$0.03/kWh, in exchange for the company building a plant in Ethiopia. This enabled Dangote Cement to cut the cost of producing a ton of cement by 60%, according to Sanusi in an opinion piece published by Premium Times. For a cement manufacturer, that is all the incentive that you need, Sanusi said, adding that this helped the construction industry in Ethiopia to boom.

The low-cost cement is now being exported to neighbouring countries like Kenya, where retail prices have remained static even as competition increased in the sector over the last decade. This is likely to shake up the regional cement market and make it affordable for developers to build more properties. Dangote Cement, one of the largest manufacturer of the product in Africa, said in a statement last week that it had started exporting to Kenya at US$74/t, more than 40% cheaper than what local manufacturer sell their brands for.

Dangote also started selling cement in Tanzania in 2016 after completing its factory in Mtwara about 400km from Dar es Salaam.

Ethiopia, one of the beneficiaries of the Power Africa program, an initiative of US President Barack Obama, has the highest electricity generating potential in East Africa due to its vast number of rivers and hilly terrain. It has invested billions of dollars to build several hydro-electric power plants including what will be Africa's largest dam, the Grand Ethiopia Renaissance Dam.

Original story from AFK Insider, http://afkinsider.com/132330/ethiopias-cheap-electricity-helps-dangote-shake-up-east-africas-cement-market/

India: Kerala Inquiry Commissioner and Special Vigilance Judge P. Jayachandran has denied bail to K. Padmakumar, managing director of Malabar Cements Limited, who was arrested in Palakkad on Monday 5 September by the Vigilance and Anti-Corruption Bureau (VACB) on charges of corruption and irregularity. Mr. Padmakumar is accused of irregularities in fixing dealers for the products of the cement company located at Walayar in Palakkad.

The judge also remanded him in judicial custody till Friday 9 September on the condition that he must be subjected to expert treatment at Government Medical College Hospital here for acute diabetes, after he was diagnosed with acute diabetes during medical examination at the district hospital. The doctors there also recommended his admission to the medical college hospital for specialised treatment and observed that he was not physically fit for custodial interrogation, at least for the time being.

In his bail plea, Mr. Padmakumar had contended that whatever actions he had taken as the managing director of the company were in accordance with collective decision and approval of the director board.

Pakistan: Total cement despatches in Pakistand during the first two months of the current fiscal year clocked up at 4.9Mt, a 14% increase from 4.3Mt recorded in same period of 2015-16. However, according to data released by the All Pakistan Cement Manufacturers Association (APCMA), overall export despatches have decreased: Exports in July-August were down almost 1% on a year-on-year basis to 1.022Mt. Overall domestic sales in August rose 21% to 3.02Mt from 2.5Mt in August 2015. Cement sales in the north zone were 2.495Mt in August, up 22.6% from a year ago. In the south zone sales recorded an increase of 13.2% at 0.532Mt from the same month of 2015.

Exports to Afghanistan dropped 12% to 346,928t in July-August on an annual basis, APCMA data shows. Exports by sea suffered even more. As opposed to 537,120t exported during the first two months of the preceding fiscal year, exports by sea in July-August 2016 were 407,120t, showing 24% decline on an annual basis.

However, increased exports to India made up for these shortfalls to some extent. Exports to India during the first two months of the current fiscal year grew 167% year on year to 268,230t.

A spokesman for the APCMA said the industry has been doubling its production capacity every seven to eight years. The buoyancy in the sector on the back of healthy domestic consumption during the last 20 months has encouraged the industry players to go for further capacity expansion. He said growth in the sector during the first two months of the fiscal year was in spite of Eid holidays. Growth of domestic consumption in August was also 'impressive,' as consistent rains failed to hurt construction activities, he added. He said upcoming projects along the China-Pakistan Economic Corridor (CPEC) will further boost cement consumption.

The industry has yet to realise its export potential due to the lack of support from the government. The loss of the Afghanistan market is a matter of concern for the industry, which has been marginalised there because of subsidised Iranian exports.

Pakistan: Lucky Cement Limited has received the 13th Annual Environment Excellence Award 2016. The awards ceremony took place on the occasion of a conference titled 'Making our cities sustainable' organised by The National Forum for Environment and Health. Provincial ministers, the Secretary of the Environment, representative of United Nations and other notables were also present on the occasion.

Vietnam/Germany: Loesche GmbH has won an order for a new cement grinding plant in Ha Nam. The customer is Xuan Thanh Cement Joint Stock Company, a private company group (est. 1976) in Vietnam with more than 30,000 employees. In December 2015, Xuan Thanh Cement decided to invest in a new cement line from FLSmidth. Germany's Loesche GmbH, however, was chosen for the delivery of the cement mills.

After Loesche had already supplied a vertical roller mill for the first cement line in the same plant, Xuan Thanh JSC placed the order for the construction of the new grinding plants with two cement mills with Loesche once again.

During the signing ceremony, Mr Nguyen Xuan Thuy, General Director of Xuan Thanh Cement JSC, thanked Dr Thomas Loesche on behalf of the Xuanh Thanh Group. The contracting partners discussed future developments and confirmed their interest in continuing to work together on a long term basis.
The challenge of this project for Loesche lies in the integration of the new grinding plants into a cement line which is presently under construction.

The key elements of the scope of supply are two cement mills type LM 56.3+3 CS. In addition to the two cement mills, Loesche is also supplying further plant components, from the fresh material supply, the product filter and the mill fan to the finished material transport to the product silos. Loesche Automatisierungstechnik GmbH will be the supplier for the electric part and the automation of the grinding plants. Two hot gas generators type LF 20 L are designed to provide the product moisture guaranteed in case of kiln standstill. An extensive engineering package provided by Loesche will conclude the scope of supply.

Xuan Thanh cement plant will thus be fitted with state-of-the-art equipment for low energy consumption and for reduction of emission values to European standards. The lead time for the entire package is eleven months. Commissioning is forecasted for the second quarter of 2017.

Africa/South Africa: Despite a decline in the construction sector, cement giant Pretoria Portland Cement (PPC) continues to defy the odds as it posted a 9% uptick in quarterly sales revenue. The cement producer said sales revenue in South Africa has seen an upswing of 2% with volumes increasing by at least 9%, although earnings per share disappointed as it fell by 55% for the period. However, revenue from outside of South Africa rose by 19% on the back of significant volume growth and newly commissioned plants in Rwanda as well as gains from the currency translations in Zimbabwe and Botswana. "The group's revenue has improved by 6% supported by strong cement sales volume growth in South Africa and Rwanda. Cement sales volumes grew in excess of 30% in the Coastal regions in South Africa," CEO Daryll Castle said.

"However, good cost control has led to further impressive declines in group overheads while variable delivered cost of sales per tonne in the South African cement business were well below inflation," Castle said. In addition, the cement maker said its cost of sales was also on the rise, increasing by 14% to R1.8bn (US$99m), largely on the back of higher volumes in the South African cement industry as well as more expensive logistics which rose by 3% during the period. "On consolidation of foreign currency denominated subsidiaries, the weakness of the rand contributed to rising cost of sales. Gross profit decreased by 11%, from R709m (US$50m) for the quarter ended June 2015 to R630m (US$44.4m) for the current quarter. "This decrease was mainly ascribed to the impact of selling prices pressures felt in our key cement operating markets together with the lower sales volumes in Zimbabwe and Botswana," the company said. But, the company said the R135m (US$9.5m)acquisition of 3Q Mahuma Concrete, one of the largest independently owned ready-mix concrete supplier in South Africa, will improve PPC's ready-mix footprint.

Malaysia: Lafarge Malaysia Bhd's management has said that for the first half ended June 30 2016, core net profit was down 69.4% mainly due to lower cement revenue (-5.3%) due to weaker demand for cement on the back of a slowdown in the property market and delay in the commencement of mega projects such as KL118 Tower project, Tun Razak Exchange; Holcim 'synergisation' costs of about US$4m and a higher effective tax rate (+13.8%) from lower capital allowances.

Management expects the effective tax rates to be normalised in the 2017 financial year from capital allowances from its newly-commenced Rawang (Selangor) and Kanthan (Perak) plants expansions.

With the new capacity expansion in the Rawang and Kanthan plants commencing in March and April 2016 respectively, management revealed that this would provide savings in overall transportation costs as clinker is no longer required to be delivered from Langkawi (Kedah) to its grinding units in Pasir Gudang (Johor) which can now be delivered from Kanthan instead - which is approximately half the travelling distance.

Malaysia is due to see an increase in overall cement production capacity of 13% in 2016 due to the completion of expansion projects and the weak market is expected to become tougher-still. Besides looking out for further cost-saving avenues, Lafarge Malaysia is also looking for differentiation in this competitive market through higher investment in dry-mix cement and strengthening of its brand name through more aggressive marketing.

France/Ireland: According to the Irish Independent newspaper, Irish cement company Ecocem has invested Euro30m into a new production facility in Dunkirk in the north of France as part of joint venture with the world's largest steel company. The investment is split 30% to 70% in favour of Ecocem and will increase the Irish firm's capacity from 1.4Mt of high performance, low carbon cement to around 2Mt. Ecocem said the main target markets for the plant will be the north of France and the UK.

ArcelorMittal, the company that is investing with Ecocem, is the world's largest steel firm. The investment is a strategic partnership as Ecocem uses a by-product of the manufacture of iron and steel - Granulated blast furnace slag - to make cement.

The news follows recent builds by the company with the Peel Ports Group. The pair built an import terminal in Runcorn on the Manchester Ship Canal and will look to add to it with another two, one in Runcorn and another in Sheerness in England.
Ecocem's continued expansion in the UK is a response to growing demand from the market. The firm has experienced an increase in exports from the UK as a result of a bustling cement market and a shortage of the type of cement Ecocem produces.

Speaking at the time of its UK investment, Ecocem managing director Conor O'Riain said the firm is looking long-term at the market. "We've invested in state-of- the-art equipment to demonstrate to the market that we're here for the long term, and I'm delighted to say that the response from the market has been phenomenal. We've made commitments to sell more in the UK in our first year than our total domestic sales in 2016," he said. Prior to entering the British market Ecocem had already received orders for 200,000t of product for its first year and stopped taking any further offers in the short term.

Ecocem is also trying to make its first move into the US. The company is looking to build a Euro45m grinding mill near San Francisco but has some hurdles to its intentions from its planning applications.

The firm has continued to grow its reputation as a low-carbon cement producer and last month the firm picked up the Green Product Award 2016 for its superfine product.