Displaying items by tag: GCW41

Reporting the annual results for Turkish cement producer Adana Çimento opened up an issue familiar from many of the international big players' annual reports last year: currency fluctuations.

The conversion rate between the US dollar and the Turkish lira rose from US$1 to Turkish lire 1.55 at the end of 2010 to US$1 to Turkish lira 1.89 at the end of 2011. This created the alarming situation where the company's annual sales rose by 3% from 2010 to 2011 if you measured it in Turkish lira, but fell by 15% if you measured it in US dollars!

Great news for currency speculators playing with so-called 'hot money' but not so great for manufacturers seeking stable trading conditions. As for the company's shareholders, if they are paid their dividend in Turkish lira then it's the value of the lira that is important. If the shareholders have to change Turkish lira into their own 'foreign' currency in order to spend it (or keep it in the bank), into dollars for example, then that's when they could lose out.

This is particularly bad news for a country like Turkey with its strong export market. Although looking at the nation's top export destinations in 2010 reveals a roll call of instability, including Iraq, Syria, Libya and Egypt. Regardless of the price, these countries are going to need cement when the dust settles from ongoing political turmoil, something we also cover in another story this week with reports of striking at Egyptian plants. Cement isn't likely to be coming from Saudi Arabia though, which we see is enjoying demand driven by government-funded construction projects.

Elsewhere this week we have stories on the impact of the Indian Budget on the cement industry, yet more Dangote projects in Cameroon and Liberia and promising signs from Taiheiyo in Japan.

France: Gerard Lamarche, managing director of Groupe Bruxelles Lambert, will be appointed to the board of Lafarge at a meeting on 15 May 2012. He will replace Thierry de Rudder.

Lamarche, aged 50, graduated from the University of Louvain-la-Neuve in Belgium. He also completed the advanced management programme at the INSEAD Business School. He began his professional career in 1983 with Deloitte Haskins & Sells in Belgium, and became mergers and acquisition consultant in the Netherlands in 1987.

From 1995 he became the special projects advisor to the president and secretary of the Suez board of directors and participated in the merger between Compagnie de Suez and Lyonnaise des Eaux in 1997. He was later appointed the new Group's senior vice president in charge of planning, control and accounts management. He was appointed senior executive vice president – finance of the Suez Group in 2004, becoming executive vice president, CFO of GDF SUEZ, and member of the Management and Executive Committees of the GDF SUEZ Group in July 2008. Lamarche is also a director of Total and Legrand.

Egypt: Italcementi subsidiary Suez Cement has announced that workers at two of its factories in Suez and Katamiya started a strike on 14 March 2012. The strike has halted shipping at these plants although production has not been affected. In a separate statement Suez Cement said that strike action at its Tourah plant ended on 20 March 2012.

Saudi Arabia: Government spending and increased economic activity will fuel strong demand for cement in 2012, according to a new report from NCB Capital.

The report, which concentrated on Southern Cement and Saudi Cement due to their spare capacity and high stock levels, indicated that cement prices increased by an average of 14.1%. Demand is anticipated to grow by 10% in 2012 and by 8% in 2013, driven by increasing government spending on infrastructure projects combined with private projects. Sales are expected to grow by 10.8% in 2012 to reach 52.2Mt.

According to the report, market activity is shifting from the central region to the western region of the country. The western region is now the centre of mega projects such as the Haramain railway, Jeddah's new airport and major drainage and other infrastructure projects. Demand in the central region nonetheless remains strong but has stabilised.

Fuel shortages remain the key supply constraint. Cement industry players believe the reason for the ongoing higher prices faced by retail buyers is mainly due to higher costs from the transportation companies. For example, a transportation company's truck that was able to make two trips a day to the cement factory can now only make one trip every three days due to the high demand and backlog at the local cement plant, thus increasing the cost for transportation companies. It is believed that prices will remain elevated in the short term due to the supply constraints and also in the medium term due to the strong demand outlook.

The economics team at NCB estimated that the 2012 government spending was 13% higher than budgeted at U$S280bn in addition to the US$32bn allocated to build 500,000 housing units. "We believe the elevated levels of government spending, particularly housing projects, will boost demand for cement," the report said.

Turkey: Cement producer Adana Çimento has reported that its profit after tax fell by 25% to US$42m in 2011 from US$56m in 2010.

Sales revenue rose by 2% to US$173m in 2011 from US$169m in 2010. Total revenue rose by 6% to US$182 from US$171m. Adana Çimento has recorded profit for the last three years. Notably, the exchange rate between the Turkish Lire and the US Dollar has risen by 22%, to 1.89 per dollar in 2011 from 1.55 in 2010.

Liberia: Dangote Cement Liberia, a subsidiary of the Nigerian conglomerate Dangote, has officially signed up for a US$35m cement plant in Liberia.

Speaking during the signing ceremony held in Monrovia at the head office of the National Port Authority (NPA) on Bushrod Island, the president of Dangote, Alhija Aliko Dangote, disclosed that his company will employ hundreds of Liberians and other nationals. Operation is expected to commence by the end of April 2012. Signing on behalf of the Liberian Government, the Managing Director of the NPA, Madam Matilda Wokie Parker lauded the initiatives being applied by the company to invest the economy.

The opening of a new cement factory in Liberia will bring the total number of cement plants to two. The existing plant, the Liberia Cement Corporation (Cemenco), currently employs 63 workers.

India: The Union Budget for 2012-13 has divided the cement industry on the likely impact of its new measures. An increase in excise and service tax is expected to increase the price for consumers, whilst an expected demand increase for cement will be driven by housing and infrastructure development.

Finance Minister Pranab Mukherjee proposed to exempt imported non-coking coal from the current basic duty of 5%. It is anticipated that this will have a positive impact of 1-1.5% on the industry's operating profit. The cement industry is the third largest consumer of coal after power and metallurgy, requiring about 15-20Mt/yr. At present, the industry meets close to one-fourth of its total coal requirement through imported coal.

Cutting the duty on imported non-coking coal has been offset by an increased excise and service tax of 2%. This hike in excise duty is expected to increase the cost of cement for consumers as manufacturers pass on the impact. One positive feature is the 30% abatement on the retail sale price, a long pending demand of the industry.

Meanwhile on the demand side the measures set to encourage housing and infrastructure development are expected to boost sales.

Overall opinions on the Union Budget have remained neutral for the cement industry, as the increase in excise duty combined with the recent increase in the cost of rail freight will result in a considerable increase in the cost of delivered cement. This will then impact upon the cost of construction. Although welcome the 30% abatement of the retail sale price will also pose some practical difficulties as the sales price changes with different markets.

Japan: Taiheiyo Cement is aiming for a group operating profit of around US$600m in the 2014 fiscal year, an increase of 90% on its projection for the current fiscal year, which ends on 31 March 2012. The target will be included in an upcoming midterm business plan that runs through to March 2015. The underlying assumptions include total domestic demand rising by 4% to 43Mt/yr. Taiheiyo Cement anticipates a 2Mt/yr boost from earthquake rebuilding.

In its domestic business, the Japanese market leader is likely to seek a 10-20% increase in its profit that will be underpinned by reconstruction demand. The operations are expected to give a profit of more than US$360m for the current fiscal year.

Taiheiyo has reported that cement production at its Ofunato plant in Iwate Prefecture has returned to about 70% of the levels seen before the 11 March 2011 earthquake and tsunami disaster. The company is scrambling to repair the production base with an eye toward returning the facility to full capacity at the end of June 2012. In the autumn the firm will start producing high-tensile cement for use in repairing infrastructure in the disaster-hit Tohoku region.

Taiheyo Cement will also shake up its sluggish US business, which is on track for an operating loss of US$108m in the current fiscal year. On top of personnel reductions, the company will continue to sell land and make other downsizing efforts. An operating profit of US$120m for US operations is targeted by the 2014 fiscal year.

US: Lafarge US has announced that it has laid off 36 workers at its plant at Joppa, Illinois, representing about one-third of the plant's total workforce. The layoffs, which took place Thursday 15 March 2012, were cited as the result of the closure of one of the two kilns at the plant, which has a total installed capacity of 1.25Mt/yr.

The kiln has been mothballed due to consistent low cement demand, with Lafarge saying that local sales have fallen by 44% in recent years.

Cameroon: Construction of a US$109m Dangote cement plant in Duoala has been halted following an order from the Douala City Council (DCC), raising fears that the 18-month timeline for the construction of the plant may not be met.

DCC delegate Fritz Ntone Ntone halted work on the site following complaints from Ngondo cultural officials. He explained that part of the site allocated for the plant belongs to the DCC and will be used for the construction of an urban park. He added that much of the site is traditionally used as land for the Ngondo cultural celebrations. During the Ngondo General Assembly on 10 March 2012 Sawa Chiefs resolved not to release the land for any reason.

In September 2011 an agreement was signed between the Cameroonian government and Dangote, which authorised the construction of a US$109m cement plant in Douala with a capacity of 1Mt/yr along the shorelines of the River Wouri. The disputed land was contracted from the government through a lease of 30 years. On 13 March 2012 a Dangote delegation from Nigeria announced that the company was ready to renegotiate in order to keep the venture going.

Demand for cement in Cameroon is currently rising rapidly, increasing by 8% in 2011. According to government data the country imported at least 0.5Mt in 2010 but demand is estimated at 4Mt/yr. In addition to Dangote two companies from Korea have also signed investment agreements with the government.