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Cembureau called for urgent action on electricity prices from European governments this week to protect cement plants. Its maths was crushingly simple. One tonne of cement takes around 110kWh of electricity to produce. Electricity prices started to top Euro700mWh in some European Union (EU) countries at the end of August 2022. The association says that this represents added costs of Euro70/t of cement and a tripling of the total cost of production. This kind of sudden extra cost to cement production could lead to the widespread closure of cement plants and lead to chaos in the construction supply chain.

Previously, Cembureau reported in 2020 that electricity accounts for about 12% of a cement plant’s energy mix. In a dry production process plant 43% of this is used for cement grinding, 25% goes into raw material preparation, another 25% on clinker production and the final portion is typically used for raw material extraction, fuel grinding and for packing and loading. However, the cost of the electricity can make a big difference to the overall energy bill for a cement plant. When a report by the European Commission’s (EC) Joint Research Centre (JRC) modelled a reference northern European cement plant with a production capacity of 1.0Mt/yr back in 2016, it concluded that the EU cement industry was spending around half of its energy costs on electricity compared to smaller ratios at plants in China, Egypt, Algeria and... Ukraine. That last country in the list is poignant given its unwitting participation in the current energy crisis. One other thing to note is that cement producers, as large scale users, may well be paying less than the wholesale prices Cembureau appears to be quoting.

The timing of Cembureau’s proclamation is pertinent because the EU and individual states have mostly been waiting until the autumn before revealing their energy support plans. However, the dilemma for Cembureau, and other industry lobbying groups, is how to protect their sectors whilst domestic consumers are threatened. The aftermath of the coronavirus lockdowns has shown what can happen when production of key commodities stops: supply chain disruption, shortages and price rises. One ironic shortage in the UK during the lockdown periods was that of CO₂, as high gas prices forced the main producer to shut down, leading to unexpected knock-on problems along the supply chain in areas such as food production. The same situation is reportedly at risk of happening again now too.

Cembureau’s wider solution is to link domestic and industrial consumers of electricity. So, some of its suggestions to policymakers are to use all available means of power generation, implement emergency measures such as price caps immediately, change the rules of the electricity market more generally to prevent future price shocks and to promote large scale renewable power source development. These are all things that could help both individual and industrial users of electricity.

Compare and contrast, then, with the MPA’s (Mineral Products Association) approach to the same problem in the UK. Its strategy instead has been to ask the UK government for tax cuts and freezes and to hurry along the forthcoming policy on support for Energy Intensive Industries. That’s not to say that Cembureau’s suggestions don’t also include some sector specific requests. It has asked that the EU temporary state aid framework adopted in late March 2022 should allow all energy intensive industries to have access to state aid covering 70 - 80% of eligible costs. It has also encouraged the wider use of alternative fuels, although it doesn’t link the reason why beyond reducing imports of fossil fuels. Lastly, it bangs the drum for its recent preoccupation, the EU Carbon Border Adjustment Mechanism, this time adding electro-intensity as a main criterion for eligibility for compensation under EU emission trading scheme (ETS) indirect state aid guidelines.

Government support packages for the energy crisis are starting to be announced in European countries but the question for everyone is whether they and other actions will be enough. One problem for the cement industry will be simply staying on the radar of policy makers facing a crisis looming over their citizens. Yet if there is not enough energy to go around then rationing of some kind will be inevitable and heavy industrial users will be the first obvious targets to be told to cut back. Some months later building material supply shortages will hit. One national cement sector to watch in the coming months may be the Spanish one as it has long warned of the risks of high electricity prices.

Kyrgyzstan: A new cement plant project has been announced for Kyrgyzstan’s Chuy region. The country’s Ministry of Economy and Commerce said that a signing ceremony for an Investment Agreement to implement the project was held between the Cabinet of Ministers of Kyrgyzstan and a consortium comprising representatives from Terek-Tash and ZENIT on 6 September 2022. When built, the plant will have a capacity of 1.5Mt/yr with a total investment cost of around US$150m.

Belgium: Cembureau, the European Cement Association, has called for urgent action to be taken to support cement production due to large increases in the cost of electricity. It said that, if no measures were taken at both the European and national level, the current energy prices would lead to widespread plant closures across the European Union (EU). This in turn could create a crisis in the construction supply chain. It explained that one tonne of cement normally takes around 110kWh of electricity to produce. Therefore, with electricity prices now between Euro700 - 1000mWh, as observed in several EU member states, electricity costs amount to Euro70 – 110/t of cement, tripling the total cost of production.

The association has called for: all available sources of electricity generation to be used to boost power supplies; the immediate introduction of emergency measures, such as price caps; that the EU temporary state aid framework adopted in late March 2022 should allow all energy-intensive industries to have access to state aid covering 70 - 80% of eligible costs; and that co-processing in cement kilns should be actively encouraged and promoted at EU, state and local levels.

It added that further measures should also be considered, including: the electricity market design rules, including the marginal price setting mechanism, should be changed to prevent further electricity price hikes in the future; the cement sector should be made eligible for financial compensation under the EU emission trading scheme indirect state aid guidelines and that indirect emissions should be included in the EU Carbon Border Adjustment Mechanism (CBAM); the large-scale deployment of renewable energy should be supported across the EU; and that the pace of the EU climate agenda ('Fit for 55') should be maintained, and the CBAM should be implemented in a timely manner.

Sweden: The Environmental Protection Agency (Naturvårdsverket) and the county administrative board of Gotland have both recommended rejecting Cementa’s application to extend its operating permit for its integrated Slite cement plant by four years. At present the current temporary permit will expire at the end of 2022, according to the Dagens Industri newspaper. The county administrative board has requested more information and Naturvårdsverket has found issues in the application with groundwater and nature protection area issues.

Cementa says that it submitted it application to the Land and Environment Court in April 2022 and that it was deemed complete by the court, which announced the application. In July 2022, opinions were received from around 10 authorities and associations, such as the Geological Survey of Sweden (SGU), Naturvårdsverket and the Norwegian Sea and Water Authority. Cementa added that it has now responded to this feedback.

“There are and must be high requirements for permit applications, so it is natural that there will be many views and questions in this type of examination,” said Karin Comstedt Webb, vice president of HeidelbergCement Sweden. “We have now clarified the application further and are now looking forward to the main hearing in October 2022. We are confident that our application is complete and we have been keen to show even more clearly that the business can be conducted in coexistence with nearby residents, and surrounding environmental and natural values. We see good conditions for the timetable announced by the court to be kept, which is crucial for the Swedish cement supply not to be jeopardised in the coming years.”

Further views on the application will be submitted in September 2022. The Land and Environment Court will then hold a hearing in October 2022 and a final decision is expected the end of 2022.

Cameroon: The Minister of Trade, Luc-Magloire Mbarga Atangana, has announced cuts to the price cement. He attributed this to a substantial increase in the production capacity of Mira SA’s plant to 1.5Mt/yr from 0.5Mt/yr, according to the Cameroon Tribune newspaper. Prices of some products have reportedly fallen by up to 12%.

US: The Boulder County Planning Commission has recommended that county commissioners should reject Cemex USA’s application to extend its licence to mine limestone at its Dowe Flats quarry until 2037. Local press has reported that Cemex USA previously agreed to shut down its Lyons cement plant at the expiry of its extended licence in 2037. The company says that it will be able to continue operating the plant without use of the mine.

Cemex USA executive vice president Trpimir Renic said "We do always try and consume the raw materials that are available to us at the existing site where we are currently operating. We think that operating that quarry for the next 15 years - supplying Lyons cement plant - is the most responsible resource management operation that we can undertake."

Europe: RHI Magnesita is heading a European Union Horizon project called ReSoURCE. The project seeks to develop a sensor-based refractory waste sorting and powder handling system. It involves academic partners in Austria, Germany, Ireland, Norway and the UK. The European Health and Digital Executive Agency (HADEA) supplied Euro6m in funding for the study, while the UK government supplied Euro1m. Global refractory waste generation is currently 28Mt/yr.

RHI Magnesita chief executive officer Stefan Borgas said “On average, 60% of all spent refractories generated by refractory-consuming industries go to landfill, while only 30% are recycled. With the ReSoURCE project, we aim to increase it up to 75%. This means we can achieve significant savings of CO₂ emissions per annum. With this research project, we have the chance to make a difference in the world.”

US: Lehigh Hanson has secured US$3.7m-worth of funding from the US department of energy for its planned front-end engineering design (FEED) installation of a carbon capture system at its Mitchell cement plant in Indiana. The funding was part of a total US$31m pot awarded to 10 different carbon capture projects across multiple industries. All of the projects have the capacity to capture over 95% of emissions from their respective plants.

Mitsubishi Heavy Industries America is supplying its carbon capture system for use at the Mitchell cement plant, at a total project cost of US$4.8m.

Canada: Lehigh Cement has initiated the administrative process to begin the use of alternative fuels (AF) in cement production at its Picton cement plant in Ontario. Under the company’s plans, the plant will substitute 200t/day of AF for coal and petcoke at the plant. Possible AF sources include excess seed from farm feed production in Ontario. The Picton cement plant previously reduced its CO₂ emissions per tonne of cement by 20% through assorted sustainability initiatives.

Picton plant manager Carsten Schraeder said that the move will support Canada’s 2030 emission reduction plan, and also take pressure off landfill sites.

The larger cement producers in China have published their half-year financial results and the numbers are looking grim. Starting with data from the National Bureau of Statistics of China, cement output in the country fell by 14.5% year-on-year to 979Mt in the first half of 2022 from 1.14Bnt in the same period in 2021. This is the lowest first half output figure since 2012. The decline on a monthly basis started in May 2021 and has carried on consistently since then. Rolling cumulative annual output hit a low of 2.18Bnt in July 2022, the lowest figure since at least the start of 2019 and well before the coronavirus pandemic started.

Graph 1: Cement output in China, 2018 to 2022. Source: National Bureau of Statistics of China.

The financial figures from the cement producers have mostly followed this trend. Of the companies covered here, Anhui Conch’s drop in sales revenue was the most distinct at 30% year-on-year to US$8.14bn. However, Jidong Cement actually managed to increase its revenue and Huaxin Cement’s decrease was fairly small, possibly due to its growing stable of overseas projects. None of these companies could avoid falling cement and clinkers sales volumes though. Again, Anhui Conch is the outlier here with a larger fall in sales volumes proportionally at nearly 40% compared to around 20% for the rest. Chen Bolin, the deputy secretary-general of China Cement Association (CCA), told the 21st Century Business Herald newspaper that of the 20 or so listed cement companies that have published their half-year reports by the end of August 2022, more than half had reported falling sales revenue and net profit and only one company had managed to increase its net profit.

Graph 2: Sales revenue from selected Chinese cement producers. Source: Company financial reports. Note: Cement revenue shown only for CNBM & Taiwan Cement.

Graph 3: Sales volumes of cement and clinker from selected Chinese cement producers. Source: Company financial reports.

The financial reports from the Chinese cement companies detailed here have been fairly light on the reasons for the current state of the sector. Repeated coronavirus outbreaks, instability in the real estate market, a lack of funding for infrastructure projects, growing energy and raw materials costs, pressure on prices and a generally weak economy have all been blamed for the situation. Media channels outside of China have continued to scan the country’s real estate sector for signs of collapse following Evergrande’s problems in 2021. However Chen Bolin diplomatically held back by describing the real estate market as not yet stabilised and a drag on cement demand. Instead he hoped that large-scale infrastructure projects would offer some form of relief.

One last point to note, that both the CCA has made and could be seen in some of the company reports, is that some of the Chinese cement companies are already starting to diversify their businesses. This is in parallel to what some of the larger western-based multinational cement producers have also been doing in recent years with forays into concrete, light building materials and construction chemicals. CNBM already has large concrete, light building materials and engineering subsidiaries. However, Huaxin Cement and Anhui Conch have also started to branch out recently into aggregates, concrete and new energy generation, in the case of the latter company. Things may get worse before they get better, especially depending when or if the Chinese government decides to act on the real estate market. However, whatever kind of adjustment the cement sector may face, there are some signs present already of what some of the companies may do next.