Displaying items by tag: HeidelbergCement Bangladesh

The Infrastructure Development Company in Bangladesh announced this week that it had agreed to loan Crown Cement US$25m to help it add a new mill to its cement grinding plant at Munshiganj, south of Dhaka. If completed it will be the plant’s sixth mill. Originally known as MI Cement the plant has a production capacity of 3.3Mt/yr and the most recent mill was added in 2017. The plan to add a sixth mill dates back to 2019 but was revised in 2021 with a total investment of US$90m. Securing a loan marks a significant step forward for the project.

The timing to expand a cement plant in Bangladesh is interesting given the problems facing the local cement sector. In August 2022 Mohammed Alamgir Kabir, the president of the Bangladesh Cement Manufacturers Association (BCMA), told the Daily Star newspaper that cement producers were facing both falling investment in infrastructure development and private projects. The local cement industry imports 90% of the raw materials it uses and most of the country’s cement plants grind cement use imported clinker. However, the aftermath of the coronavirus pandemic created supply chain problems leading to higher costs of raw materials, dearer transportation charges and started to push up global energy prices. This was then exacerbated by the Russian invasion of Ukraine in February 2022 and negative currency exchange effects as the Bangladeshi Taka fell in value against the US Dollar. In words echoing cement associations in other parts of the world, Kabir suggested that cement producers now faced the option of either continuing to raise prices or simply shutting down production.

The local cement production capacity utilisation rate appears to be around 56% based on data from a recent feature in the Financial Express newspaper. It placed total production capacity at 83Mt/yr from 37 active plants but demand at only 47Mt/yr. This is similar to the reported utilisation rate of 54% back in 2017 from a total production capacity of 50Mt/yr. Data from the Bangladesh Bureau of Statistics (BBS) suggests that cement production picked up in 2021 but then declined on a monthly year-to-date basis between December 2021 and February 2022. However, the BBS only reports production from a sample of plants. Masud Khan, the chief advisor to Crown Cement and its former chief executive officer, placed the cost of all that unused capacity at US$40/t or something like an investment of US$1.46bn for idle manufacturing potential. In his view, the larger local producers forecast an increase in demand around five to 10 years ago and invested accordingly to avoid losing market share. However, some smaller companies may also have done the same.

The local sector has likely been able to cope with a relatively low capacity utilisation rate previously because it was ‘grinding heavy.‘ How the current problems have shown themselves on cement company balance sheets has been mixed though. LafargeHolcim Bangladesh’s sales revenue and profit grew by 8% year-on-year to US$166m and 7% to US$32.2m in the nine months to September 2022. It was probably able to do this, in part, due to the fact that it operates one the few integrated plants in the country and it has direct access to limestone reserves across the border in India. By contrast, HeidelbergCement Bangladesh’s sales fell by 3% year-on-year to US$90.7m in the first six months of 2021 and it made a loss of around US$2m. Aramit Cement’s revenue fell by 60% year-on-year to US$6.09m in the nine months to March 2022 and it reported a loss. Premier Cement Mills increased its revenue by 5% to US$99m in the same period, although its net profit dropped by 91% to US$387,000. Crown Cement’s revenue rose by 16% to US$13m but its net profit fell by 81% to US$1.32m.

Geopolitics, high energy prices and local problems are all combining to make life difficult for cement producers in Bangladesh. As the market adjusts to the current situation the determining factor here is likely to be the cost of grinding cement to end users versus just importing cement directly. Current conditions do not seem to be stopping Crown Cement though nor LafargeHolcim Bangladesh. The latter, for example, launched a new blended cement product, Supercrete Plus, earlier in November 2022. One way out for the others might be explore exports and the BCMA suggested just that to the government over the summer, although this doesn’t seem like the most obvious solution for a country that imports so much of its raw materials.

News has been dripping out slowly over the last few months about which assets HeidelbergCement is planning to divest. This week reporting from Bloomberg suggested that the German-based building materials producer might be seriously considering selling one or more integrated plants in Spain. The idea is reportedly part of a wider review of its portfolio in the country with the possible inclusion of cement plants at San Sebastian and Bilbao at a future date also. A proposed price of Euro300m for the national business was put forward by the sources to the reporters but it is unclear how many cement plants that figure includes.

HeidelbergCement announced in July 2020 that it had reduced the value of its total assets by Euro3.4bn following a review. It blamed this on reduced demand for building materials due to the coronavirus pandemic and the devaluation of its Hanson subsidiary in the UK, in part related to the UK’s exit from the European Union. A divestment plan followed at its Capital Markets Day event in September 2020 when it said it was simplifying its country portfolio and prioritising the strongest market positions. To this end it said it was setting up a watch list of underperforming assets to keep an eye on.

Over the next few months a number of corporate reorganisations and actual confirmed divestments occurred as well as plenty of speculation. HeidelbergCement-controlled Suez Cement started to acquire a 100% stake in its own subsidiary, Tourah Portland Cement, in September 2020. Suez Cement then sold its majority stake in Kuwait-based Hilal Cement in late January 2021. This week HeidelbergCement Bangladesh informed the local stock exchange that it is planning to amalgamate its subsidiary Emirates Cement.

Signs that European reviews had taken place could be seen later in the autumn of 2020. In November 2020 the Italian press picked up on rumours that HeidelbergCement was planning to move subsidiary Italcementi’s research centre from Bergamo, Lombardy, to Heidelberg in Baden Württemberg. Whether this was ever a serious proposition or not, this appeared to have been avoided in early February 2021 when an Italian union said it had agreed with Italcementi to keep the research centre in Italy as well as a preserving jobs generally. Meanwhile, also in November 2020, France-based subsidiary Ciments Calcia announced a major upgrade at its integrated Airvault cement plant but along with the conversion of two other integrated plants into a grinding unit and a terminal respectively, and changes at the French headquarters at Guervill.

Just before Christmas the bigger speculations started to appear in the press, with a story suggesting that HeidelbergCement was considering selling assets in California, US, with a target price of US$1.5bn for three integrated plants and associated concrete and aggregate units. That story is particularly beguiling given Cemex’s decision this month to reopen a kiln in Mexico to supply cement to the southwest US to meet shortages (See GCW 493)! Incidentally, readers should also note the story this week about a shortage of natural gas exports from Texas, US, that has caused cement plants in northern Mexico to shut down. This week, as mentioned at the start, has seen Spain added to the list of places that HeidelbergCement might be considering selling up in. The Spanish market like Italy has been rationalising heavily over the last decade particularly as export markets have dwindled. Oficemen, the Spanish cement association, reported that domestic cement consumption fell by 10% year-on-year to 13.3Mt in 2020 from 14.7Mt in 2019. On top of this Oficemen has repeatedly warned of the threat that CO₂ emissions prices pose for its members’ exports.

Group chairman Dominik von Achten told Reuters this month that the company plans to sell the first of the five assets in early-to-mid 2021. Of course he wouldn’t say where, except for adding that the company would stay in ‘rock solid’ markets like Northern Europe. Indonesia has been seen as a candidate for disposal by analysts, likely due to local production overcapacity levels and LafargeHolcim’s own departure in Indonesia 2018. All Von Achten would say on the matter was that Indonesia was an ‘important’ market for the group. Whether it’s seen as important for reducing company debt or building value remains to be seen. HeidelbergCement hasn’t exactly been shy about saying what they are doing over the last half year or so but they are only going so far and they won’t comment on speculation. So in the meantime we must wait to find out more.

Bangladesh: HeidelbergCement Bangladesh plans to amalgamate its subsidiary Emirates Cement. The Daily Star newspaper has reported that fellow HeidelbergCement Bangladesh subsidiary Emirates Power Company will also be merged as part of the reorganisation.

The subsidiary of Germany-based Heidelberg Cement acquired Emirates Cement Bangladesh and Emirates Power for around US$21.5m in 2019. Emirates Cement Bangladesh operates a plant at Munshiganj with a production capacity of 0.66Mt/yr.

Bangladesh: The Institute of Cost and Management Accountants of Bangladesh (ICMAB) has presented its Best Corporate Awards 2019 to 34 companies across 12 categories. The cement award winner was LafargeHolcim Bangladesh for its ‘excellent corporate governance.’ HeidelbergCement Bangladesh came second and Premier Cement Mills third.

Bangladesh: HeidelbergCement Bangladesh has announced the completion of its acquisition of Emirates Cement and Emirates Power from UltraTech Cement Middle East Investment. Financial Express has reported the value of the deal as US$21.5m.

Bangladesh: HeidelbergCement Bangladesh and China National Heavy Machinery have signed a deal to expand the Kanchpur plant near Dhaka, according to ENP Newswire. HeidelbergCement Bangladesh operates two cement grinding plants in the country.