Displaying items by tag: Huaxin Cement

Nepal: Huaxin Cement Narayani has ignited the kiln at its 1Mt/yr Dhading cement plant in Bagmati. Construction of the project started in 2019 but it was delayed by flooding, disputes over land ownership and the emergence of the coronavirus pandemic. China-based Huaxin Cement originally signed an agreement with the Investment Board Nepal in 2018 to build the plant for US$140m.

China: Huaxin Cement and Hunan University have started a pilot production line that uses flue gas from a cement production line to manufacture concrete bricks. The process, being tested at the Huaxin Wuxue Industrial Park in Hubei Province, absorbs CO₂ from the flue gas and uses the heat of the gas to cure the bricks, according to the Xinhua News Agency. The average compressive strength of the bricks is above 15MPa. It is estimated that a production line with a brick output of 100m/yr could absorb 26,000t/yr of CO₂.

Nepal: The Nepal Electricity Authority (NEA) has agreed to supply ten industrial users, including cement producers, with an additional 151MW of electricity as part of a drive to increase domestic consumption. The cement producers concerned include Maruti Cement, Huaxin Cement, Hongshi Shivam Cement and Arghakhanchi Cement, according to the Republica newspaper. The other industrial users are mostly steel producers. In addition another 111MW is in the final stages of being allocated by the NEA to seven other industrial plants and a further 99MW has been identified for further distribution to industrial users. The government-supervised power supplier and distributor has identified around 500MW of wasted electricity supply due to low domestic consumption and a lack of transmission lines.

Malawi/Zambia: Huaxin Cement says it has completed its acquisition of Lafarge Zambia and Lafarge Cement Malawi. In late December 2021 the Chinese cement producer completed the equity delivery conditions for Lafarge Cement Malawi. This follows a similar process for Lafarge Zambia in late November 2021.

In June 2021 Huaxin Cement said it had agreed to spend US$150m on purchasing a 75% stake in Lafarge Zambia and US$10m on acquiring Pan African Cement from Lafarge Cement Malawi. The former operates two integrated cement plants in Zambia with a combined production capacity of 1.5Mt/yr. The latter operates a 0.25Mt/yr grinding plant at Blantyre in Malawi. Following the completion of the takeover Huaxin Cement now intends to increase its cement grinding capacity in Malawi by 0.25Mt/yr.

Zambia: Huaxin Cement has concluded its acquisition of Holcim's Zambian business. The business consists of a 75% stake in Lafarge Zambia. The company is reported to have a total value of US$150m. Both Chinese and Zambian competition authorities have now approved the deal.

Holcim's chief executive officer Jan Jenisch said "This divestment is another step in our transformation to become the global leader in innovative and sustainable building solutions, giving us the flexibility to continue investing in attractive growth opportunities. Huaxin has been a trusted partner for many years and we see the company as an ideal owner to further develop the business in Zambia."

In 2020 and the first 11 months of 2021, the Switzerland-based group received US$3.1bn from divestments.

Tanzania: Huaxin Cement has commissioned the grinding system at its Maweni Limestone plant near Tanga. The China-based company acquired the company from Athi River Mining (ARM) Cement in mid-2020. It then invested US$145m on an upgrade to the unit and started trial clinker production in June 2020. The upgraded plant has a production capacity of 1.6Mt/yr. Huaxin Cement says this is the first time it has directly produced cement in Africa rather than exporting it there.

Interesting move from HeidelbergCement this week with the news that it has agreed to buy a cement plant in Tanzania. The Germany-based multinational producer has signed a deal to buy a 68% stake in Tanga Cement from South Africa-based AfriSam. There has been no indication of the price but the arrangement will give HeidelbergCement a 1.3Mt/yr integrated plant in the north of the country along with a limestone quarry with reserves to last 30 years. The transaction is expected to close in the second quarter of 2022. HeidelbergCement says it then hopes to buy the remaining shares in the company.

HeidelbergCement already operates one integrated plant in Tanzania, Tanzania Portland Cement’s (TPC) Wazo Hill Plant in the capital Dar es Salaam. It took control of the plant in the early 2000s when its subsidiary Scancem International purchased over half of the company’s shares. The plant commissioned a new cement mill in 2014 to increase its production capacity to 2Mt/yr. Local press reported in April 2021 that the subsidiary planned to invest US$15m towards modernising the unit in 2021. It sells cement under the Twiga brand.

Tanga Cement runs a plant near Tanga that was originally commissioned in 1980. Holcim took it over in the mid-1990s before South-Africa based AfriSam assumed control in the early 2010s. The plant commissioned a second production line in 2016 and it has a production capacity of 1.3Mt/yr. It sells cement under the Simba brand.

HeidelbergCement’s decision to buy a plant in Tanzania is noteworthy because it goes against the general trend in acquisitions by western-based multinational cement companies in recent years. Instead of shrinking away from markets in developing economies and doubling-down on ‘safe havens’ in mature markets it has bought a plant in a developing country. Although one might argue that it does fit the definition of a well-chosen bolt-on acquisition.

Graph 1: Cement production in Tanzania, 2011 – 2020. Source: Tanzania National Bureau of Statistics.

As Graph 1 above shows, cement production in Tanzania has more than doubled over the last decade, from 2.4Mt in 2011 to 6.5Mt in 2020. Tanzania Portland Cement estimated local demand at 5.9Mt, including exports, in 2020. This was against a total cement production capacity, from both integrated and grinding plants, of 11Mt/yr. As well as the TPC and Tanga Cement plants mentioned above, Holcim runs an integrated plant in Mbeya and Huaxin Cement operates one near Tanga. Alongside this, new integrated plants have opened including Lake Cement’s 0.5Mt/yr Kimbiji plant in 2014 and Dangote Cement’s 3Mt/yr Mtwara plant in 2015. The big project on the horizon is a proposed 7Mt/yr integrated plant from China-based CNBM/Sinoma, although not much has been heard publicly about it since mid-2020. At that time local press was reporting that compensation was being finalised for residents of the proposed site near Tanga. Needless to say, given the size of the plant compared to the Tanzanian cement market, much of the plant’s output is intended for export.

With the CNBM plant in mind, it is noteworthy that HeidelbergCement committed to buying an extra plant in the country. Production has been going up over the last decade to presumably meet demand but the new Chinese project could potentially blot out the entire existing production. Tanzania faced a cement shortage at the end of 2020 despite coronavirus. TPC has repeatedly warned of production overcapacity in Tanzania and the challenges of competition. Yet it reported a new sales record in 2020 and growth of 7% in the national cement market. Despite a 5Mt overcapacity, TPC says it managed to adapt to the new market conditions. It also managed to grow its operating profit by 20% year-on-year to around US$46m in 2020 compared to HeidelbergCement Group’s 8% rise in results from current operations in 2020. This kind of return no doubt helped HeidelbergCement to make up its mind.

Nepal: The Nepal Electricity Authority (NEA) has completed and commissioned a switching station to supply power for Huaxin Cement and Vaidya Group’s upcoming Dhading cement plant in Rorang. The Republic newspaper has reported that, when operational, the plant will receive 20MW of power via the switching station. Two transmission lines with capacities of 33kV and 11kV connect the facilities.

The US$125m Dhading cement plant awaits commissioning following the completion of its construction in August 2021.

China: Huaxin Cement’s sales revenue increased by 17% year-on-year to US$2.28bn in the first half of 2021 from US$1.95bn in the same period in 2020. Net profit rose by 8.3% to US$378m from US$349m. Cement and clinker sales grew by 14% to 37Mt and concrete sales volumes more than doubled to 3.36Mm³. The cement producer reported that demand for cement decreased in May and June 2021 due to bad weather and price rises of raw materials leading to reduced construction activity.

It’s time for a macroscopic view of the Chinese cement sector this week with the release of the half-year financial results by some of the larger Chinese cement producers. On the national level the picture so far in 2021 has been one of continued recovery from the coronavirus lockdowns at the start of the year and then a slowing market as state controls on real estate speculation started to take effect. However, poor weather in the spring and mounting raw material prices appear to have compounded the effects of the real estate regulations, leading to price falls.

Cement output data from the National Bureau of Statistics of China in Graph 1 shows that local production took a knock in the first quarter of 2020 due to the coronavirus pandemic and this strongly recovered in the same period in 2021. The market recovered fast in mid-2020 and so the year-on-year growth for the second quarter was less in 2021. Output on a monthly basis remained ahead year-on-year from April 2020 and stayed ahead until May 2021. However, output in June 2021 was behind the figure in June 2020 and the figure for July 2021 was behind both July 2020 and July 2019.

Graph 1: Cement output by quarter in China, 2019 – mid-2021. Source: National Bureau of Statistics of China.

The Chinese Cement Association (CCA) was lamenting falling cement prices at the start of July 2021. It blamed the situation on slowing infrastructure development in some regions, increasing government restrictions on real estate development, especially poor mid-year weather and higher input prices such as for steel. China Resources Cement (CRC) expanded upon the point about increasing real estate regulations in its financial results for the first half of 2021 explaining that the Chinese government has been promoting a policy that aims to ensure that “residential properties are not for speculation” including controls on the financing of real estate. Later in mid-August 2021 the CCA reported that prices were recovering in east and central-southern regions although the situation remained poor in Guizhou province with shipments down to 60% of normal levels. Production control measures are expected to be implemented to stabilise the situation.

Graph 2: Sales revenue of large Chinese cement producers in first half of year, 2019 – 2021. Source: Company reports.

On the corporate side the sales revenue from some of the large Chinese cement producers mostly show the usual gap-tooth pattern that coronavirus has created everywhere as the market recovered. Notably Anhui Conch managed to avoid falling sales year-on-year in the first half of 2020. However, the CCA’s observation above about rising input costs is visible in the falling profits of some (but not all) of the companies covered here. For example, Anhui Conch’s net profit fell by 7% year-on-year to US$2.32bn in the first half of 2021. It blamed this on a significant rise in the price of raw coal. CRC also reported falling profits attributable to increased production costs.

CNBM reported an increase to cement and clinker sales volumes of 7.6% to 177Mt and concrete sales volumes by 13.4% to 52Mm³. It noted that, “In the first half of 2021, the national cement market showed the characteristics of high price level fluctuation adjustment.” From January to April 2021 local fiscal policy boosted demand for cement but from May 2021 continuous heavy rainfall and increasing bulk commodity prices slowed infrastructure project development. Anhui Conch’s cement and clinker sales volumes for both production and trading grew by 11.5% to 208Mt. It reported stable market demand in eastern, central and southern regions but noted falling prices in the west.

Looking ahead, two issues, among many, to consider are carbon trading and imports. The former has been coming for a while and was launched formally online nationally in mid-July 2021 for the power generation industry. The carbon price was nearly Euro7/t in late July 2021 in China compared to around Euro53/t in the European Union. Cement and steel are expected to join the Chinese national scheme in the next phase although analysts believe that issues such as data gathering, permit allocation rules, accounting standards, sector reduction targets and related financial support all need to be improved before this can happen. Imports are a connected issue and it has been interesting in recent months to hear financial analysts point out the risks, for example, of major exporting nations such as Vietnam relying on China so much. The CCA reckons that China imported 33.4Mt of clinker in 2020, an increase of 47% year-on-year, with 60% of this derived from Vietnam. With the Chinese government trying to tackle cement production overcapacity and meet growing environmental targets, imports look set to become a ‘hot ticket’ issue. In this context it is telling to see talk from the CCA of ensuring standards for imports such as verified carbon emissions. Naturally, the imports that could be trusted the most will probably be the ones from plants that Chinese cement producers have built themselves overseas. As waste importers into China found out previously, relying heavily on one market with strong state controls carries considerable risks. Cement exporters in South-East Asia take note.