Displaying items by tag: Infrastructure

US: The Portland Cement Association (PCA) has supported an infrastructure study by the American Council for Capital Formation (ACCF). It liked how the study highlighted the importance of life cycle cost analysis and competition in paving. “If federal and state decision makers took this report as a playbook, America would see tremendous taxpayer cost savings and stronger infrastructure built to last long into the future,” said PCA President and chief executive officer (CEO) Michael Ireland.

US: The Portland Cement Association (PCA) has backed President Donald Trump’s call for US$1.5tn to be invested in infrastructure. It has urged the US Congress to take ‘swift’ legislative action to fund and sustain such projects.

“America’s cement producers are proud to play a critical role in what the president so aptly described as our nation of builders,” said PCA President and chief executive officer (CEO) Michael Ireland. “Today, our industry is ready to help America both rebuild long-neglected infrastructure, and construct new-and-improved transportation networks capable of serving the nation long into the future.” He added that the cement industry also supported the need to address significant federal funding gaps including a shortfall in the Highway Trust Fund.

Uganda: Three new cement plants or upgrades to existing plants opening in 2018 are expected to dwarf local demand. Hima Cement, a subsidiary of LafargeHolcim, plans to open a new 1Mt/yr grinding plant at Nyakesi, Tororo Cement is expanding its plant to 3Mt/yr and Kenya's National Cement is building a plant at Mbale, according to the Ugandan Independent newspaper. Following completion of the three projects local production capacity will rise to 6.8Mt/yr from 3.6Mt/yr. Local demand is 2.4Mt/yr.

Cement industry executives are expecting growth in the construction industry as the government starts infrastructure projects in the oil and gas sector. The cement producers also expect export markets to support local production capacity growth, particularly in South Sudan, western Kenya and eastern Democratic Republic of Congo.

Indonesia: Semen Indonesia forecasts that domestic cement consumption will grow at a rate of 5 – 7% year-on-year in 2018, a lower rate than the level of 7.8% recorded for the first 11 months of 2017. Semen Indonesia corporate secretary Agung Wiharto said that the prediction was based on continued demand for cement from government infrastructure projects, according to the Jakarta Post. The company also took other factors - such as inflation, political stability and market confidence - into account in its sales projection. Indocement has also forecast a cement consumption growth rate of 5 – 6% in 2018. Both companies reported reduced earnings in the third quarter of 2017.

ARM Cement’s declining fortunes this week may signal the end of the current growth cycle in the Kenyan cement industry. The cement producer posted a 20% year-on-year drop in its sales revenue to US$52m for the first half of 2017. Its financial returns have been turbulent since 2015. However, inward investment from the UK’s CDC Group in 2016 had appeared to help the company enabling it to pay of debts and even consider an upgrade project to the grinding capacity at its Athi River plant.

Graph 1: Cement production in Kenya for first half of year, 2013 - 2017. Source: Kenya National Bureau of Statistics.

Graph 2: Cement consumption in Kenya for first five months of year, 2013 - 2017. Source: Kenya National Bureau of Statistics.

Unfortunately it now appears that the Kenyan cement market may have peaked in 2016. As can be seen from Kenya National Bureau of Statistics figures in Graph 1 and 2, production hit a high of 3.31Mt in the first half of 2016 and it has fallen to 3.18Mt for the same period in 2017. Consumption too has fallen, to 2.5Mt for the first five months of 2017. At the same time the value of building plans approved by the Nairobi City Council dropped by 12% to US$1.02bn for the first five months of 2017 with falls in both residential and non-residential applications although the decline in residential was more pronounced. One of the country’s larger infrastructure projects, the Standard Gauge Railway from Mombasa to Nairobi entered its final stage of construction towards the end of 2016 with the completion of track laying.

Bamburi Cement has also reported falling revenue and profit so far in 2017. Its turnover fell by 8% to US$170 and its profit decreased by 36% to US$18m for the half year. Bamburi blamed it on a contracting market, low private sector investment leading to residential sector issues, delays in some infrastructure projects and droughts. The drought also hit the company’s operating profit via higher energy costs. On the plus side though Bamburi’s subsidiary in neighbouring Uganda did record a good performance.

It’s likely that the general election in Kenya in early August 2017 has slowed down the construction industry through uncertainty about infrastructure investment and general fears about political unrest. Thankfully these latter concerns have appeared unfounded so far but the memory of the disorder following the poll in 2007, where over 1000 people died, remains acute. And of course the 2017 election is not over yet following the intervention of the Supreme Court to nullify the result of the first ballot and call for a second. A longer election period with the impending rerun will further add to the pressure on the construction and cement industries.

An industry report on East Africa in February 2017 by the Dyer & Blair Investment Bank fleshes out much of the situation in the region. One particular point it makes though is that, as it stands at present, building materials may be too expensive to grow the market fully. Dyer & Blair suggest that lower construction costs and more affordable home ownership methods might be the key to driving low end housing demands and in turn this might grow cement consumption.

With lots of new production capacity coming online both locally and in neighbouring countries such as Uganda and Ethiopia, the Kenyan cement market faces the dilemma of trying to balance the medium to long-term demographics with the picture on the ground. Low per capita cement consumption suggests growing markets but if the demand isn’t present in the short term then the impetus for cement producers to expand shrivels especially with aggressive imports, rising energy costs and growing local competition. Once the election period finishes the picture will be clearer but the boom times may have abated for now.

One of the surprises from the recent round of half-year results has been HeidelbergCement’s struggle to grow its sales so far in 2017. Part of this has been down to a variable market in Indonesia where the German cement producer runs the second largest player, Indocement.

Cement consumption for the country as a whole dropped by 1.3% year-on-year to 29Mt in the first half of the year, according to Indonesian Cement Association figures. This appears to be due to a particularly poor month in June 2017 where local consumption fell by 27% to 3.7Mt. Prior to that, consumption was actually showing 4% growth up until the end of May.

Fairly reasonably HeidelbergCement blamed the decline in part on this year’s timing of Ramadan. Unfortunately this could not explain everything, as its total sales volumes including exports fell by 2.4%. Remove the exports and its sales volumes fell by 4.4%, more than the national average. It said this was due to its concentration in weaker markets in Jakarta, Banten, and West Java where competition pressures had forced prices down ‘significantly.’

They weren’t alone in feeling the pain in June 2017 with both Semen Indonesia and LafargeHolcim reporting reduced sales. However, LafargeHolcim also raised the issue of production overcapacity creating increased sales volumes and pushing down prices. This was reflected in lower earnings for its Asia Pacific division. HeidelbergCement too saw its earnings crumble.

Graph 1: Cement production capacity and consumption. Source: Semen Indonesia investor presentation, March 2017.

Graph 1 shows quite nicely the fix the Indonesian cement market is in at present. Consumption surpassed production capacity in the early 2010 before incoming capacity jumped ahead again around 2013. You can also view Global Cement’s version of this graph here. Even at an optimistic annual growth rate of 8%, consumption won’t get close to capacity until 2020. Yet before the market collapsed in June, consumption was growing at 4%, which is the weakest of Semen Indonesia’s growth scenarios.

Admittedly the graph is in an investor document so we can forgive ebullience but they are going to need a magic bullet to dodge this one. Lucky then that the graph also has infrastructure highlighted. The cement producer says that the Indonesian government earmarked US$26bn for infrastructure spending in 2017 and that this spending campaign can be seen in the changing ratio of bulk to bagged cement it has been selling. Independent of Semen Indonesia, the Fitch credit rating agency was also predicting rising consumption off the back of infrastructure plans in a report it put out in June.

However, as more cement plants are being built, cement plant utilisation rates seem destined to stay subdued for the foreseeable future unless the government seriously ups its infrastructure investment or unless the economy goes into overdrive. Unsurprisingly exports have shot up so far in 2016, by 74% to 1.14Mt. Cement producers in neighbouring countries beware!

2017 has started more uncertainly for the US cement industry than 2016 did according to the latest data from the United States Geological Survey (USGS). Cement shipment data from just two months, January and February 2017, can only present a limited impression of the state of the industry. Yet the key trend to look for in Graph 1 is the growth in Midwestern US states against a decline in the Western ones. Previously in 2016 this region’s shipments sunk below those in the West in December and didn’t overtake them until the spring. This time round they’ve stuck closely and overtaken them already in February 2017.

Graph 1: Portland and blended cement shipments by US Census Bureau region for 2016 to February 2017. Source: USGS.

The Midwest’s cement shipments jumped by 21% year-on-year to 2.2Mt for those first two months. Buzzi Unicem concurred with this picture in the Midwest with its first quarter financial results this week, reporting a boost in deliveries in the region. HeidelbergCement agreed, reporting sales volumes increases in the north of the country and a decrease in the West. In that region the USGS data shows an 8% fall in shipments to 2.2Mt. HeidelbergCement blamed heavy rain and flooding in California and Oregon as the cause of the problems. Another potential reason that the USGS hints at are increasing imports of cement that it says have been rising faster than sales. For example, imports of cement to the US as a whole grew by 23.9% year-on-year to 0.81Mt in February 2017.

Overall though the situation for the larger cement producers has been subdued. Many of them blamed good weather in the first quarter of 2016 giving them a hard quarter to measure against in 2017. For example, LafargeHolcim’s sales volumes of cement fell by 4.5% in North America although it did report sales growth off the back of cement pricing and cost controls. HeidelbergCement may have looked good on paper following its integration of the Italcementi/Essroc assets but its cement volumes only grew by 1% in the period. Cemex too reported a similar scenario with falling sales volumes of 5% but growing sales revenue.

To put this in perspective, as the Portland Cement Association’s (PCA) chief economist Ed Sullivan says in the May 2017 issue of Global Cement Magazine, cement production in the US grew in 2016 and it is expected to continue growing in 2017 and 2018. Just like the start of 2016 (see GCW251) the potential for US construction growth in the year ahead is a quietly confident one but it isn’t assured.

Cemex points out that housing starts rose by 8% in the first quarter of 2017, as did construction spending in the industrial and commercial sector. However, it says that infrastructure spending fell by 9% in February 2017. Indeed this last point is an important one given that one of the major Trump campaign pledges in the 2016 presidential campaign was to build more infrastructure. As commentators in Washington DC including the PCA have asked: where is the Bill? Rightly, the PCA are not letting the lawmakers forget this during ‘Infrastructure week’ as the issue is discussed. The US cement industry needs this.

For further information on the US cement industry take a look at the May 2017 issue of Global Cement Magazine

The All Pakistan Cement Manufacturers Association (APCMA) struck a triumphant note this week as it announced that its industry has over 26Mt/yr of capacity upgrades in the pipeline. Its chairman Sayeed Saigol concluded in a press release that the country’s growth trend required ‘massive’ investment and that its producers were working on it.

Graph 1 – Local and export cement despatches in Pakistan, 2008 – 2016. Data source: APCMA.

Graph 1 shows how the local industry has changed since 2009. At this time exports hit a high of over 11Mt, constituting 34% of all cement despatches at the time. Since then though exports have fallen to below 6Mt or 14% of despatches, as local despatches have started to increase. Although local despatches have risen each year, the growth rate was below 1% in 2011. In 2016 it was over 14%.

Much has changed since 2010. At this time production capacity hit a high of 45Mt/yr in the 2009 – 2010 Pakistan financial year, according to APCMA data, but then utilisation sunk to below 73%, its lowest rate in over a decade. Pakistan’s cement producers sought a way out by exporting their cement. Export volumes subsequently exploded to a high of nearly 11Mt in 2008 – 2009 from next to nothing at the turn of the millennium.

The effects of this had particular repercussions in eastern and southern Africa as local producers suffered against seaborne imports. In 2012 the outgoing chief of South Africa’s PPC summarised the problem by saying that imports were not a threat to African expansion, provided that a cement plant was not built within 200km of a port. Rightly or wrongly cement from Pakistan was vilified by the African press and then legislated against. South Africa even implementing anti-dumping duties to howls of derision from Pakistan.

Funnily enough though the APCMA has recommended that Pakistan’s government do exactly the same thing against imports of cement from Iran. Industry scare stories about Iranian cement being sold illegally in Pakistan have circulated since at least 2012. Iran’s nuclear deal in 2015 must have worried the local industry, as the prize for Iran was the lifting of international sanctions making it easier for one of the world’s largest cement producers to start exporting its product. However, president-elect Trump’s disdain for the Iran deal may put those worries to rest if the deal is ‘cancelled’.

Back to the present, the Pakistan cement industry appears to be booming. One motor is the China–Pakistan Economic Corridor, a collection of infrastructure projects worth US$54bn. There is some disagreement at this point about how the usage levels of cement breakdown, with the chief executive of Thatta Cement placing it at 60% for infrastructure and 40% for housing but with other commentators placing it at 70% for housing and 30% for infrastructure. If the latter is true then Pakistan’s cement producers may receive an even bigger payday. The emphasis on housing shouldn’t be underestimated though as the country’s production capacity per capita, below 200kg/capita, is low by international standards. Either way, things are looking good for the local producers.

Back in the May 2016 issue of Global Cement Magazine we asked key people at the Portland Cement Association how they thought the US presidential election might affect the local cement industry. Wisely, for an advocacy organisation with offices in Washington DC, no one would be drawn, citing a lack of information. At that point it was still unclear who was going to be on the final ticket. However, we all missed a trick because one candidate, Donald Trump, had been talking about building ‘a border fence like you have never seen before’ since at least mid-2014. And that fence could potentially require a lot of cement.

Researchers at market analysts Bernstein’s sent a note to clients last week ahead of the Republican National Convention looking at the implications of if Donald Trump became president of the US and actually set out to build his 40ft high concrete wall between the US and Mexico. The result would be a 2.4Mt boost in demand for cement from cement producers near to the border. In terms of market demand Bernstein concluded that this would add over 1% to cement demand in both 2018 and 2019, a healthy ‘shot in the arm’ to the already pepped-up US cement industry, which is currently growing at around 5%/yr.

Map 1: Map of cement and ready-mix concrete plants near to the US - Mexico border. Source: Bernstein Materials Blast. Note – Bernstein does not show the Capitol Cement plant in San Antonio.

Needless to say, Bernstein’s calculations pile-drive assumptions into assumptions, atop of Trump’s political rhetoric. It bases its calculations on a border wall similar to the Israeli West Bank barrier built out of precast concrete panels. It also tries to model how much concrete and cement would be required depending on the differing height’s Trump has trumpeted at his rallies.

The kicker to this tongue-in-cheek analysis is that the construction company that stands to benefit the most from this infrastructure project is Mexican!

Cemex has significantly more cement plants and ready-mix concrete plants than any other company within a 200-mile zone either side of the border. Looking at integrated cement plants alone, it has six plants in the regions near to the proposed wall from the east and west coasts. Its nearest competitors, CalPortland with four plants and Grupo Cementos de Chihuahua with three plants, are more regionally based in the western US and Chihuahua state in Mexico. Clearly Cemex didn’t rate the chances of Donald Trump’s wall actually happening when it agreed to sell its Odessa cement plant to Grupo Cementos de Chihuahua in May 2016.

All of this goes to show that, wherever you stand on the Donald Trump presidency bid, if you manufacture cement near the US-Mexican border you might be working overtime if he (a) actually becomes president, (b) actually manages to start building his wall and (c) actually decides to make it using cement. Yet before anybody starts popping champagne corks consider this: there might also be unintended consequences for the cement sector. Restricting current legal and illegal migration trends from Mexico to the US might have a greater negative effect on the US cement industry, and the overall economy, than ordering one large infrastructure project. Working that one out is harder than a guesstimate of how much cement a border wall might consume. Probably best not to ask at this stage who might actually pay for the Great Wall of Donald Trump.