Displaying items by tag: Invasion

The mountainous eastern shore of the Adriatic Sea and its hinterlands in Europe’s Balkan Peninsula have one of the world’s highest densities of countries: six, across a broad equilateral triangle of 212,000km². All six states – Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia – are historically characterised by political non-alignment, carrying over from the Cold War period, and all the more notable for the presence of the EU to the north (Croatia, Hungary and Romania) and east (Bulgaria and Greece).

A nine-plant, 9Mt/yr local cement sector serves the 16.8m-strong population of the unconsolidated ‘bloc.’ Albania has 2.8Mt/yr (31%), Serbia 2.7Mt/yr (30%), Bosnia & Herzegovina 1.6Mt/yr (18%), North Macedonia 1.4Mt/yr (15%) and Kosovo 500,000t/yr (6%), while Montenegro has no cement capacity – for now. Altogether, this gives this quarter of South East Europe a capacity per capita of 539kg/yr. The industry consists entirely of companies based outside of the region. Albania’s two plants are Lebanese and Greek-owned (by Seament Holding and Titan Cement Group respectively). Titan Cement Group also controls single-plant Kosovo and North Macedonia, and competes in the Serbian cement industry alongside larger and smaller plants belonging to Switzerland-based Holcim and Ireland-based CRH, respectively. Lastly, Bosnia & Herzegovina’s capacity is shared evenly between Germany-based Heidelberg Materials and Hungary-based Talentis International Construction, with one plant each.

Lafarge Srbija, Holcim's subsidiary in Serbia, announced plans for its second plant in the country, at Ratari in Belgrade, last week. No capacity has yet emerged, but the plant will cost €110m, making something in the region of the country’s existing 0.6 – 1.2Mt/yr plants seem likely. This would give Serbia over a third of total capacity in the Central Balkans and twice the number of plants of any other country there, expanding its per-capita capacity by 22 – 44%, from a regionally low 408kg/yr to 500 – 590kg/yr.

In announcing the upcoming Ratari cement plant, Lafarge Srbija laid emphasis on its sustainability. The plant will use 1Mt/yr of ash from the adjacent Nikola Tesla B thermal power plant as a raw material in its cement production. In this way, it will help to clear the Nikola Tesla B plant’s 1600 hectare ash dumps, from which only 180,000t of ash was harvested in 2023. Circularity has been front and centre of Holcim’s discussions of its growth in Serbia for some time. When Lafarge Srbija acquired aggregates producer Teko Mining Serbia in 2022, the group indicated that the business would play a part in its development of construction and demolition materials (CDM)-based cement and concrete.

Holcim’s Strategy 2025 growth plan entails bolt-on acquisitions in ‘mature markets,’ backed by strategic divestments elsewhere. Other companies have been more explicit about a realignment towards metropolitan markets, above all in North America, at a time when they are also diversifying away from cement and into other materials. Just why a leading producer should look to build cement capacity in Serbia warrants investigation.

Serbia is the only Central Balkan member of Cembureau, the European cement association. In a European market report for 2022, the association attributed to it the continent’s fastest declining cement consumption (jointly with Slovakia), down by 11% year-on-year. Like the rest of Europe, Serbia is also gradually shrinking, its population dwindling by 0.7% year-on-year to 6.62m in 2023, which limits hopes for a longer-term recovery. Serbia remains the largest country in the Central Balkans, with 39% of the total regional population.

Several factors have compounded Serbia’s difficulties as a cement-producing country. Firstly, like the Nikola Tesla B thermal power plant, its kilns run on coal. 50% of this coal originated in Russia and Ukraine in 2021, causing the entire operation to become ‘imperilled’ after the former’s brutal invasion of the latter in February 2022, according to the Serbian Cement Industry Association. In planning terms, this was a case of putting half one’s eggs in two baskets – and dropping them both.

Secondly, Serbia’s choice of export markets is mainly confined to either the EU or global markets via the River Danube, Black Sea and Mediterranean. Either way, it is in competition with a cement exporting giant: Türkiye. Serbia sold €19.7m-worth of cement in the EU in 2023, up by 63% over the three-year period since 2020 – 31% behind Türkiye’s €28.8m (more than double its 2020 figure).¹ One other Central Balkan country had a greater reliance on the EU market: Bosnia & Herzegovina. It exported €48.4m-worth of cement there, quadruple its 2020 figure and behind only China (€133m) and the UK (€54.7) in cement exports to the bloc by value.

Bosnia & Herzegovina’s cement industry underwent a different permutation at the start of 2024: an acquisition, replacing one EU-based player with another. Lukavac Cement, which operates the 800,000t/yr Lukavac cement plant in Tuzla, changed hands from Austria-based building materials producer Asamer Baustoffe to Hungary-based property developer Talentis International Construction. Talentis International Construction belongs to one of Hungary’s major family-owned conglomerates, Mészáros Csoport.

Besides Central Europe, Balkan countries have found a ready source of investments in the past decade in China. In construction alone, Chinese investments total €13.2bn in Serbia, €2.4bn in Bosnia & Herzegovina, €915m in Montenegro and €650m in North Macedonia.² This can be a booster shot to all-important domestic cement markets, but has some risks. Montenegro previously faced bankruptcy after Export-Import Bank of China began to call in an €847m loan for construction of the still upcoming A1 motorway in the country’s Northern Region. This did not put off the Montenegrin government from signing a new memorandum of understanding (MoU) with China-based Shandong Foreign Economic and Technical Cooperation and Shandong Luqiao Group for construction of a new €54m coast road in the Coastal Region in mid-2023.

In Montenegro, UK-based private equity firm Chayton Capital is currently funding a feasibility study for a partly state-owned cement plant and building materials complex at the Pljevlja energy hub in the Northern Region. Along with an upgrade to the existing Pljevlja coal-fired power plant, the project will cost €700m.

In 2026, EU member states will begin to partly tax third-country imports of cement and other products against their specific CO₂ emissions, progressing to the implementation of a 100% Carbon Border Adjustment Mechanism (CBAM) by 2034. Montenegro led the Central Balkans’ preparations for the EU’s CBAM roll-out with the introduction of its own emissions trading system in early 2021. Bosnia & Herzegovina will follow its example by 2026, but other countries in the region have struggled to conceive of the arrangement except as part of future EU accession agreements.

Based on the average specific CO₂ emissions of cement produced in the EU, the World Bank has forecast that exporters to the bloc will be disadvantaged if their own specific emissions exceed 5.52kg CO₂eq/€.³ By contrast, any figure below this ought to offer an increased competitive edge. Albanian cement has average emissions of 4.71kg CO₂eq/€, 15% below ‘biting point’ and 13% below Türkiye’s 5.39CO₂eq/€. Albania’s government consolidated its anticipated gains by quintupling the coal tax for 2024 to €0.15/kg. The figure is based on the International Monetary Fund’s recommended minimum CO₂ emissions tax of €55.80/t, 21% shy of the current EU Emissions Trading Scheme (ETS) credit price of €70.49/t.⁴

The Central Balkans is a region of apparently slow markets and industry growth regardless – to 11 cement plants, following the completion of current and upcoming projects. A recurrent theme of capital expenditure investments and the way investors talk about them may help to explain this: sustainability. Looking at the mix of technologies in the current nine plants, these include wet kilns and fuels lines built for conventional fossil fuels. This is not to presume that any given plant might not be happy with its existing equipment as is. Nonetheless, the overall picture is of a set of veteran plants with scope to benefit from the kind of investments which all four global cement producers active in the region are already carrying out elsewhere in Europe. Such plans may already be in motion. In late 2023, Titan Cement Group’s North Macedonian subsidiary Cementarnica Usje secured shareholder approval to take two new loans of up to €27m combined.

As the latest news from Serbia showed, taking care of existing plants does not preclude also building new ones. The cement industry of the Central Balkans is finding its position in the new reduced-CO₂ global cement trade – one in which old and new work together.

References

1. Trend Economy, ‘European Union – Imports and Exports – Articles of cement,’ 28 January 2024, https://trendeconomy.com/data/h2/EuropeanUnion/6810#

2. American Enterprise Institute, 'China Global Investment Tracker,' 3 February 2024 https://www.aei.org/china-global-investment-tracker/

3. World Bank Group, ‘Relative CBAM Exposure Index,’ 15 June 2023, https://www.worldbank.org/en/data/interactive/2023/06/15/relative-cbam-exposure-index

4. Ember, 'Carbon Price Tracker,' 26 August 2024, https://ember-climate.org/data/data-tools/carbon-price-viewer/

US/Iraq: Victims of ISIS brought a new claim for compensation against Lafarge on 14 December 2023 for its alleged complicity in crimes committed by the terrorist group in Iraq. A group of US citizens who belong to the Yazidi minority has sued the company, now part of Switzerland-based Holcim, in a US court. ISIS conducted a genocide against the Yazidi people in Sinjar, Iraq, beginning on 3 August 2014. The genocide involved 2100 – 4400 killings and 4200 – 10,800 abductions of girls and women, and displaced 500,000 people.

On 18 October 2023, Lafarge and Lafarge Syria pleaded guilty to conspiring to provide material support to ISIS and its ally al-Nusra Front by paying them approximately US$5.92m to continue operating during the Syrian Civil War.

Barrister Amal Clooney, representing the claimants in the latest case, said “It is shocking that a leading global corporation worked hand in hand with ISIS while ISIS was executing American civilians and committing genocide against Yazidis. We hope that this case will send a clear message that supporting terrorists cannot be ‘business as usual’ and that there will be justice for the victims.”

Belarus: The US government sanctioned the management company of Belarusian Cement Company on 6 December 2023. PrimePress News has reported that 10 other Belarus-based companies and eight individuals were also added to the US sanctions list. This is the latest group of additions since the US and its allies began sanctioning Belarusian entities in connection to election rigging, human rights abuses and complicity in the on-going Russian invasion of Ukraine.

Ukraine: Cement companies produced 4.75Mt of cement during the first eight months of 2023, up by 30% year-on-year from eight-month 2022 levels. Interfax-Ukraine News has reported that producers are operating at 60% production capacity.

Liudmyla Kripka, executive director of the Ukrainian cement association, Ukrcement, said “If we compare it with last year, when the country’s economy was in shock from Russia’s treacherous attack on Ukraine and the start of the full-scale war, the situation has improved somewhat. Cement production in the first half of 2023 grew by 26%, and in the first eight months by 30%, compared to last year.” Kripka added “We are still far from the indicators of 2021, but the dynamics are encouraging. Once there was a prospect, work for the future began. Cement producers, even in war conditions, are investing in Ukraine and the economic restoration of the regions. This expands the production capacity of the industry as a whole and contributes to the creation of new jobs.”

The Hungarian government recently enacted Emergency Decree 320/2023, taxing all CO₂ emissions from the country’s 40 or so largest industrial enterprises. The government used emergency powers to set up a new taxation scheme, which undercuts existing free allowances under the EU emissions trading scheme (ETS). The scheme additionally penalises the trade in ETS credits. Cement producers announced that the new regulations will make it impossible for them to keep operating.¹

With regard to Hungary’s six active cement plants, the scheme comprises:

1 – A Euro20/t tax on CO₂ emissions, effective retroactively from 1 January 2023, payable by any large enterprise that uses EU Emissions Trading Scheme (ETS) free allowances to cover the majority of its CO₂ emissions. Plants that decrease their production, or that carry on non-CO₂-emitting activities at over 10% of their operations, will pay a higher rate of Euro40/t of CO₂.

2 – A 10% transaction fee for the sale of free allocations under the EU ETS, payable to the Hungarian Climate Protection Authority.

Less than three years ahead of full implementation of the EU carbon border adjustment mechanism (CBAM), the Hungarian government has seemingly moved unilaterally against cement production – this in a country surrounded by seven other cement-producing countries. Multiple foreign cement producers connected to the major market of Budapest by rail, river and road will be watching developments with interest. These include CRH, which, besides two smaller plants inside Hungary, operates the 800,000t/yr Cementáreň Turňa nad Bodvou plant, immediately over the border in Slovakia.

This comes at a time when the domestic cement industry is facing historically high costs and low demand, with a 30% year-on-year decline in construction activity in July 2023, following double-digit inflation throughout 2022 and the first half of 2023.

Catastrophising may be a common symptom of environmental regulation in industry associations, but one can understand on this occasion. The Hungarian cement and lime industry association, CeMBeton, backed its members’ gloomy announcement about their future with an estimate for extra annual taxes of ‘several billion forints’ (1bn forint = US$2.84m), in a statement following the decree. Assuming annual CO₂ emissions of 565kg/t across its 5.4Mt/yr cement capacity, the sector might expect to pay US$61m/yr in CO₂ rates alone.^{2, 3} According to analyst ClearBlue, the government will raise additional tax revenues worth US$278m/yr across all of the 40 aforementioned heavy emitters in Hungary.⁴

It may seem surprising that CeMBeton did not even draw up a projected tax bill during consultations over the new tax scheme – but, in fact, no such consultations took place. In its most recent statement, the association said “We do not know the government’s intentions.” Outside of official releases, Hungary’s cement producers have not always been so reserved about the government’s perceived aim.

Global Cement reported in April 2023 that the Hungarian government was allegedly interfering in the cement sector to make producers sell up – as per accusations by an anonymous industry executive.⁵ There is arguably a course of action on the government’s part which, more or less, appears consistent with this aim:

October 2020 – The Hungarian Competition Authority (GVH) starts competition supervision proceedings against CRH, Duna-Dráva Cement and Lafarge Cement Magyarország.

July 2021 – Emergency Decree 2021/404 imposes a 90% tax on producers’ ‘excess’ profits, based on threshold cement sales revenues of Euro56/t. Additionally, producers must report their exports.

September 2021 – GVH finds insufficient evidence to support the initiation of competition supervisory proceedings in the cement industry.

January 2023 – (Retroactive) entry into force of CO₂ emissions tax.

May 2023 – The government of Hungary reportedly initiates negotiations to acquire Duna Dráva Cement and Holcim Magyarország, according to the Hungarian builders’ association, National Professional Association of Construction Contractors (ÉVOSZ). Duna Dráva Cement owners Heidelberg Materials and Schwenk Zement state that they have entered into no such negotiations, while Holcim declines to comment.

July 2023 – The Act on Hungarian Architecture lets the government dictate producers' volumes and prices and require them to supply cement to National Building Materials Stores (a proposed state-owned construction materials retail monopoly).⁶ Additionally, the government gains a right of first refusal over the divestment of any asset by the cement industry’s foreign owners.

20 July 2023 – The government enacts Emergency Decree 320/2023. ETS transaction fees enter into force.

The government can now expect a legal challenge to its latest move. CeMBeton’s first ally may be the font of all emissions legislation – the EU itself. Within the EU ETS framework, tax rates are down to member states to determine. However, the introduction of a transaction fee may constitute an illegal restriction to free allowances, OPIS News has reported. The association has also indicated its readiness to mount a constitutional challenge, specifically with regard to the legislative retrofit involved in the CO₂ emissions tax. The Fundamental Law of Hungary does not generally permit legislation to apply retroactively, though how courts will balance this consideration against the rights of the government is untested.

The government amended the constitution to provide for new emergency powers, and subsequently adopted them in May 2022, in response to the ‘state of danger’ created by Russia’s war in Ukraine – though its actions on the international stage suggest careful neutrality, if not ambivalence. At home, the war has brought a consolidation of the government’s control over various areas of life, including the economy, according to Human Rights Watch.⁷

Climate protestors around the world might be glad to see governments wield emergency powers against their own heavy industries. In Hungary, however, the wider sustainability goals are not yet clear with regard to a policy that seems, at least partly, politically motivated.

References

1. CeMBeton, Sajtónyilatkozat, 21 August 2023, https://www.cembeton.hu/hirlevel/2023-08-21/202308-mozgalmas-osz-ele-nezunk/116/sajtonyilatkozat/668

2. Heidelberg Materials, ‘Energy and climate protection,’ 2022, https://www.heidelbergmaterials.com/en/energy-and-climate-protection

3. Global Cement, Global Cement Directory 2023, https://www.globalcement.com/directory

4. OPIS News, ‘Hungary's New Carbon Tax Unlikely to Set EU Precedent, Say Analysts,’ 16 August 2023

5. Global Cement, 'Update on Hungary,' April 2023, https://www.globalcement.com/news/item/15572-update-on-hungary-april-2023#:~:text=Heidelberg%20Materials'%20subsidiary%20Duna%2DDr%C3%A1va,the%20country's%20active%20national%20capacity.

6. Daily News Hungary, ‘Hungarian government’s new nationalising plan could violate EU law,’ 27 February 2023, https://dailynewshungary.com/hungarian-govts-new-nationalizing-plan-could-violate-eu-law/

7. Human Rights Watch, ‘Hungary’s New 'State of Danger',’ 8 June 2022, https://www.hrw.org/news/2022/06/08/hungarys-new-state-danger

Russia: Soyuzcement, the national cement manufacturing union, has held a meeting discussing reverse engineering components for cement plants. The meeting of the committee for cement engineering took place at Cementum’s Schurovsky plant. The context of the meeting was that, before international sanctions were imposed upon Russia in response to its invasion of Ukraine in early 2022, around 70% of the equipment and components for the cement sector was imported. At the event representatives of Cementum shared best practice of reverse engineering, including methodology and specific examples of manufacturing spare parts including scanning them to build three-dimensional models. The sector intends to further collaborate with local manufacturers to source the necessary parts.

Ukraine: Buzzi has agreed to sell its business in Ukraine to Ireland-based CRH for US$109m. The assets additionally include Buzzi’s Slovakian ready-mix concrete business. The Ukrainian business is comprised of the 2Mt/yr Volyn cement plant and 1Mt/yr Nikolajev cement plants, as well as ready-mix concrete operations in Kiev, Nikolajev and Odessa.

Italy-based Buzzi retains its operations in Russia, including the 3.6Mt/yr Suchoi Log cement plant in Irkutsk Oblast and the 700,000t/yr Korkino cement plant in Chelyabinsk Oblast.

Bangladesh: The Bangladesh Cement Manufacturers Association (BCMA) has called for a 60% cut to duties on clinker imports, to US$1.84/t from US$4.61/t. The Financial Express newspaper has reported that BCMA members are struggling with high shipping costs and supply issues due to Russia’s war in Ukraine.

The Bangladesh government published plans to raise the duty on imports of clinker by 40% to US$6.46/t in its 2023 budget on 13 June 2023.

Italy: Buzzi Unicem reported first-quarter sales of Euro956m in 2023, up by 20% year-on-year from Euro800m in the first quarter of 2022. The producer's cement volumes dropped by 8.8% to 5.8Mt from 6.36Mt. It attributed this to a general slowdown of the construction sector across its markets. Local low demand from the residential market and adverse weather compounded the regional sales contraction in Central Europe. On the other hand, the group recorded volumes growth in Mexico and Russia and stability in Brazil. Both Mexico and Brazil produced revenues growth, while Buzzi Unicem's revenues fell in Russia due to the effect of the appreciation of the ruble against the comparison period in 2022, when the start of the on-going Russian invasion of Ukraine devalued it.

Overall, the group expects to 'easily' match its 2022 full-year earnings before interest, taxation, depreciation and amortisation (EBITDA) in 2023. It said that that it could not currently delineate a 'clearly different picture,' but added "The stabilisation of energy prices, albeit at higher levels than in 2022, if confirmed, will allow us to have better visibility on the unfolding of the production costs from spring onwards."

Russia/Uzbekistan: The US Department of State has imposed sanctions upon USM Holding including its subsidiaries Akkermann Cement and USM Cement in Russia, and Akhangarancement in Uzbekistan. The action is intended to target company owner Alisher Burhanovich Usmanov and his various business interests. Other USM companies in the iron, steel, copper, gold, telecommunications and real estate sectors are also affected.

The US Department of the Treasury’s Office of Foreign Assets Control noted that Usmanov was, “one of Russia’s wealthiest billionaires, with vast holdings across multiple sectors of the Russian Federation economy as well as internationally.” It added that he was linked to multiple senior Russian officials, including Russian President Vladimir Putin as well as Dmitry Medvedev, current Deputy Chairman of the Security Council of Russia and former President and Prime Minister of Russia. Usmanov has also been sanctioned by Australia, Canada, the European Union (EU), Japan, New Zealand, Switzerland and the UK.

These latest US sanctions are in response to the Russian invasion of Ukraine in February 2022. Companies on the sanction list are forbidden to conduct business transactions with any US citizens.

Akkermann Cement operates two cement plants and a network of 12 terminals in Russia. It acquired a majority stake in Uzbekistan-based Akhangarancement in early 2022.