Displaying items by tag: Lafarge Surma Cement

The Bangladeshi cement industry has been busy over the last month. Both Vietnam and Iran have marked up the country as a major destination for their exports. No change there, but Saudi Arabia has also started to join them as its producers have started announcing clinker export deals to the country. Alongside this there have also been production upgrades announced from MI Cement, Chhatak Cement and a Saudi-led partnership. Also, just before Christmas, Shah Cement inaugurated the world’s largest vertical roller mill (VRM) with a 8.1m grinding table, supplied by Denmark’s FLSmidth, at its Muktarpur plant in Munshiganj.

Md Shahidullah, vice president of the Bangladesh Cement Manufacturers Association (BCMA), described 2018 as a good year for the local industry to local media. Cement sales rose to 33Mt and consumption grew by 12% year-on-year.

The country has an integrated production capacity of 8.4Mt/yr from eight plants according to Global Cement Directory data. The main plants are Chhatak Cement and Lafarge Surma Cement. Locally produced clinker accounts for about 20% of the country’s needs, with the other 80% imported from abroad. Hence, the action is really with the grinding plants and the country has over 30 of them. A market report by EBL Securities in mid-2017 reckoned that local cement production capacity was 40Mt/yr but that actual production was around 32Mt in the 2016 - 2017 reporting year due to problems with power supplies and so on. Given the focus on grinding it’s interesting to note imports of clinker. These rose by 9% year-on-year to a value of US$518m in 2017 - 2018, the highest figure since 2014 - 2015. Not all of this may be consumption related since the local currency, the Taka, depreciated against the US dollar in 2017 and 2018.

Back in 2016 the market leaders were Shah Cement, LafargeHolcim Bangladesh, Bashundhara Group, Seven Rings Cement and HeidelbergCement. They accounted for about half of the market share. Of these LafargeHolcim Bangladesh saw its revenue nearly double year-on-year to US$101m from US$58m in the first half of 2018. Its profit did double to US$6.3m from US$2.7m. The company is a joint venture between LafargeHolcim, Spain’s Cementos Molins and other partners.

Bangladesh suits a grinding-based industry due to its high level of navigable waterways and low levels of limestone. In some respects though the country is a glimpse of what future cement markets might look like. Its lack of raw materials means it focuses on grinding and a clinker-rich world plays right into this. This creates an oversaturated market full of lots of companies due to the lower cost of setting up a grinding business or cement trading. In theory this should be great for end consumers and the general development of the country. After all Bangladesh has a high population, of 164 million, and a low gross domestic product (GDP) per capita, US$4561, and similarly low per capita consumption of cement. The downside though is that reliance on external raw materials. Any changes to exchange rates or material supply puts the entire industry at risk or puts prices in flux. In the meantime though the interest by Saudi exporters adds an interesting dynamic to a crowded market.

Bangladesh: Lafarge Surma Cement has officially changed its name to LafargeHolcim Bangladesh following approval by its board of directors. The change takes place from 1 March 2018.

As readers in colder climes will understand: nobody likes a gas bill. Save some pity for LafargeHolcim Bangladesh then this week, as it faces attempts to hike the price it’s paying.

As reported by local press the government-run Jalalabad Gas Transmission and Distribution Systems (JGTDS) is trying to raise the rate for natural gas to the cement producer. Allegedly, LafargeHolcim Bangladesh is paying a lower unit cost for gas supplied to a power plant at its Chhatak cement plant than the fixed amount set by the country’s energy regulator. LafargeHolcim Bangladesh says the rate was set in a gas sales agreement (GSA) signed between JGTDS and its predecessor, Lafarge Surma Cement, in January 2003. The state body meanwhile has referred the issue up the chain of command to the Energy and Mineral Resources Division under the Ministry of Power, Energy and Mineral Resources.

JGTDS says that the plant is consuming around 450,000m3/day of gas. Of this, about a quarter is used to run the power plant and the remainder is used to power the cement plant’s kiln. The plot thickens though as LafargeHolcim Bangladesh is actually paying above the industry tariff for gas of US$0.09/m3. Commentators reckon the price of gas is set to rise in the future. Naturally the cement producer wants to stick to the pre-agreed price for the economic viability of the country’s main integrated cement plant. The Spanish embassy, representing Cementos Molins one of the owners of the company along with LafargeHolcim, has even gone as far as intervening in the argument.

The pressure is on LafargeHolcim Bangladesh because its sales revenue fell slightly year-on-year in 2016 but its fuel costs rose by 12%. As the country’s sole clinker producer it suffered from falling international clinker prices in a nation full of grinding plants. So far in the first nine months of 2017 its sales revenues have risen a little yet its profit has more than halved. Any change to its fuel costs would seem likely to damage the company at a delicate moment.

Energy costs for cement plants are nothing trivial as the graph above shows. It uses data from the German cement industry but the key takeaways are that the calorific ratios of the different types of energy cement production uses don’t directly correlate to the cost. Hence, in Bangladesh and other countries where the electricity grid might be unreliable or expensives, running one’s own captive power plant makes sense both for cost and supply reasons. As an aside that may not be applicable to Bangladesh right now, the stark disparity between the energy produced by alternative fuels and their cost proportion is a great reason to use them if the necessary supply chains can be organised. LafargeHolcim launched local operations for its waste management wing Geocycle in December 2017 so this point has not been lost the company.

The situation in Bangladesh is reminiscent of the bind Dangote Cement found itself in towards the end of 2016 in Tanzania. A dispute over gas prices for its Mtwara plant led to company boss Aliko Dangote negotiating personally with President John Magufuli to protect his investment. Governments want inward spending in the form of new industrial plants and multinationals want assurances on some of their costs, like fuel supplies, before they reach for the chequebook. However, if one side is seen to be getting too good a deal then the relationship can break down. LafargeHolcim Bangladesh may have bagged itself a scandalously low gas deal and the Bangladesh government may also be breaking an agreement. Bear in mind though, that with sales of nearly US$28bn in 2016, LafargeHolcim took in revenue nearly one tenth of Bangladesh’s gross domestic product. If the two parties don’t reach an accord, the consequences for both parties could be negative.

Bangladesh: LafargeHolcim Bangladesh has entered into a dispute with the government-run Jalalabad Gas Transmission and Distribution Systems (JGTDS) over the price of natural gas for a captive power plant at its Chhatak cement plant. JGTDS has argued that the cement producer is paying less than the rate fixed by the country's energy regulator, according to the Financial Express newspaper. However, LafargeHolcim claims that it is paying a tariff set by a gas sales agreement (GSA) signed between JGTDSL and Lafarge Surma Cement in January 2003. The row has been referred to the Energy and Mineral Resources Division (EMRD) of the Ministry of Power, Energy and Mineral Resources for clarification.

Bangladesh: Lafarge Holcim Bangladesh has completed its purchase of Holcim Cement Bangladesh for US$60.2m. The deal includes three cement grinding mills with a total production capacity of 2.2Mt/yr. Lafarge Holcim Bangladesh, formerly known as Lafarge Surma Cement, is a joint venture between LafargeHolcim, Cementos Molins and other local partners.