Displaying items by tag: Overcapacity

Vietnam: The Vietnam Cement Association (VCA) has urged the government to stop issuing licences for the construction of new cement plants. Capacity is currently projected to reach 121Mt/yr in 2023, 188% of an estimated consumption of 64.3Mt domestically this year.

VCA chair Nguyen Quang Cung said “We must be careful to maintain a balance between regional supply and demand. As a result of the severe overstock in the north, it is crucial to encourage cement producers in the south to spend more on increasing clinker production capacity." Cung added "This will minimise the environmental effects of shipping clinker between the north and south.”

Pakistan: Dandot Cement recorded a net loss after taxation of US$463,000 during the first six months of the 2023 financial year. This corresponds to a year-on-year rise of 8% from US$429,000 in the first half of the 2022 financial year. Its finance costs rose by 10% to US$437,000, while its administrative expenses fell by 18% to US$71,400.

The producer's 0.5Mt/yr Lahore cement plant closed in 2019 for a 'balancing, modernisation and replacement' upgrade. Dandot Cement says that the on-going project is on schedule for completion before the end of the current Pakistani financial year on 30 June 2023. The company anticipates a rise in domestic cement demand due to new infrastructure projects and the renovation of existing infrastructure. However, it noted several principal risks and uncertainties, namely rising coal, diesel and electricity prices, rising interest rates, currency devaluation and current overcapacity in the Pakistani cement industry.

Vietnam: New cement lines will raise Vietnamese cement production capacity by 4% year-on-year in 2023 to over 120Mt/yr. Vietnam News Summary has reported that upcoming new capacity scheduled to commence operations during the year include a 4.5Mt/yr line at a Xuan Tanh Cement plant and a 2.5Mt/yr line at a Long Son Cement plant.

Vietnamese cement demand was 65Mt in 2022. Several producers suspended cement lines during the second half of that year due to high costs and unfavourable market conditions.

Bangladesh: Crown Cement has estimated the total cost of cement capacity currently unused in Bangladesh at US$1.46bn. The figure is even higher when maintenance costs are included, according to Crown Cement's chief advisor Masud Khan. Over the past 15 years, national cement capacity has nearly quadrupled to 83.3Mt/yr from 22.4Mt/yr, while demand has merely doubled to 46.7Mt/yr from 22.8Mt/yr. Khan estimated the cost per 1Mt/yr of new Bangladeshi cement capacity over the period at US$40m.

Khan said that producers continue to anticipate an acceleration in local cement consumption growth in the medium-term future. Reflecting on the situation up to the end of 2022, he said "They thought if they were not prepared for the growing demand, they would lose their market share. That was why they continued expansion, bearing the burden of excess capacity." Khan forecast a further decline in the industry's capacity utilisation if gross domestic product undergoes a forecast drop during the 2023 financial year, impacting on producers' results for the year.

Pakistan: Thatta Cement recorded net sales of US$19.1m during its 2022 financial year, up by 75% year-on-year from US$10.9m in its 2021 financial year. This included gross export sales of just US$3160, down by 99% from US$394,000 in the 2021 financial year. Thatta Cement's total cost of sales increased by 96% to US$18.1m from US$9.24m. Its raw material costs tripled to US$1.64m from US$546,000, while its fuel and power costs more than doubled to US$12.5m from US$5.89m. As a result, the producer recorded a profit for the year of US$387,000, down by 68% year-on-year from US$1.19m.

Chair Khawaja Muhammad Salman Younis said "The company showed better performance during the year, despite the tough market conditions, coupled with significant challenges and uncertainties due to political instability and the Russian-Ukraine war. Due to these factors, Pakistan’s economy remained under pressure throughout the year. Other economic factors such as the rise in energy prices in local and international markets, significant currency depreciation and a sudden hike in interest rates severely affected the industry's, as well as the company’s, performance." Noting the 'changing and challenging economic environment,' Younis said that Thatta Cement 'remained successful in achieving budgetary targets in terms of volumes and retention price.' He added "Our sales and marketing team put extra efforts into identifying the needs of our valued customers and explored new markets for the company, despite severe competition in the cement industry."

Vietnam: Three new integrated cement lines are expected to raise Vietnam’s total installed cement capacity by 8% to 115.4Mt/yr in 2022, from 106.6Mt/yr at the beginning of the year. VNDirect Securities has calculated that the upcoming lines – Dai Duong 1, Long Thanh and Xuan Thanh 3 – have a total capacity of 8.8Mt/yr. They are situated in Northern Vietnam’s Ha Nam Province and Central Vietnam’s Thanh Hoa Province, both of which already have cement overcapacity.

Viet Nam News has reported that Vietnam exported 4.31Mt of cement and clinker in April 2022, down by 7.6% month-on-month. The products’ total value was US$171m, down by 2.9% month-on-month.

Vicat’s plans to buy another 42% stake in Sinai Cement became public this week. Once completed, the France-based company should own 98% of the Egyptian company, based on previously published ownership figures. The announcement heralds a rapprochement in the relationship between the cement producer and the Egyptian government.

Last year Vicat raised a case against the government with the International Centre for Settlement of Investment Disputes (ICSID) over an argument about how it could invest in Sinai Cement as a foreign company. All seems forgiven and forgotten now with a settlement agreement signed in March 2022 between Rania el Mashat, the Minister of International Cooperation on behalf of the Egyptian government, and Guy Sidos, the chairman and chief executive officer of Vicat Group. Local press reported that the government is trying to attract more direct foreign investment. Sinai Cement reported a loss attributable to its parent company of around US$19.1m in 2021, down from a loss of US$30.3m in 2020. However, its sales rose by 63% year-on-year to US$78m.

Sinai Cement has some specific operating issues related to its geographic position in the Sinai Peninsula and ongoing security concerns. Yet its mixed fortunes also sum up some of the continuing challenges the Egyptian cement industry is facing. After years of overcapacity, the government introduced reduced cement production quotas in July 2021 and this is mostly perceived to have improved prices in the second half of the year. Vicat described the arrangement as having capped the local market at 65% of its production capacity and it said that prices recovered ‘significantly’ as a result in the second half of 2021. Cemex’s regional chief Carlos Gonzalez told local press that the move had given plants “A glimmer of hope for the return of balance to the cement market.” The company has also announced a US$20m local investment backing up this view. Not all the foreign multinational companies entirely agreed, with HeidelbergCement reporting a ‘sharp’ decline in sales volumes although chief executive officer Dominik von Achten did describe the country as ‘coming back’ in an earnings call about his company’s financial results in 2021. Solomon Baumgartner Aviles, the chief executive officer of Lafarge Egypt, was also cooler about the production cap in a press interview in October 2021, describing it as too early to assess how well the cap was working and noting that the gap between supply and demand was still large.

Vicat said in its annual report for 2021 that, “Provided no further adverse geopolitical, health or security developments occur, the current climate is unlikely to jeopardise the prospects of an improvement in the subsidiary’s profitability, which should begin to gradually occur.” The geopolitical bit was timely given that Russia’s war in Ukraine started on 24 February 2022. It also targets the latest problem hitting Egyptian cement producers: energy costs. The head of Arabian Cement told Enterprise Press that initially some producers had opted to temporarily stop production and use stocks instead to attempt to try and wait until the energy price volatility ended. However, it stayed high so the cost of cement has gone up generally. Producers are now trying to switch to using a high ratio of natural gas, such as 10%, but this is dependent on the government letting them.

The Egyptian government, for its part, is facing a decision whether to supply subsidised gas for domestic industry or to export to Europe. The backstory here is that Egyptian cement producers are facing yet another step change in fuel supply. In the mid-2010s lots of plants switched from heavy fuel oil and gas to coal. High international coal prices could be heralding another change.

Alongside this the value of Egypt’s cement exports rose by 151% year-on-year to US$456m in 2021 from US$182m in 2020. The Cement Division of the Federation of Egyptian Industries has attributed this to growth mainly on the African market. This trend continued in January and February 2022 with cement exports up by 141% year-on-year to US$104m from US$43m. The main destinations were Ghana, Cameroon, Ivory Coast and Libya.

HeidelbergCement summed up the current state of the Egyptian cement market in its 2021 annual report as follows “The development of the Egyptian cement market continues to be determined by government intervention.” What happens next is very much in the hands of the state as it decides whether to extend the production cap, which fuels to subsidise, whether to allow exports and where to invest in infrastructure projects. One variation on this theme may be local decarbonisation targets. At the end of March 2022 the Global Cement and Concrete Association (GCCA) launched a series of Net Zero Accelerator initiatives, including one in Egypt. How a country that produces more cement than it needs reduces its CO₂ emissions presents another challenge for manufacturers and the government to grapple with.

Indonesia: Semen Indonesia has blamed falling earnings in 2021 on increased competition, production overcapacity and mounting coal prices. Its revenue fell slightly to US$2.43bn. However, its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 9.3% year-on-year to US$572m in 2021 from US$630m in 2020. Its sales volumes were driven by international sales, with domestic sales remaining stable at 32.2Mt. Foreign sales grew by 7.7% to 8.3Mt. Overall sales volumes increased by 1.6% to 40.5Mt from 39.8Mt.

In order to tackle its fuel costs the company says it has increased its use of alternative fuels, both biomass and non-biomass, and is optimising its coal consumption index by maintaining stable coal quality. It has also integrated coal procurement into the group to help better secure competitive pricing, supply and quality.

Indonesia: Cement demand rose by 5.5% year-on-year nationally in the first nine months of 2021, according to the Indonesia Cement Association. The association recorded an increase in bagged cement demand of 6.9%, while bulk cement demand increased by 0.9%. Total cement demand grew in all regions except for Bali, East Nusa Tenggara and West Tenggara. Sulawesi recorded the highest demand growth with a rise of 10%, consisting of 80% bagged cement and 20% bulk cement demand growth.

In 2020, domestic cement demand was 62.7Mt. Indonesia has an installed cement capacity of 115.3Mt/yr.

Indonesia: Semen Indonesia’s revenue grew by 1.2% to US$1.13bn in the first half of 2021 from US$1.12bn in the same period in 2020. Its sales volumes of clinker and cement rose by 5.7% to 19.2Mt from 18.1Mt. Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 2.1% to US$247m from US$242m. The state-owned cement producer said that sales volumes were supported by growing domestic sales volumes and improving exports. It added that the national cement production capacity utilisation rate had fallen to 56% in 2020 from a high of 82% in 2014 due to new cement plants being built and a drop in domestic demand growth due to the coronavirus pandemic in 2020.