Displaying items by tag: Price

In case you’ve missed it there’s been a boom in cement demand in China during the current quarter. Henan province saw a run on cement prices in November 2019 that the local press described as ‘crazy.’ Some companies were issuing price adjustments twice a day, according to the China Cement Association. The article on the CCA’s website also includes a video showing dozens of cement trucks queuing at a mill with the caption ‘all the plants are like this, don’t ask the price any more.’

The CCA’s blamed the situation in Henan on pollution controls on production and a rebound in cement demand. Weather-based pollution controls enacted in late October 2019 shut-down or limited production at 66 of the province’s 72 clinker production lines. Builders were then forced to source cement from neighbouring Shanxi, Hebei and Shaanxi provinces. At the same time demand for cement from real estate and infrastructure sectors picked up in the fourth quarter of 2019. Following advice from the local cement manufacturers’ association, the provincial government relaxed the rules on peak shifting that normally run from November to February in a bid to control the situation. Cement prices in Henan hit a high in mid-to-late November 2019 and have since subsided somewhat.

Nationally, Chinese cement prices hit a high in late November 2019 beating the highest level in 2018 and also setting the highest price since 2011. The key regions driving the increase have been in central and south China, including Guangxi, Guangdong and Henan. One more thing to note here is that peak shifting or seasonal shutdown of production capacity has different dates in different provinces. So, potentially, the situation could repeat itself if unexpected demand continues and provincial governments fail to monitor the situation.

Recently a couple of economic indicators in China have suggested a recovery in infrastructure spending in recent months, supporting increased cement demand. Data from Wind quoted by the Financial Times newspaper suggests that the cement price rose by 15% since September 2019 in large cities. Reinforced steel (rebar) and aggregates prices have increased similarly. At the same time the South China Post newspaper has reported a growth in the Purchasing Managers’ Index (PMI), an indicator of manufacturing activity that could also point to renewed infrastructure spending. Central government is also reported to be taking measures to support provincial infrastructure development.

If true then this may be creating some pretty direct lessons in economic interventionism. The Chinese government appears to be stimulating demand for cement via infrastructure growth while restricting production at the same time. Cement prices have reacted in a ‘crazy’ fashion. The real tension here is between two conflicting desires: protecting the economy and protecting the environment. The state planners may be grappling with this one for a while.

Paraguay: Paraguay’s main cement producer, state-owned Industria Nacional del Cemento (INC), has ‘significantly’ slowed production at its 1.0Mt/yr integrated Puerto Vallemi plant to a rate of 12,000 bags/day, creating a supply gap that imports and Intercement’s 0.4Mt/yr integrated Asunción plant have been unable to fill. Esmerk Latin American News has reported that the shortage has precipitated a 33% price rise in the cost of a bag of cement in the country to US$10.20 from US$7.00 when the shortage began in October 2019.

Paraguay: Industria Nacional del Cemento (INC) has signed an agreement with the Ministerio de Urbanismo, Vivienda y Hábitat (MUVH), the government body responsible for commissioning residential home construction, for preferential cement prices for companies to which the latter awards building contracts. INC president Ernesto Benítez Petters said “Cooperation with the MUVH will strengthen the consumption of cement produced in Paraguay by ensuring it a price and the provision of demand from this type of project.”

Zambia: Jimmy Khan, the chief executive officer (CEO) of Lafarge Zambia, has complained about production overcapacity and competition to the president of Zambia. He said that local cement consumption is 2.2Mt/yr compared to production of 5Mt/yr, according to the Lusaka Times newspaper. He made the visit to the president of the country to inform him of a 25% rise in the price of cement. Khan blamed the price hike on business losses.

However, Khan praised the government for its infrastructure development and said that the subsidiary of LafargeHolcim has moved much of its despatches from road to railway. At present the cement producer has a 33% market share. It also intends to continue using the Mpulungu Port in Northern Province to export cement to the east African market.

Egypt: The government has reduced the price of natural gas for cement producers to US$5 per one million British thermal units (BTU). Previously the price was US$8MBtu, according to Mubasher. The government has reduced the price at a similar rate for other industrial users including iron, steel, aluminium, cooper, ceramic, and porcelain plants. It will now review the price of gas every six months.

Cuba: The Ministry of Finance and Prices has published a list of prices for a range of products, including cement, that are sold in state-run stores and agricultural markets. The ministry says that the initiative is intended to evaluate the local market at the municipal level in response to concerns about inflation following a government-mandated salary increases, according to 14ymedio. Shops that violate the regulated price lists may face sanctions.

Nigeria: Oyebamiji Dauda, the chairman of the Lagos State Bricklayers’ Association, has urged the government to cut the price of cement. He wants it to make cement manufacturing more competitive by allowing more producers to operate in the market, according to the News Agency of Nigeria. He added that the ‘high’ cost of cement was negatively affecting building construction. Dauda’s ideas to ease the price of cement include government subsidy, tax breaks for local producers of building materials and further penalties for imported products.

India: Minister Piyush Goyal, the Commerce and Industry Minister, has confirmed that the Competition Commission of India looking into complaints of rising cement prices. He said that complaints on the had been received about the price of cement and allegations of cartel-like behaviour, according to the New Indian Express newspaper.

The Malaysian Competition Commission took the rather ominous step this week of saying it was taking extra care to watch the cement industry. Ouch! It said that had taken note of recent price rises by both cement and concrete producers and that it was working with the Ministry of Domestic Trade and Consumer Affairs as it met with the sector. It also said it was well aware of the recent merger between YTL and Lafarge, “...which had led to the market being more concentrated at the upstream and downstream level.”

The background here is that at least one unnamed cement producer announced a price hike of 40% in mid-June 2019. End-users panicked and the local press took up the story. The Cement and Concrete Association of Malaysia then defended price rises in general, when it was asked for comment, due to all sorts of mounting input costs. Although, to be fair, to the association the Malaysian Competition Commission acknowledged the price pressures the industry was under due to input costs in a report it issued in 2017.

Back in the present, the government became involved and Saifuddin Nasution Ismai, the head of the Domestic Trade and Consumer Affairs Ministry, calmed the situation down by saying that producers had agreed not to raise their prices after all and that any future planned price adjustments would be ‘discussed’ with the authorities first. Finance Minister Lim Guan Eng then followed this up with calls for an investigation into prices in Sarawak state in Eastern Malaysia. In response, Suhadi Sulaiman, the chief executive officer (CEO) of CMS Cement, batted this straight back by blaming industry mergers in Peninsular Malaysia and saying the company had no plans ‘anytime soon’ to raise its prices.

As the Malaysian Competition Commission kindly pointed out, this entire furore took place about a month on from the competition of LafargeHolcim’s divestment of its local subsidiary to YTL. The commission agreed to the acquisition of Lafarge Malaysia by YTL knowing that it was giving YTL ownership of over half of the country’s production capacity. With this in mind it is unsurprising that the commission might have wanted to look tough in the face of even a whiff of market impropriety, whether it was real or not.

The problem, as the Malaysian Competition Commission alluded to in its statement, is that the local industry suffers from production overcapacity. On top of this local demand has been contracting since 2015. The country has 11 integrated cement plants with a production capacity of 27.1Mt/yr, according to Global Cement Directory 2019 data. Production hit a high of 24.7Mt in 2015 and then fell year-on-year to 18.8Mt in 2017. Data from the Cement and Concrete Association of Malaysia painted a worse picture taking into account both integrated and grinding capacity reporting an estimated production capacity utilisation rate of just 59% in 2016. Lafarge Malaysia reported a loss before tax of US$97.7m at the end of 2018 as well as declining revenue. Shortly thereafter it announced it was leaving the country, as well as neighbouring Singapore.

In theory the buyout by YTL should have been one step closer to solving Malaysia’s overcapacity woes as either it gained synergies through merging the companies or shut down some of its plants. Certainly, the system appears to be working at some level, as the proposed 40% price rise hasn’t happened. Yet, if the government is reacting to voters rather than the market it could prolong the capacity-demand gap indefinitely. Under these conditions LafargeHolcim’s decision to exit South-East Asia may prove prescient.

Malaysia: Suhadi Sulaiman, the chief executive officer (CEO) of CMS Cement, says that the company does not intend to increase its prices ‘anytime soon.’ He said that any potential enquiry into a differene in prices between Peninsular Malaysia and Sarawak would show that the cement producer had not riased its prices since early 2016, according to the Borneo Post newspaper. He made the comments in a reponse to a call by the Finance Minister Lim Guan Eng for such an enquiry.

“We welcome the enquiry for two reasons... Firstly, it will show that the disparity in prices is purely due to the recent aggressive price war, which led to industry mergers and acquisitions in Peninsular Malaysia,” said Suhadi. “Secondly, an enquiry of this nature will also serve to show once and for all that Sarawak is not, and never has been, a cement monopoly.”

Lim said previously that an investigation was necessary to determine whether cartel-like behaviour was responsible for higher cement prices in Sarawak. He noted that the price was ‘significantly’ higher in the state than in Peninsular Malaysia.