Displaying items by tag: Terminal

The big US news this week has been that Summit Materials and Argos USA are planning to merge their operations. The new organisation will operate six integrated cement plants with a production capacity of 8.4Mt/yr, based on Global Cement Directory 2023 data. The companies say that this will make them the fourth biggest cement producer in the country, at 11.8Mt/yr, based on grinding capacity, and the largest domestically-owned operator. Additionally, the combined entity will also hold just under 5Bnt of aggregate reserves, 224 ready-mixed concrete (RMX) plants and 32 asphalt plants.

The deal is expected to close in the first half of 2024 subject to the usual regulatory clearances and shareholder approval. At this point Argos should own approximately 31% of the new company and Summit Materials’ shareholders will be the majority owner. Although, if we remember anything from the Lafarge-Holcim merger from nearly a decade ago, it is that if the share prices between the two companies diverge too much in the next six months then that proportion may change. In simple terms that split for Argos USA is in the region of where one might expect it to be given that Argos USA made 39% of the combined revenue for both itself and Summit Materials in 2022 and 28% of the combined earnings.

The two companies complement each other well for the purposes of forming a new heavy building materials concern. Summit Materials reported revenue of US$2.41bn in 2022, with 30% deriving from its aggregates businesses, another 30% coming from RMX and about 20% from paving. Cement generated US$341m, or 14%, of total revenue. By contrast Argos USA reported revenue of US$1.57bn in 2022 from a business just concerning cement and concrete. Geographically, Summit Materials’ integrated plants are in the Midwest, in Iowa and Missouri respectively, and its cement terminals follow the Mississippi River from Minneapolis to New Orleans. Notably, it made the point in the merger announcement that the deal would reduce the seasonality of its cement business. Argos USA’s plants and terminals are mostly spaced out in the Southern states with its plants in Alabama, Florida, South Carolina and West Virginia.

It goes against recent trends for a US-based company to be increasing its share in the domestic cement market, although it has resorted to teaming up with a Colombia-based one to do so. Usually it is foreign-headquarted companies making moves in the US. For example, Ireland-based CRH is in the final stages of switching its primary listing to the New York Stock Exchange. Its head Albert Manifold described the US construction market as going through a “golden age” earlier in the year whilst trying to sell the stock market move at the company’s annual general meeting. Meanwhile, there have been various smaller acquisitions such as Peru-based UNACEMs’ agreement to buy the Tehachapi cement plant in California from Martin Marietta Materials in August 2023.

Given the ongoing importance of the North American market for the international cement producers it is not surprising that merger and acquisition activity has been taking place. Each of the four largest US-based cement producers performed well in the first six months of 2023, increasing both revenue and earnings significantly. However, the picture is mixed. The Portland Cement Association (PCA) forecast at the start of 2023 that cement consumption would decline in the second half of 2023 due to a worsening general economic outlook. The downturn was estimated to be brief though as interest rates were expected to dip and infrastructure spending to rise in 2024. Half-year data from the United States Geological Survey (USGS) supported this view as shipments reached an estimated 51.0Mt, a slight decrease from the same period in 2022. The cement companies have made money so far in 2023 partly by raising their prices. Yet, some segments of the residential homebuilding market have also driven demand despite the general economic picture.

One last thing to consider is how much thought was given to the carbon risk of forming a new heavy building materials company in a developed economy in the 2020s. Sustainability receives a mention in Summit Materials’ investor presentation in the form of current achievements such as switching to blended cements or reducing fossil fuel usage but there is no suggestion that any serious investment to curtail process emissions is expected any time soon. However, one could make the case that the enlarged company might benefit from synergistic effects if it were forced to spend more on CO₂ emission reduction. This proposed merger concerns two existing organisations teaming up rather than new equity entering the arena. In this context it will be worth noting whether the next cement industry merger or acquisition in the US or Europe will involve existing companies or new entrants.

US: Holcim US has rebranded its businesses in Boston, Massachusetts, to unite them under the Holcim name. Resources News has reported that Lafarge Cement, which operates the Charlestown cement terminal, as well as building materials producer Aggregate Industries, will rebrand as Holcim US.

Holcim US’ Northeast and Great Lakes regional senior vice president and general manager Domenico D'Aqui said "With the integration of local legacy operations into Holcim, the Boston area will see expanded benefits of construction projects made from innovative materials, such as ECOPact reduced-CO₂ concrete, that not only build needed infrastructure but also meet ambitious sustainability targets."

Dominican Republic: Cemex is considering selling its subsidiary Cemex Dominicana according to Bloomberg. The Mexico-based group is reportedly working with JPMorgan Chase & Co on a potential divestment worth over US$1bn. Proceedings are at an early stage, with Cemex starting to talk to interested parties to assess potential interest.

Cemex has been operating in the Dominican Republic since 1995 when it acquired Cementos Nacionales. It runs the integrated 2.4Mt/yr San Pedro de Macorís cement plant. It also has ten concrete plants, three sea terminals, two aggregate quarries and a gypsum mine. It employs 1500 people directly. Cemex sold its subsidiaries in Costa Rica and El Salvador to Cementos Progreso for US$329m in 2022.

Indonesia: Hongshi Indonesia Tonga Cement has commissioned the first phase of its new cement plant in East Kutai, East Kalimantan. At this phase of its development, the plant has a capacity of 4Mt/yr. It holds 1Bnt of limestone reserves and is equipped with a 50,000t marine terminal. The plant is situated over 250km away from the site of Indonesia’s upcoming new capital city, Nusantara, also in East Kalimantan. Hongshi Indonesia Tonga Cement plans to subsequently raise the plant’s capacity to 8Mt/yr.

US/Colombia: Colombia-based Cementos Argos is carrying out expansions to two cement plants in South Carolina and West Virginia. While not specifically named, these would appear to be the 1.1Mt/yr Harleyville and 1.8Mt/yr Martinsburg cement plants. The producer says that the expansions will increase its cement capacity in the eastern US by 450,000t/yr.

Additionally, Cementos Argos plans to expand the capacity of its Cartagena cement terminal in Colombia by 35% to 4Mt/yr. The producer says that this will serve as a platform for subsequent growth. It is targeting the US market, where an expansion is also underway at its import facility in Houston, Texas. The Cartagena terminal achieved its current capacity following a recent US$42m expansion.

Gambia: Heidelberg Materials has sold its business in the Gambia to iron and steel products company B5 Plus. The business consists of the Banjul cement terminal. Heidelberg Materials says that it will continue to supply West African customers through its operations in Benin, Burkina Faso, Ghana, Liberia and Togo. The company sold its subsidiary in Sierra Leone in 2021.

Philippines: Taiheiyo Cement Philippines plans to install a second production line at its 0.8Mt/yr San Fernando cement plant in Cebu. The Philippines Department of Trade and industry says that the new line will more than double the plant’s capacity to 3Mt/yr. It will also entail an upgrade to reduce its total energy-related CO2 emissions by 10%. The Philippine Daily Enquirer newspaper has reported that the producer will additionally build a 700,000t/yr terminal at Calaca in Batangas. The facility will cost US$68.4m. Altogether, the company expects its growth plans to generate 2000 new jobs in the Philippines. The Philippines government has committed 6% of gross domestic product (GDP) to infrastructure investments annually.

Taiheiyo Cement Philippines previously indicated in August 2022 that the San Fernando cement plant might eventually expand to a capacity of 5Mt/yr. At that time, it expected to commission the new Line 2 in May 2024.

Special trade representative to the Philippine Trade and Investment Centre in Tokyo, Dita Angara-Mathay, said "The company's latest announcement materialises its plans to expand to Luzon from its long-time base in the Visayan region."

Mexico: The Mexican ambassador to the US is due to make US-based Vulcan Materials an offer of US$390m to sell a 2400 hectare parcel of land in Quintana Roo to the government. The land includes a disused limestone quarry and the Riviera Maya cement terminal, which is currently used by Cemex. The government's Ministry of the Environment ordered the closure of the quarry in May 2022, when it also banned Vulcan Materials from despatching limestone.

Mexican President López Obrador said that Vulcan Materials 'shouldn't reject the offer.' He added "We’ll buy everything from them, we’ll pay immediately and we’ll turn 2000 hectares into a natural protected area. They’ll be able to say "We’re contributing to stopping climate change." And we’ll only keep one part, to carry out an ecotourism development with a cruise ship pier.”

Associated Press News has reported that Vulcan Materials has filed a valuation showing the land to be worth US$1.9bn.

Ukraine: CRH subsidiary Cemark completed the 'main stage' of construction of a US$37.3m, 450,000t/yr cement shipping complex in Ukraine in July 2023. The Sunday Independent newspaper has reported that complex will be equipped with an automated packing and palletising line. When operational, the site will provide 80 jobs.

Ireland-based CRH agreed to acquire Italy-based Buzzi's Ukrainian business in June 2023, for US$109m.

Adani Group and JK Lakshmi Cement were reported to be leading the race to acquire Sanghi Cement this week. The Economic Times newspaper reported sources who said that both companies are about to start due diligence processes ahead of making formal offers in the next few months. The enterprise value of Gujarat-based Sanghi Cement is around US$730m. Shree Cement, Nirma Group and Dalmia Bharat were said to have been interested previously, but no longer at this stage. However, none of the companies involved have commented directly on any bidding process so far.

Coverage in the India-based press earlier in July 2023 suggested that Shree Cement had dropped out of the bidding process for a 40 - 70% stake in Sanghi Cement. Although the exact reasons for Shree Cement withdrawal were not expressed, it was noted that the enterprise value for Sanghi Cement included debts of around US$220m. In late 2022 the Kotak Mahindra Bank made an investment of around US$67m in Sanghi Cement to ‘help the company's liquidity profile and enhance its operations.’ The head of the bank’s Special Situations Fund added that the cement producer’s performance had been under pressure due to high energy costs and that this had been further exacerbated by impending debt repayments stemming from expansion capital expenditure.

Sanghi Cement had the misfortune of commissioning a new line at its integrated plant during the Covid-19 pandemic. The subsidiary of Sanghi Industries operates a 6.6Mt/yr unit at Kutch in Gujarat, with a 130MW captive power plant and a 13MW waste heat recovery (WHR) unit, making it one of the largest plants in the country. It also owns three cement terminals in Gujarat, Maharashtra and Goa. Its annual power and fuel costs rose by 79% year-on-year to US$49.9m in the year to March 2022. Then its finance costs tripled to US$29m in the year to March 2023. Some of the increased fuel costs may have been down to the new production line but its total income in the year to March 2023 was lower than in the year to March 2019.

Adani Group and JK Lakshmi Cement both operate plants in Gujarat. Adani Group runs one integrated and one grinding plant in the state via its Ambuja Cement subsidiary. JK Lakshmi Cement owns a grinding plant. A number of other companies additionally manufacture cement in the state. The biggest of these is the country’s largest cement producer, UltraTech Cement, with three integrated plants and two grinding ones in Gujarat. It would be a surprise if this company tried to buy a share of Sanghi Cement. One prominent India-based cement company that does not have a manufacturing presence in the state is Shree Cement. This made it a compelling candidate for the acquisition before it ruled itself out.

On the national stage, ratings agency ICRA’s June 2023 cement sector report forecast a ‘stable’ outlook for the sector, with cement volumes expected to grow by 7 - 8% in the 2024 financial year. This should be supported by the residential market and infrastructure projects. Crucially, it also noted that power and fuel costs, which peaked in the July - December 2022, eased in early 2023 and are anticipated to further soften in the 2024 financial year. The agency’s view was that this would help company earnings margins, but not to the levels seen in the five years prior to the Russian invasion of Ukraine. This may be cold comfort for Sanghi Cement, but it may have implications for any bidding process.

Lastly, ICRA also warned of the weakening effects that El Niño could have on the monsoon season and, in turn, rural house building during this period. The weather has been a ‘hot’ topic globally this year, as various records have been broken. Yet on a day-to-day basis the weather can also affect the business of making and selling cement. ICRA’s concern was for the latter. An example of the former occurred in June 2023 when Cyclone Biporjoy caused disruption at Sanghi Cement’s Sanghipuram plant. The unit was shut down in mid-June 2023 to protect the staff. Some damage was reported and the plant reopened at the end of the month. Again, as with fuel prices, the weather may also play a part in the calculations of any company considering buying a stake in Sanghi Cement.