Displaying items by tag: UK

Tomorrow (18 September 2014) the residents of Scotland, one of the UK's four 'home nations', will vote in a referendum. The question will be whether or not the country should leave the UK and become fully independent. Rival 'Yes' and 'No' campaigns have spent the best part of two years trying to convince the electorate of the benefits of either leaving or staying in the UK.

Leaving the political discussion to one side, where would a 'Yes' vote leave the Scottish cement industry? The only cement plant in Scotland is the 1Mt/yr Lafarge Tarmac plant at Dunbar, East Lothian, so on the face of it, Scotland's cement industry would be 100% owned by one operator. At this stage, however, it is (hopefully) fair to assume that relations between Scotland and the rest of the UK should be cordial enough to allow normal supply chains and contracts to continue over the border. Lafarge Tarmac, or any future operator, should expect business as (mostly) usual.

However, there are potential issues when it comes to the ongoing UK Competition Commission's (CC) investigation into competition in the UK cement and blast furnace slag markets. The removal of Dunbar from the list of UK cement assets is small but significant. Would the CC come to the same conclusion regardless of the outcome of the Scottish vote? And (how) would any decisions filter into the EU-wide investigations into the LafargeHolcim merger disposals?

Part of the discussion around Scottish independence has been the suggestion that Welsh nationalists might ask for a similar referendum in the event of a Scottish 'Yes.' In our cement plant thought experiment, this has much more of an effect on the current UK situation, with two Welsh plants at Mold, Flintshire and Aberthaw, Roose, which is also a Lafarge Tarmac plant. This would really re-shape the former UK's cement industry and pose new questions for regulators. Elsewhere, Northern Ireland's only cement plant is also a Lafarge Tarmac facility.

Also, a 'Yes' for Scotland has the potential to reverberate around the rest of the European Union (EU). Catalonia, the autonomous region in Spain, has a long-standing and separate identity to the rest of Spain. By contrast to Scotland, its cement industry is massive, with Ciment Català listing eight plants across four operators. If it left Spain, there would be 30 plants in the country instead of 38.

More provocatively, Belgium is a country that, while at the centre of Europe, is often divided at home. French-speaking Wallonia has all five of Belgium's cement plants, but separation between this region and the Dutch-speaking Flemish region would require a number of unlikely changes.

Elsewhere, there are calls to separate the north of Italy from the south, although cement plants are roughly in proportion throughout the country. In France, Brittany also has its fair share of nationalist sentiment. However, any moves here would not trouble the French operators - there are no cement plants in Brittany. Normandy is in the same situation, although a Breton would probably claim that Normandy is 'just part of France.'

The above is only a scratch on the surface. A quick internet search for 'separatist movements in Europe' leads to a large number of hits. The most illustrative of the links is this map: http://en.wikipedia.org/wiki/List_of_active_separatist_movements_in_Europe#mediaviewer/File:Active_separatist_movements_in_the_European_Union.png
It appears that many EU residents would like the map of Europe redrawn.

Looking outside of the EU, the cement industry of Texas has the largest cement industry of all US states. With huge oil reserves, a large and growing population and fast development, Texas' cement industry would thrive in the event of its secession. Discussion of this was particularly strong following the re-election of President Barack Obama in 2012.

Of course, much of the above is hypothetical... or is it? Just two year's ago nobody was talking about Scottish independence. We will find out tomorrow if Europe will get a new (Scottish) cement industry.

Following a two-year investigation, the UK Competition Commission (CC) has concluded that the UK needs a new cement producer to further encourage competition. Lafarge Tarmac will be required to sell one of its five cement plants. Additionally the CC wants the HeidelbergCement subsidiary Hanson to sell one of its slag grinding plants to increase competition in the supply chain for ground granulated blast furnace slag (GGBS).

The CC's competition investigation estimated that UK customers were cost at least Euro55m/yr between 2007 and 2012 due to high cement and GGBS prices, brought about by a lack of competition. According to Mineral Products Association (MPA) cement sales data, over the same period cement sales in the UK fell from 12Mt in 2007 to 8Mt in 2012.

Although it seems strange that the CC has acted again to support competition in the UK (just one year afterthe Lafarge Tarmac merger) the CC defended its actions in a letter to the December 2013 issue of Global Cement Magazine. According to Rory Taylor, the Lafarge Tarmac merger inquiry could only maintain pre-existing levels of competition, while the investigation's remit was to increase competition if it found a problem.

Explaining their administrative procedures provided little comfort for Lafarge Tarmac, which complained about the ruling. "Its analysis of industry profitability, which is central to its conclusion of Adverse Effect on Competition, is flawed, grossly overestimating the returns made. It has also failed to take into account the new business environment that has been established by our divestments - only 12 months ago - to create a new competitor (Hope Construction Materials), and the entry of new importers into the market."

One such importer, Quinn Cement, popped up this week with news that it is to invest Euro16m in its cement plant at Cavan, Ireland. It has hopes to capture 1% of the mainland British market, making it up to Euro9.6m in the process. Although the CC doesn't think that imports significantly effect cement prices in the UK, those Irish hopes have likely been boosted following the UK CC's decision. Whether it is in the interest of UK consumers remains to be seen. One measure of the CC's activity this time might be the time that passes before its next intervention in the cement industry.

Returning briefly to last week's column (MINT cement focus: Indonesia, GCW133), Holcim Indonesia has reported that its sales fell by 2% in 2013. Growth in the cement industry in Indonesia is by no means assured. Holcim will publish its full annual results for 2013 on 26 February 2014.

Well, it seems like they were serious.

The UK Competition Commission has provisionally decided that Lafarge Tarmac should sell off one of its cement plants in the Midlands. The Commission also wants the sale to exclude buyers from any pre-existing UK cement producer. The door is open from Holcim or CRH downwards to enter the UK market. Although if the enforced Lafarge sale of Hope to Mittal Investments in 2012 is indicative, it may well be to an industry outsider.

If the move goes ahead it will open up the Midlands and north of England from four cement producers - Hope Cement, Lafarge Tarmac, Hanson and Cemex - to five. Lafarge Tarmac's cement production capacity lead of nearly 4Mt/yr will be knocked down to nearer 3Mt/yr, putting it level with Hanson Cement's production capacity.

Unsurprisingly Lafarge Tarmac is not best pleased, putting out the following in response to the commission's announcement. "The Commission's assumptions and reasoning have serious flaws and the biggest loser in this process will be the customer. There is strong evidence to demonstrate there is effective competition in the sector – with new players having recently entered the marketplace."

The Commission also wants to increase competition in the supply chain for ground granulated blast furnace slag (GGBS). According to the Commission findings Hanson dominates the UK GGBS market and Lafarge Tarmac controls the market for its precursor, granulated blast furnace slag (GBS). So production facilities may need to be sold by both Hanson and Lafarge Tarmac.

As an aside it's worth noting that the Belgian Competition Council recently imposed fines due to anti-competitive practices also related to GGBS. Also, elsewhere in the news this week Irish GGBS cement producer Ecocem is aligning itself with the EU carbon roadmap to 2050, partly at least because its product produces less CO₂ per tonne of cement. Whoever or whatever controls the supply of GGBS in the UK has implications for how emissions are lowered in the cement sector.

Other suggested measures from the Commission such as restricting the publication of UK cement market data seem problematic. Although it may make it more difficult for UK cement producers to collude it will also make it harder for related businesses (including press and industry analysts like Global Cement) to understand what is happening at any given time.

Finally, we have to ask what the effects of the Commission's suggestions might be at the start of an uncertain recovery in the UK construction market might be. According to the Minerals Production Association cement production fell from 8.5Mt in 2011 to 8Mt in 2012, the first decrease since 2009. 2013 seems set for modest growth on 2012. The implications of Commission's plans - if they happen – could be huge.

The timing of the UK Mineral Products Association's (MPA) latest call to arms makes one wonder how well the economic recovery is going in parts of Europe. The MPA has launched a document entitled 'Cementing the Future – Sustaining an Essential British Industry' to promote the UK cement industry. It is the MPA's job to beat the drum for the industries it represents so in this sense it should always be trying to raise the minerals sector's profile.

Yet as the UK economy starts to lumber out of the recession, a publication like this suggests that the challenges ahead of the industry are still large. MPA figures released in July 2013 showed that year-on-year growth in cement volumes hit a low of -10% in the second quarter of 2012 before rising to better (negative) rates to the first quarter of 2013. No data was available for the second quarter of 2013.

One of the MPA's recommendations is that the UK government does more to protect the main internationally-owned players from international trading markets. At least foreign-owned companies provide local jobs. The main thrust is to protect the industry from carbon taxation, ensuring better international competiveness. On the back of Cembureau's latest industry figures, chief executive Koen Coppenholle recommends much the same thing for Europe as a whole in his column in the September 2013 issue of Global Cement Magazine.

One thing the MPA doesn't need is more bad news when the UK Competition Commission publishes its report on an investigation on the aggregates, cement and ready-mix concrete market in December 2013. On that score the investigation hasn't been too troubling so far with its provisional findings concluding that despite poor competition between firms on price there was no explicit collusion.

In terms of competition though things could be worse. For example, take Colombia. In August 2013 the Colombian competition agency, the Superintendency of Industry and Commerce (SIC), announced its investigation in the country's main players for 'sustained and unjustified' increases in the price of cement since 2010. For the first six months of 2013 cement prices rose by 8% compared to an inflation rate of 1.73%.

Whatever is happening in Colombia, its largest cement producer, Cementos Argos, saw its profits rise by 5.9% to US$218m in 2012. At present the MPA can only dream of times like that again and hope that the UK government takes note of its advocacy.

UK: Bill Brett has been appointed as the chairman of the Mineral Products Association (MPA) for the next two years to 2015. He will succeed Dyfrig James. Brett, the chairman of Brett Group, has a wide range of commercial interests and industry involvement.

"Members have appreciated Dyfrig's inclusive approach and the efforts he has made to engage with all parts of the MPA, particularly in the regions and of course his beloved Wales," said Nigel Jackson, chief executive of the MPA. "The MPA would like to thank Dyfrig for all his efforts and wish Bill Brett every success for his two year tenure."

Weston is off. The 'will-they, won't they' of the New Zealand cement industry took a more decisive turn this week with the announcement that Holcim New Zealand intends to import cement instead.

Once Holcim's existing cement plant at Westport winds down there will be no more indigenous cement production on New Zealand's South Island. Golden Bay Cement on North Island will be left as the nation's sole cement producer. Instead Holcim now plans to build US$80m on an import terminal and related infrastructure.

Given a previous price tag of US$400m for the Weston project, switching to an import strategy makes sense for Holcim which has had a hard time of late with a poor first quarter following a tough year in 2012. Despite the benefits that the construction sector in New Zealand has seen with the rebuilding following the 2011 Christchurch earthquake, Holcim is thinking of its wider strategy. Although, as one of the largest multinational cement producers, Holcim has a wide supply chain for clinker, Australia reported poor sales in 2012 and it would be an obvious hub to keep New Zealand topped up with sufficient product.

Last week's doubts about the Indian cement market – when Holcim announced major business restructuring in India – may also have an effect as Vicat too has reported problems in the country this week. The question to ask when Holcim releases its half-year results in mid-August 2013 is how much excess capacity does the company have?

Coincidentally, importing cement is one issue that has come up in the UK Competition Commission's on-going investigation into the UK cement industry. An Irish cement importer has alleged that unnamed European cement producers have blocked his attempts to import cement to Ireland. The UK Competition Commission will continue its investigation until late 2013. Whilst we are not suggesting that the New Zealand cement industry has any problems of this kind, as the market adjusts to a higher level of imports it will encounter new challenges.

Back in November 2012 this column asked whether the UK cement market had become more competitive following the sale of the Hope cement plant. Broadly, we thought it had. Half a year later though and it seems that the UK Competition Commission doesn't think so. On 21 May 2013 it released provisional findings that the UK's three major cement producers were failing to compete on price with each other.

Its three main points of evidence included increases in average cement prices between 2007 and 2011, rising profitability for UK producers between 2007 and 2011 and only small changes in annual market share of sales. All of these market outcomes occurred despite a 'significant' slump in demand for cement from 2007 to 2009.

The problem here is that the Competition Commission's data refers to the UK market before it took action. In 2012 it forced the sale of Lafarge's Hope cement plant as a condition of the joint-venture between Lafarge and Tarmac. Subsequently, Lafarge and Tarmac's combined cement production capacity in the UK fell from 5.15Mt/yr to 3.85Mt/yr. However, the Competition Commission has modelled Hope Construction Materials as an effective replacement of Tarmac's previous market share in its analysis. With no major change to the status quo in the UK cement industry, it feels that competition is unlikely to improve. Hence the need for further action.

It must be emphasised that the Competition Commission did not find any evidence of explicit coordination between the producers. Professor Martin Cave, Competition Commission Deputy Chairman and Chairman of the Inquiry Group, summed it up as follows: "In a highly concentrated market where the product doesn't vary, the established producers know too much about each other's businesses and have concentrated on retaining their respective market shares rather than competing to the full."

To look at just one example, it should be noted that most of the management team of Hope Construction Materials came originally from jobs at either Lafarge or Tarmac. However in Hope's defence, who else would the new company hire except seasoned industry personnel. Naturally they would want the best people possible!

With the revival of the UK construction industry hanging in the balance the Competition Commission has a tough job ahead to ensure increased competition in the future.

The Mineral Products Association (MPA), which looks after the interests of the cement industry (and other allied industries) in the UK, has said that it welcomes a temporary tax-freeze relating to climate change announced in the UK Budget of 20 March 2013. The MPA singled out the decision to freeze the indexation of the Aggregates Levy until April 2014 and the decision to introduce the Climate Change Levy mineralogical and metallurgical exemption for energy-intensive industries such as cement and lime.

Both of these moves by UK Chancellor George Osborne have been welcomed because they bring some relief to the UK cement industry and wider construction activities. MPA members make money from such activites and any potential cost that can be eliminated or delayed, even for a short time, is welcome amid the current slump that is the UK economy. This is especially true as the UK weathers the one of the longest and most severe winters for 50 years. So far, so much sense.

However, how does this reaction to the Climate Change Levy exemption tie in with the MPA's February 2013 announcement that it thinks that the UK cement industry's total CO₂ emissions should be reduced by 81% by 2050? What should UK cement producers make of this?

The MPA's cement industry CO₂ reduction targets are certainly bold. On the face of it, they look achievable given the progress that has been made to date by the UK cement industry, although much is left to the imagination as to which areas could and should contribute most to the reduction target. The 81% reduction target includes the successful future commercial development of carbon capture and storage (CCS) technologies. It also relies on an increased proportion of renewable sources for the electricity that the cement industry will receive in 2050, something else that is totally out of the industry's control.

However, much hard work has already been done by cement companies in the UK. As in other EU countries and developed nations, total dust and toxic emissions have fallen dramatically in the UK cement industry since 1990. The country's alternative fuel substitution rate has now hit ~40%. Yet, as the MPA highlights in its document detailing the targets for 2050, much of the low-hanging fruit has already been taken. Further reduction in overall CO₂ emissions will be significantly affected by both regulations and cement company progress. 

Cement companies can increase their consumption of 'wastes' and fit waste-heat recovery systems. Through such measures they can achieve further reductions in emissions. Some kilns have hit alternative fuel substitution rates of 100% for limited periods and examples from the near continent show that 80% alternative fuels can be the norm. However, unlike these 'bottom-up' approaches, which can be introduced at a plant in a period of months, regulations take years to evolve and come into force, often involving slow and lengthly debate by politicians, associations and consumers.

To discourage the government from seeking to impose stricter environmental regulations for the cement industry by welcoming the exemption, is the MPA undercutting its own calls to reduce CO2 emissions in the UK cement industry? From a cement producer's perspective, it looks like the MPA could hold two contradictory opinions on the same subject: that you can welcome reductions in climate regulation while also calling for stricter emissions regulations. This phenomenon was famously termed 'double think' by George Orwell in his classic novel '1984,' but the MPA's situation is far more subtle. Often the regulators and those being regulated can agree on the same target but not on how that target should be reached. The next 37 years will show whether or not this target is even possible.

UK: Lafarge and Anglo American have appointed the chairman, chief executive office (CEO) and CFO of their joint-venture in the UK. Jamie Pike is appointed as non-executive Chairman, Cyrille Ragoucy as CEO and Guy Young as CFO of the joint-venture. The appointments are subject to the completion of the joint-venture and final clearance from the UK Competition Commission. It is anticipated that the joint-venture will commence operations in early 2013.

Jamie Pike, aged 57, is the non-executive chairman of Lupus Capital, a leading international supplier of building products to the door and window industry, RPC Group, a leading international supplier of rigid plastic packaging and MBA Polymers, a private US plastics recycling business. He was chief executive of Foseco, an international business serving the foundry and steel-making industries, until its acquisition by Cookson Group in April 2008. He led the buy-out of Foseco from Burmah Castrol in 2001, which culminated in flotation on the main market in 2005.

His early career was as a consultant with Bain and Co and A T Kearney before joining Burmah Castrol in 1991. He rose to chief executive of Burmah Castrol Chemicals before leading the Foseco buy-out. Pike was educated at the University of Oxford, holds an MBA from INSEAD and is a member of the Institute of Mechanical Engineers.

Cyrille Ragoucy, aged 56, is currently senior vice president for Health and Safety at Lafarge. From 2005 to 2009 he was CEO and regional president for Lafarge's cement operations in China (Lafarge Shui On Cement) where he was responsible for 25 plants and 10,000 people. Between 1999 and 2005 he was regional president for Aggregates, Concrete, Asphalt and Paving for Lafarge in Eastern Canada. Ragoucy joined the Lafarge group in 1998 as vice president Cement Strategy for Lafarge North America.

Guy Young, aged 43, has been CFO of Tarmac since 2010 with responsibility for Tarmac's financial, IT and legal operations as well as the pre-integration planning for the joint venture. Guy has been with Anglo American for 15 years in a variety of roles, including CFO of Scaw Metals, Group Procurement and within the CEO's Office. Guy was educated at the University of Cape Town and qualified as a chartered accountant after doing articles at Deloitte.

Back in May 2012 we asked who would buy Lafarge's Hope cement plant in Derbyshire. The answer was, of course, a company with an Indian background: Mittal Investments.

The sale was a condition of the UK Competition Commission in response to the proposed joint venture between Lafarge and Tarmac. It also included 172 ready mix concrete plants, five aggregates quarries, two asphalt plants, one marine aggregates wharf, one rail-linked aggregates depot and the sale of Tarmac's 50% ownership interest in Midland Quarry Products. Mittal has paid Euro339m for the assets, including up to Euro37m dependent on the performance of the assets over the next three years.

At the time we predicted that it might be a company from a fast growth area, with excess cash and a desire for technical knowledge, perhaps from China or the Middle East. Far more fitting for the UK, however, was a company with Indian roots, especially considering the cultural links between the two countries dating back to the colonial era.

Originally from India but based in London, owner Lakshmi Mittal runs steel multinational ArcelorMittal and he frequently tops UK rich lists. The Mittal family even own shares in Premier League football team Queens Park Rangers. The sale follows acquisitions of well-known British brands such as car manufacturers Jaguar Land Rover and British Steel/Corus to the Tata Group.

The sale to Mittal leaves the UK cement market with four companies. Mittal's new plant in the UK joins Lafarge's four plants, Cemex's two plants, Hanson Cement's three plants and Tarmac Buxton, Lime & Cement's single plant, which is soon to join with Lafarge's plants in the joint-venture. Geographically the sale to Mittal breaks up a concentration of three Lafarge and Tarmac plants in Derbyshire in the southern Pennines. Presumably this was the aim of the Competition Commission in the first place.

Selling the Hope plant makes sense for Lafarge and Tarmac. The sale leaves Lafarge's generous spread of plants across the UK in key locations except the south of England. The combined cement production capacity of Lafarge and Tarmac will fall from 4.35Mt/yr to 3.85Mt/yr. The reduction may actually help Lafarge, given its 9% fall in cement sales volumes so far in 2012 and the pessimistic outlook for the UK cement sector in 2013. The reduction in capacity manages this decline closely at 11%.

The UK cement industry has likely become more competitive with the range between the production capacities of the four companies reduced. However the price Lafarge and Tarmac have paid the Competition Commission for their joint venture was almost certainly worth it. Lafarge-Tarmac retains Lafarge's dominant position in a streamlined shape now matching the market reality.

Update: This article was corrected on 27 November 2012. The UK temporarily has five cement producers until the Lafarge-Tarmac joint venture gains approval from the UK Competition Commission. Then it will return to four.