Displaying items by tag: West China Cement

Derba MIDROC Cement signed a contract with Sinoma International Engineering in recent weeks to build a US$282m upgrade at its integrated Derba cement plant in Oromia. The move is the latest in a steady stream of projects that have been announced in Ethiopia over the last few years. Other recent developments include a deal in July 2022 by businessman Getu Gelete to buy PPC’s stake in Habesha Cement and plans in August 2022 by investor Worku Ayetenew to build a US$1bn cement plant with a production capacity of 12,000t/day. Alongside these capital intensive projects, the government has been trying to regulate the price of cement through measures such as setting fixed prices, limiting the volumes that individuals can buy and asking producers to cut distributors out of the supply chain.

To summarise some of the plant projects over the last couple of years, the Derba MIDROC Cement upgrade project intends to double the production capacity of the integrated Derba cement plant in Oromia to 15,000t/day. The other big ongoing project was announced in early 2021 when East African Holding and China-based West China Cement agreed to build a 10,000t/day plant at Lemi in Amhara Region. East African Holding is the parent company of National Cement, one of the larger producers in the country. Then in July 2021 Sinoma International Engineering’s subsidiary Suzhou Sinoma signed an initial deal with Western International Holdings, West China Cement’s international arm, to build the plant. Prime Minister Abiy Ahmed visited the construction site in March 2022 to lay the foundation stone but no commissioning date has been disclosed so far. Based on Sinoma’s assessment when it signed the contract, construction would take around 20 months, so a commissioning date by late 2023 seems reasonable. There are also a number of other projects that have been announced in the local press such as Abay Industrial Development Share Company plant at Dejen. FLSmdith said that the contract to build the 5000t/yr plant became effective in late 2020. However, not much more has been released publicly. Another project at Berenta in Amhara is also reportedly under construction.

The Global Cement Directory 2022 places the country’s production capacity at around 12Mt/yr. This compares to 15Mt/yr from 13 companies as reported by a local news source although this figure is likely to also include grinding plants. Yet the same source also placed the actual working capacity at 6Mt/yr due to old machinery and poor maintenance. As for the market in Ethiopia, Dangote Cement said that the sales from its Mugher plant rose by 1.8% year-on-year to 1.7Mt in the first nine months of 2022 and that the unit was running at full capacity in the third quarter. It reckoned that it held a 42% market share during this period, out of a total market of around 4.2Mt. Previously it said that the total market for the whole year was 7Mt in 2021.

Unfortunately it also mentioned issues with security in the region. This became a live issue this week with news that at least 30 employees of Dangote Cement were reportedly kidnapped in early December 2022 by an armed group that calls itself the Oromo Liberation Army. This is particularly sad for the company given that its country manager was shot dead in 2018. Two employees of the Mugher Cement plant were also taken hostage by the same group in October 2022 although thankfully they were later freed.

A number of projects have been announced in Ethiopia over the last few years but they appear to be taking a while to materialise. This time though a couple of the projects do seem to be on the way and the change in ownership of Habesha Cement seems to suggest a renewed vigour to the local construction market since the government opened up investment. Unfortunately, security concerns are pressing as demonstrated by what happened to some of Dangote Cement’s staff this week.

Russia: China-based West China Cement has been presented as a new partner in the Alabuga special economic zone (SEZ) in Tatarstan. The cement producer plans to invest around US$260m towards building a 1.2Mt/yr plant at the site. The project was revealed as part of an event presenting the progress of the development for the SEZ.

China: West China Cement’s preliminary results indicate a profit drop of 40 – 45% year-on-year in the first half of 2022 to US$85.6 – 93.4m from US$156m. The group said that its finance costs rose by US$10.8m, while its foreign exchange gains were just US$4.05m in the half, compared to US$51.2m in the first half of 2021.

China: Fitch Ratings expects West China Cement to record a first-half sales decline of 10% in 2022, due to ‘sluggish’ residential construction, on-going Covid-19 restrictions and high coal costs due to the Russian invasion of Ukraine. The rating agency predicted a ‘mid-single digit’ full-year sales decline in 2022, with a gross profit margin for the group of 28%, compared to 30% in 2021. This probability results from higher costs arising from overseas investments during the year.

Mozambique: West China Cement has signed a memorandum of understanding with the Mozambique government for four upcoming ‘industrial investment and development’ projects including a cement plant worth a total of US$800m. Local press has reported that another of the projects will be the construction of a power plant.

President Zhang Jimin said Zhang thanked the government for its past support of subsidiary Dugong Cimentos. He added “Due to this support we have, we are confident to continue the implementation of the development projects in Mozambique, as the government shows its concern to improve the investment conditions and environment.”

Ethiopia: East African Holding and China-based West China Cement have formed a joint venture. The Xinhua News Agency has reported that the partners plan to establish a multi-industrial complex in Ensaro Woreda district, Amhara regional state. Called Lemmi National Cement complex, the facility will house a 10,000t/day cement plant in addition to other industrial plants. The partners say that the facility will create 5000 jobs.

The first phase of the project will establish the cement plant and reach completion in late 2022.

China: West China Cement has announced that its profit attributable to owners of the company was US$108.8m in the six months to 30 June 2020, a year-on-year decrease of 5.2%. The improvement in profit came despite a 9.1% fall in revenue to US$440m. This trend follows a number of other Chinese producers that have seen markedly increased profitability in 2020 on the back of the Chinese government’s supply side reforms.

Namibia: The Namibian Competition Commission has blocked the sale of Ohorongo Cement to China-based West China Cement on the grounds that it would ‘substantially’ reduce competition in the cement market. It warned that it could lead to coordination between Ohorongo Cement and Whale Rock Cement. The commission added that, “no concrete benefit would outweigh the detrimental effects that will result from the implementation of the proposed merger”.

West China Cement agreed to buy a majority stake in the cement company for US$104m from Germany-based Schwenk Zement subsidiary Schwenk Namibia in January 2020. Previously, Singaporean authorities stopped the sale of Schwenk Namibia to Singaporean-based International Cement Group (ICG) in September 2019 due to the latter’s inability to cover the losses of the Namibian company.

China: West China Cement says that its subsidiary Yaobai Special Cement has agreed to buy a 97.5% share of Kangding Paomashan Cement for US$105m. Kangding Paomashan Cement is currently building a 1.5Mt/yr cement production line in the northwest of Ganzi Prefecture of Tibet. The new plant is intended to benefit from its location when the Sichuan-Tibet Railway project fully opens in 2021.

Huaxin Cement’s deal to buy ARM Cement’s assets in Tanzania has reportedly completed this morning. The Chinese cement producer will pour US$116m into Maweni Limestone to settle its liabilities and add another US$30m to complete plant construction and an upgrade, according to Reuters. Kenyan-based ARM Cement operates an integrated plant at Tanga and a grinding plant at Dar es Salaam.

Given the state of the world at the moment due to coronavirus the timing seems almost prophetic. There have been plenty of jingoistic warnings in Western media about renewed Chinese global dominance in the wake of the crisis. However, this agreement dates back to at least September 2019 when it was publicly announced, well before the current health scare. This is part of the Chinese expansion plan in Sub-Saharan Africa that’s been happening informally and formally since at least 2013. ARM Cement has seriously suffered since 2017 when cement demand fell in Kenya, a coal import ban in Tanzania caused production issues at its Tanga plant and increased competition hit both countries. It entered administration in the summer of 2018 and previous owner Pradeep Paunrana has been fighting PricewaterhouseCoopers’ attempts to sell the business to local rival National Cement. In some respects the timing of this deal may also be bad for Huaxin Cement given that it’s just suffered a 36% year-on-year drop in sales revenue to US$542m in the first quarter of 2020, related to the coronavirus outbreak. If the company can’t absorb this through the rest of the year then it might have a problem.

The real trend here in Chinese expansion strategy by its cement sector is a move from imports, building plants and co-financing projects to outright asset acquisition. This isn’t the first example either. West China Cement completed its purchase of a majority stake in Schwenk Namibia for US$104m in January 2020. This gave it control of Ohorongo Cement. Other recent Chinese moves in Sub-Saharan Africa include the supply of a modular grinding mill in Guinea by Sinoma and the competition of construction of a 1Mt/yr integrated plant in Lubudi Territory in Democratic Republic of Congo by another CNBM subsidiary, Tianjin Cement Industry Design and Research Institute.

An outlier from the more ‘traditional’ Chinese routes of either supplying equipment and/or co-financing cement plants in Africa has been the CNBM/Sinoma plan to build a 7Mt/yr ‘mega’ plant in Tanzania. Once completed it will nearly double local clinker production! Unsurprisingly, when it was first announced it was pitched towards the export market. Cement producers in East Africa might do well to remind themselves what has happened in Egypt since the 13Mt/yr government/army-run El-Arish Cement plant at Beni Suef opened in 2018: the over-supplied market collapsed. Together with the Huaxin Cement purchase, once the CNBM project completes, Chinese companies will own the majority of cement production capacity in Tanzania.

Looking at Sub-Saharan Africa, Chinese cement producers look set to benefit from any potential economic realignment following the coronavirus pandemic due to their conservative approach in expanding overseas. By investing cautiously and generally avoiding large-scale international acquisitions and mergers they have insulated themselves relatively well from any potential economic crisis. One weakness though is a reliance on the strong Chinese domestic market. If, say, it declines over a longer period due to the coronavirus crisis or ever reaches more ‘normal’ per-capita cement consumption figures then expanding too slowly overseas might look like the wrong strategy in retrospect. Yet, if western competitors start retreating further then the temptation to start to buy assets in bulk may grow. Another risk is how badly the coronavirus outbreak hits countries in Africa. The combination of poor healthcare systems, younger populations and warmer climates make it extremely unpredictable. Fortune may favour the bold but slow success seems to be working well for Chinese producers so far.