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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.

Taiwan Cement said this week that it is aiming for cement to account for less than half of its sales by 2025. At the annual shareholders’ meeting chair Nelson Chang defended the cement sector as a core business but said that the company was expanding more into the green energy sector through its energy storage and vehicle charging lines. Chang directly linked the strategy to growing carbon taxes around the world, such as the European Union Emissions Trading Scheme, where the carbon price has been occasionally close to pushing past Euro100/t since early 2022. Taiwan Cement formed a joint venture with Türkiye-based Oyak Group in 2018 that runs Cimpor in Portugal.

Table 1: Cement business share by revenue of selected cement producers. Source: Corporate annual reports.

Taiwan Cement’s plan to decrease its reliance on cement is becoming a familiar one. Holcim notably revealed in 2021 that it was growing its light building materials division. Its cement division represented 60% of sales in 2020 with concrete and aggregates making up most of the rest to 92% and the remaining 8% on other products including light building materials. This started to change with the acquisition of roofing and building envelope producer Firestone Building Products in 2021. Other similar acquisitions have followed. Holcim’s current target is to grow the Solutions & Products division to around 30% by 2025, with cement reduced to somewhere between a third and half of sales. Earlier this year Japan-based Taiheiyo Cement said it was doing a similar thing as part of its medium-term strategy to 2035. In its case cement represented 70% of its sales in 2022 but it is now aiming to reduce this to 65% by 2025 and 50% by 2035.

A common pattern for the business composition of European cement companies is a mixture of heavy building materials made up of cement, concrete and aggregate. However, not every cement company follows the same route. Some cement companies are simply parts of larger conglomerates. UltraTech Cement, for example, is mostly just a cement company. However, it is also part of Aditya Birla Group, which runs a wide range of industries including chemicals, textiles, financial services, telecoms, mining and more. Depending on how one looks at it, UltraTech Cement’s cement business ratio is large or Aditya Birla Group’s ratio is small. Siam Cement Group (SCG) in Thailand is another example of a cement producer operated by a conglomerate with other major businesses.

A different approach that some cement producers take is to mix cement production with complimentary businesses outside of heavy building materials. A good example of this is Votorantim Cement in Brazil, which manufactures cement and steel. Companhia Siderúrgica Nacional (CSN) is another Brazil-based cement producer that is also well known for steel production. Adani Group in India, meanwhile, was well known for logistics, power generation and airports before it purchased Ambuja Cements and ACC from Holcim in 2022.

The driver for cement companies looking to reduce cement as a proportion of their businesses has varied between the three examples presented above. Holcim’s approach has been in response to growing European carbon costs but it also fits with a general desire to broaden its business as the company has sought to reshape itself following the merger between Lafarge and Holcim. Taiheiyo Cement’s plans also have a sustainability angle but the Japanese market has been in slow decline since the 1990s and this has been made worse by the spike in energy prices since 2022. Investing in new businesses makes sense for either of these reasons. Lastly, Taiwan Cement says it is taking action in response to carbon prices around the world. However, its proximity to many other large-scale producers in the Far East may also be a factor. Whether more companies follow suit and also start to reduce the ratio of their cement businesses remains to be seen. Yet, mounting carbon taxes and global production overcapacity look set to make more of the larger cement producers consider their options in certain places.

Serbia: Holcim has acquired aggregates producer Teko Mining Serbia. Teko Mining Serbia’s aggregates sales were 2.4Mt in 2021. It employs 150 people across its quarries in Batocina, Ceramide, Ladne Vode and Ljubovija.

Holcim’s Europe, Middle East and Africa regional head Miljan Gutovic said “Teko complements our existing cement and concrete operations perfectly, allowing us to add aggregates and asphalt as part of our integrated offer in this highly dynamic market. I look forward to welcoming the employees of Teko Mining, whose expertise will be invaluable in accelerating our growth, especially in the highly dynamic Serbian market, and will enable us to develop circular solutions to recycle construction and demolition waste in the future.”

Canada: Holcim has announced its acquisition of Mathers Group’s quarry and asphalt assets in Quebec. The group says that the acquisition will accelerate its development of local circular construction practices by expanding its recycled concrete offering.

UK: Hanson has signed a memorandum of understanding with Shell to work together to explore opportunities that help the construction industry’s transition to net zero emissions.

Under the agreement the companies plan to explore: using hydrogen for transport and industrial processes; using capture utilisation and storage (CCUS) in cement production; looking at lower carbon fuels and electric vehicles; digital innovations in energy production, consumption and efficiency; improving bitumen and asphalt technology; and renewable energy sources such as solar installations and batteries to replace diesel generators. In addition, the companies say they will consider the possibility of collaborating in future business opportunities or new business models, which will create value and scope for further decarbonisation.

Hanson’s chief executive officer Simon Willis said, “We are already working together on several initiatives to decarbonise asphalt with bitumen materials and innovations which promote long life, increased use of recycled materials, low carbon products and the circular economy.” He added that “Hanson and Shell have a long-established working relationship and are committed to sharing knowledge and resources to jointly work on projects that will facilitate our transition to net zero emissions.”

UK: Cemex UK has announced the launch of Viabase, an engineered asphalt concrete. The company says that the product is especially suited to use in residential housing estate roads, where it will be exposed to construction traffic before being surfaced after houses are built. The launch supports the UK government’s drive to increase house building to 300,000units/yr.

Europe regional asphalt, paving and building products director Carl Platt said, “With Viabase, we are pleased to offer a way to ensure the longevity of housing development roads, which standard materials struggle to provide if the surface course is not placed soon after. Viabase provides a highly durable, low maintenance surface which will meet the challenges presented by heavy duty vehicles and prevent long-term problems in the overall pavement construction.”

The company will produce Viabase at all its UK asphalt plants, where it will be available for delivery to customers or collection.

UK: The Competition and Markets Authority (CMA) has said that Breedon Group’s acquisition of a minority of Cemex UK’s ready-mix and aggregates operations “may lead to a substantial lessening of competition in the supply of ready-mixed concrete, non-specialist aggregates or asphalt in 15 local markets across the UK” in a letter to the group. The Herald newspaper has reported that the potentially affected markets are in localities where Breedon Group is already dominant, such as eastern Scotland and the East Midlands.

CMA senior director Colin Rafferty said, “As consumers source the majority of these materials locally, it’s vital to ensure that enough competition will remain at the local level so there’s enough choice and prices remain fair.” If it fails to respond to the CMA’s concerns by 2 September 2020, Breedon Group will face an in-depth Phase 2 investigation into the deal.

UK: Breedon Group says it has completed the acquisition of selected assets from Cemex. Following instructions from the Competition and Markets Authority (CMA) the assets will be operated as Pinnacle Construction Materials, a newly-created separate business led by its own management team and operating from its own offices. Pinnacle will offer a range of heavy building materials, including aggregates, asphalt, ready-mixed concrete, concrete products and cement, together with contracting services, from approximately 100 locations in England, Wales and Scotland.

The CMA is still investigating the acquisition and plans to announce its initial conclusions in late August 2020. Breedon Group expects to integrate Pinnacle into its UK business at a later date once this process is fully completed. Cemex agreed to sell Breedon Group some of its UK assets in January 2020. This included 49 ready-mix plants, 28 aggregate quarries and a cement terminal for Euro211m.

UK: Hanson has been part of a new continuous concrete pour record in the UK as part of its work at the EDF Energy’s Hinkley Point C (HPC) new nuclear power station in Somerset. It supplied raw materials for the concrete to main civil engineering contractor BYLOR, which operates the on-site concrete production plant. The 9000m³, five-day, pour was to construct the last of five reinforced concrete segments that make up the cross-shaped foundations on which all of the first nuclear reactor’s buildings will sit. The record-breaking pour beats the previous UK record set by the Shard skyscraper in London.

The completion of the foundation platform, which is up to 4m thick, represents a significant milestone for the project, described by EDF Energy as J-zero. It marks the transition from below ground activity to the construction of permanent reactor buildings above ground.

Hanson says that mix design for HPC took three years of development and testing to ensure that the concrete was of the required quality mandated by the Office for Nuclear Regulation. The subsidiary of Germany’s HeidelbergCement has 65 employees directly involved in the HPC project team. To date Hanson has supplied 51,000m³ of concrete, 2.5Mt of aggregates, 210,000t of marine sand, 65,000t of cement; 105,000t of ground granulated blast furnace slag (GGBS) and 125,000t of asphalt.