Displaying items by tag: costs

India: Ratings agency ICRA says that the cement industry in India will reach a renewable energy reliance of 40% across its operations in the 2025 financial year. The Hitavada newspaper has reported that this will involve the construction of 537MW-worth of new renewable power capacity. During the 2023 financial year, which ended on 31 March 2023, producers used 35% renewable energy. ICRA said that they can expect to make costs savings of US$240m/yr from 2025 through the scale-up of renewables, including solar, wind and waste heat recovery. This would correspond to a 15 – 18% reduction of estimated energy costs for the 2025 financial year.

Over the same two-year period, ICRA forecast blended cements to rise to 81% of cement sales in the 2025 financial year, from 78% in the 2023 financial year.

South Korea: The Korean Railway Workers’ Union called a four-day strike of its 13,000 members across South Korea on 14 September 2023. Reuters has reported that the union is seeking higher pay, improved working conditions and the expansion of bullet train services into South Seoul. The Ministry of Transport predicts that total cargo haulage will drop by 53 - 79%. The Korean Cement Association (KCA) said that a protracted strike would disrupt cement production. The industry is 40% reliant on rail transport.

A representative from a KCA member said “We have secured some inventory in preparation for the strike, but it's not a lot. If the strike lengthens, we will have to convert to land transport, which will drive up costs and hit profitability."

Norway: The Ministry of Petroleum and Energy has signed a new agreement with Heidelberg Materials Sement Norge, confirming funding of up to US$14.1m for the producer’s construction of a full-scale carbon capture system at its Brevik cement plant. Under the agreement, Heidelberg Materials Sement Norge will absorb extra costs that have arisen, and retain a larger share of any return on the project. Costs rose due to the Covid-19 pandemic, the Russian invasion of Ukraine and international supply chain pressures.

Nordic Daily News has reported that Heidelberg Materials Northern Europe director Giv Brantenberg said "We are in the process of completing the world's first full-scale plant for carbon capture in the cement industry, and have had great support from the Norwegian authorities throughout the project's many phases. Today's agreement reflects the good cooperation with the Norwegian government, and we look forward to completing this unique facility.”

The Hungarian government recently enacted Emergency Decree 320/2023, taxing all CO₂ emissions from the country’s 40 or so largest industrial enterprises. The government used emergency powers to set up a new taxation scheme, which undercuts existing free allowances under the EU emissions trading scheme (ETS). The scheme additionally penalises the trade in ETS credits. Cement producers announced that the new regulations will make it impossible for them to keep operating.¹

With regard to Hungary’s six active cement plants, the scheme comprises:

1 – A Euro20/t tax on CO₂ emissions, effective retroactively from 1 January 2023, payable by any large enterprise that uses EU Emissions Trading Scheme (ETS) free allowances to cover the majority of its CO₂ emissions. Plants that decrease their production, or that carry on non-CO₂-emitting activities at over 10% of their operations, will pay a higher rate of Euro40/t of CO₂.

2 – A 10% transaction fee for the sale of free allocations under the EU ETS, payable to the Hungarian Climate Protection Authority.

Less than three years ahead of full implementation of the EU carbon border adjustment mechanism (CBAM), the Hungarian government has seemingly moved unilaterally against cement production – this in a country surrounded by seven other cement-producing countries. Multiple foreign cement producers connected to the major market of Budapest by rail, river and road will be watching developments with interest. These include CRH, which, besides two smaller plants inside Hungary, operates the 800,000t/yr Cementáreň Turňa nad Bodvou plant, immediately over the border in Slovakia.

This comes at a time when the domestic cement industry is facing historically high costs and low demand, with a 30% year-on-year decline in construction activity in July 2023, following double-digit inflation throughout 2022 and the first half of 2023.

Catastrophising may be a common symptom of environmental regulation in industry associations, but one can understand on this occasion. The Hungarian cement and lime industry association, CeMBeton, backed its members’ gloomy announcement about their future with an estimate for extra annual taxes of ‘several billion forints’ (1bn forint = US$2.84m), in a statement following the decree. Assuming annual CO₂ emissions of 565kg/t across its 5.4Mt/yr cement capacity, the sector might expect to pay US$61m/yr in CO₂ rates alone.^{2, 3} According to analyst ClearBlue, the government will raise additional tax revenues worth US$278m/yr across all of the 40 aforementioned heavy emitters in Hungary.⁴

It may seem surprising that CeMBeton did not even draw up a projected tax bill during consultations over the new tax scheme – but, in fact, no such consultations took place. In its most recent statement, the association said “We do not know the government’s intentions.” Outside of official releases, Hungary’s cement producers have not always been so reserved about the government’s perceived aim.

Global Cement reported in April 2023 that the Hungarian government was allegedly interfering in the cement sector to make producers sell up – as per accusations by an anonymous industry executive.⁵ There is arguably a course of action on the government’s part which, more or less, appears consistent with this aim:

October 2020 – The Hungarian Competition Authority (GVH) starts competition supervision proceedings against CRH, Duna-Dráva Cement and Lafarge Cement Magyarország.

July 2021 – Emergency Decree 2021/404 imposes a 90% tax on producers’ ‘excess’ profits, based on threshold cement sales revenues of Euro56/t. Additionally, producers must report their exports.

September 2021 – GVH finds insufficient evidence to support the initiation of competition supervisory proceedings in the cement industry.

January 2023 – (Retroactive) entry into force of CO₂ emissions tax.

May 2023 – The government of Hungary reportedly initiates negotiations to acquire Duna Dráva Cement and Holcim Magyarország, according to the Hungarian builders’ association, National Professional Association of Construction Contractors (ÉVOSZ). Duna Dráva Cement owners Heidelberg Materials and Schwenk Zement state that they have entered into no such negotiations, while Holcim declines to comment.

July 2023 – The Act on Hungarian Architecture lets the government dictate producers' volumes and prices and require them to supply cement to National Building Materials Stores (a proposed state-owned construction materials retail monopoly).⁶ Additionally, the government gains a right of first refusal over the divestment of any asset by the cement industry’s foreign owners.

20 July 2023 – The government enacts Emergency Decree 320/2023. ETS transaction fees enter into force.

The government can now expect a legal challenge to its latest move. CeMBeton’s first ally may be the font of all emissions legislation – the EU itself. Within the EU ETS framework, tax rates are down to member states to determine. However, the introduction of a transaction fee may constitute an illegal restriction to free allowances, OPIS News has reported. The association has also indicated its readiness to mount a constitutional challenge, specifically with regard to the legislative retrofit involved in the CO₂ emissions tax. The Fundamental Law of Hungary does not generally permit legislation to apply retroactively, though how courts will balance this consideration against the rights of the government is untested.

The government amended the constitution to provide for new emergency powers, and subsequently adopted them in May 2022, in response to the ‘state of danger’ created by Russia’s war in Ukraine – though its actions on the international stage suggest careful neutrality, if not ambivalence. At home, the war has brought a consolidation of the government’s control over various areas of life, including the economy, according to Human Rights Watch.⁷

Climate protestors around the world might be glad to see governments wield emergency powers against their own heavy industries. In Hungary, however, the wider sustainability goals are not yet clear with regard to a policy that seems, at least partly, politically motivated.

References

1. CeMBeton, Sajtónyilatkozat, 21 August 2023, https://www.cembeton.hu/hirlevel/2023-08-21/202308-mozgalmas-osz-ele-nezunk/116/sajtonyilatkozat/668

2. Heidelberg Materials, ‘Energy and climate protection,’ 2022, https://www.heidelbergmaterials.com/en/energy-and-climate-protection

3. Global Cement, Global Cement Directory 2023, https://www.globalcement.com/directory

4. OPIS News, ‘Hungary's New Carbon Tax Unlikely to Set EU Precedent, Say Analysts,’ 16 August 2023

5. Global Cement, 'Update on Hungary,' April 2023, https://www.globalcement.com/news/item/15572-update-on-hungary-april-2023#:~:text=Heidelberg%20Materials'%20subsidiary%20Duna%2DDr%C3%A1va,the%20country's%20active%20national%20capacity.

6. Daily News Hungary, ‘Hungarian government’s new nationalising plan could violate EU law,’ 27 February 2023, https://dailynewshungary.com/hungarian-govts-new-nationalizing-plan-could-violate-eu-law/

7. Human Rights Watch, ‘Hungary’s New 'State of Danger',’ 8 June 2022, https://www.hrw.org/news/2022/06/08/hungarys-new-state-danger

Pakistan: Cement producers in Northern Pakistan have reported a 13% drop in the price of coal to US$126/t. The Pakistan Today newspaper has reported that this is due to the Afghan government lowering taxes on exports of coal from Afghanistan. The Taliban reduced its royalties on coal exports by 12% to US$30/t. Meanwhile, it reduced customs duties on coal exports by 33%, also to US$30/t.

Northern Pakistan is comprised of Azad Jammu and Kashmir, Khyber Pakhtunkhwa and Punjab. In 2022, regional cement plants were over 70% reliant on Afghan coal. That year, they paid coal prices of US$170 – 200/t.

Europe: The EU has enacted the implementing regulation for the carbon border adjustment mechanism (CBAM) under its emissions trading scheme (ETS). Under the CBAM, importers of cement to the EU will eventually pay taxes for its embedded CO₂ emissions, equivalent to those levied against EU-based producers. Importers must begin to collect emissions data from 1 October 2023, and submit a report for the fourth quarter of 2023 to EU authorities by 31 January 2024. No financial adjustment will yet be payable during the transition period to full CBAM implementation from the start of 2026.

The Asset newspaper has reported that dedicated IT tools and training materials for importers affected by the CBAM are currently in development, according to the European Commission.

Australia: The Ministry of Climate Change, Energy, the Environment and Water is holding a consultation over the possible implementation of a Cross-Border Adjustment Mechanism to penalise imported cement for its CO₂ emissions in line with the Australian cement industry’s emissions reduction goals. The Guardian Australia newspaper has reported that the government expects to publish its report on the policy in mid-late 2024. The government began implementing new CO₂ emissions limits for Australia’s 200 largest industrial emitters in July 2023. It expects these to eliminate 200Mt-worth of CO₂ emissions over the period up to 2030. Climate Change and Energy Minister Chris Bowen said “80% of these companies, and 86% of covered emissions, are covered by corporate net zero commitments.” Australia is committed to net zero CO₂ emissions by 2050.

With regard to the proposed Cross-Border Adjustment Mechanism, Bowen said “It’s a potentially important mechanism to ensure domestic sovereign capability and supply. One of the biggest challenges we face is supply-chain crunches, and any measure which helps us deal with that is a positive thing for the transition.”

Spain: Switzerland-based Synhelion and Cemex España plan to build a new clinker plant near Madrid. The plant will use Synhelion’s synthetic fuel to produce clinker from clay and crushed sand at 1200°C. The fuel consists of a gas produced from green hydrogen and captured CO₂, using solar heat. La Tribune de Genève Online News has reported that Synhelion’s thermochemical reactor further helps to capture CO₂ emissions from clinker production. A study by the Swiss Federal Institute of Technology Lausanne indicated that this can halve the cost of carbon capture at cement plants, to below Euro85/t.

Australia: Boral’s sales were US$2.28bn in the 2023 financial year, which ended on 30 June 2023. This corresponds to a 38% year-on-year rise from the previous first half. The group’s net profit dropped by 1.3% to US$96.6m. It noted a rise in its costs of energy, labour and transport, which it expects to continue up to the end of June 2024, and possibly on throughout the second half of 2024.

The Sydney Morning Herald newspaper has reported that Australian residential construction activity dropped by 7.7% month-on-month in June 2023. Boral CEO Vik Bansal said that the company expects residential, commercial and civil construction to return to growth in the 2024 financial year.

Japan: Sumitomo Osaka Cement says that it expects sales to rise by 14% year-on-year to US$761m during the first half of the 2024 financial year. Nikkei Financial Summary News has reported that the producer expects a drop in its cement volumes, offset by price hikes. Currency effects will also impact its result. Meanwhile, coal prices remained lower than expected. The company expects to record a net profit of US$26.6m, compared to a loss of US$20.4m in the first half of the 2023 financial year. It previously forecast a US$13.3m loss.

Sumitomo Osaka Cement recorded US$52.8m in sales in the first quarter of the 2024 financial year (1 April - 30 June 2023). This corresponds to year-on-year growth of 16%. Nonetheless, it made a net loss of US$7.6m.

Throughout the first quarter of the 2024 financial year, Japanese cement despatches fell by 15% to 10.1Mt. Exports declined most sharply, by 43%, to 1.51Mt.