Displaying items by tag: inflation

Nigeria: Raw material costs for a group of major local manufacturers – including BUA Cement, Dangote Cement and Lafarge Africa – accounted for 24% of revenue in 2022. The increase in the cost of raw materials was driven by a shortage of foreign currency, raw material availability, logistics issues at ports and rising energy costs, according to the This Day newspaper. BUA Cement’s spending on raw materials rose by 9% year-on-year to US$54.3m in 2022, Dangote Cement’s spend grew by 12% to US$427m and Lafarge Africa’s expenditure increased by 32% to US$106m. The other companies included as part of the grouping included BUA Foods, Nestlé Nigeria, Cadbury Nigeria, Nigerian Breweries and Dangote Sugar Refinery.

Pakistan: Thatta Cement produced 211,000t of cement during the first half of 2023 financial year, up by 3.7% year-on-year from 204,000t during the first half of 2022 financial year. Its clinker production rose by 55% to 190,000t from 122,000t. The producer despatched 215,000t of cement, up by 4.7% year-on-year from 205,000t. Its despatches of clinker fell to 0t from 4990t.

Thatta Cement said "During the period under review, persistent political instability and indecisive monetary measures have left the business to face gross challenges. Recent floods brought on by extremely strong monsoon rains have damaged the national infrastructure and created a food crisis. The catastrophic flood has killed thousands of people, besides flooding one-third of the country. This has further compounded the agony of an economy which has already been struggling for its survival due to ever increasing current account deficit, sharply rising inflation rate and massive rupee devaluation."

The key trends to note from the financial results of cement producers in 2022 released so far are that sales revenues are up, sales volumes of cement are mostly down and earnings have mostly dropped too. Readers are not going to be surprised that 2022 was a tough year for business as the raw materials and services inflation coming out of the coronavirus period was heightened by energy cost spikes caused by the Russian invasion of Ukraine. Producers put their prices up in response to deliver often record high annual revenues.

Graph 1: Sales revenue from selected cement producers in 2021 and 2022. Source: Company reports. Note: Figures calculated for UltraTech Cement.

What sticks out by looking at the sales volumes of cement figures in Graph 2 (below) is that Holcim’s cement sales volumes were about the same as Heidelberg Materials’ were in 2022, at around 120Mt. Remember, Holcim’s cement sales volumes were 200Mt in 2021 and 256Mt in 2015 at the time of the merger with Lafarge. Large divestments have followed with the sale to Adani Group of Holcim’s India-based companies in 2022 being one of the biggest. UltraTech Cement, meanwhile, has been steadily increasing its India-based cement production capacity.

Graph 2: Cement sales volumes from selected cement producers in 2021 and 2022. Source: Company reports. Note: Figures calculated for UltraTech Cement.

By company, Holcim’s diversification and regionalisation strategy appears to be paying off well. Reducing its exposure to the cement market is giving it a strong story to tell as it grows its light building materials division, frames this as a success in sustainability and moves out of developing markets. How well this will work if and when it ends the divestment and investment stage remains to be seen. One point to highlight is that its operating profit fell by 18% year-on-year on a like-for-like basis to US$3.43bn in 2022. As well as contending with high costs in 2022, a subsidiary connected to the group was fined US$778m by the US Department of Justice in late 2022.

Heidelberg Materials’ approach to the current economic conditions in 2022 seems to have been to keep its head down and push on for decarbonisation rather than diversifying its business. So it followed the ‘sales up, costs up but earnings down’ pattern of a few of the other cement companies covered here. Although, that said, it did diversify its name to ‘Materials’ from ‘Cement’ in September 2022.

Cemex experienced the same problems as the other companies for most of 2022 but conditions started to improve in the fourth quarter in most of its territories. In particular, it reported that earnings started to grow in Mexico towards the end of 2022 despite falling sales volumes of cement. It attributed this to its pricing strategy. Of note this week, the Mexican government is preparing to support higher levels of imports of cement into the country due to a shortage in the southeast of the country.

Buzzi Unicem, meanwhile, noticed a faster slowdown in cement deliveries in its key markets in Italy, the US and Eastern Europe in the last quarter of 2022 from a general trend that could also be seen earlier in the year. In its largest market, the US, it reported that investment in residential construction slowed. This was further affected by the growing cost of building materials and the rate of inflation, although increasing spending on infrastructure helped to keep domestic consumption stable. A favourable currency exchange rate between the US and the Euro also helped the company to report provisional earnings growth. Vicat’s US businesses in the US and Brazil helped cushion the group somewhat with a large rise in sales revenue. However, earnings in the US were hit by the costs related to the start up of the new kiln at the Ragland plant in Alabama, as well as general energy cost inflation. Its business in France fought against inflation with ‘significant’ price rises delivering a high increase in sales revenue but this was insufficient to prevent earnings from dropping.

The non-European based cement producers present a different picture. Despite the high energy costs, UltraTech Cement managed to increase its revenue and sales volumes of cement in 2022. Its net profit fell though year-on-year in the nine months to 31 December 2022. The company is targeting a cement production capacity of 159Mt/yr by around the 2025 financial year with the aim of becoming the largest cement producing company in the world outside of China. Dangote Cement managed to raise its prices at home in Nigeria to fight off inflation and hold revenue and earnings up. This was harder internationally though with supply chain disruption, high commodity prices, high freight rates and a plant shutdown in Congo blamed for holding earnings back.

Inflation and the energy markets will be clear concerns in 2023. If energy prices for industry stabilise globally then there is more of a chance for business as usual as markets cope better with higher costs. The continued dilemma for multinational cement companies remains whether to decarbonise through diversification or investment in new processes, and how far to go along either path. Meanwhile, the large regional producers are starting to show themselves outside of China, as UltraTech Cement’s growth trajectory testifies. One test for these companies is balancing the risk of expansion versus potential tighter local environmental regulations. The environmental rules of export markets are also a factor to consider here with the head of AdBri calling this week for an Australian equivalent to the European Union’s border adjustment mechanism to block so-called ‘dirty’ imports.

The next set of financial results from the cement sector in 2022 to look out for will be those from the large China-based cement producers. Once these are released we will examine them in more detail.

Nigeria: BUA Cement's gross earnings rose by 31% year-on-year to US$1.29bn in 2022 from US$981m in 2021. Meanwhile, the producer's net profit rose by 2.2% year-on-year to US$193m. The group said that increased bagged cement sales volumes offset the impacts of inflation and currency effects. BUA Cement's full-year finance costs were US$23m, up by a factor of six year-on-year.

France: Vicat’s full year results for 2022 show a 16.6% year-on-year rise in consolidated sales, from Euro3.12bn to Euro3.12bn. Its earnings before interest, tax, depreciation and amortisation (EBIDTA) came to Euro570m, a 7.9% fall compared to Euro619m in 2021. Its net income for 2022 was Euro156m, a fall of 23.6% year-on-year from Euro204m in 2021.

Commenting on these figures, Guy Sidos, the Group’s chair and chief executive officer, said “In 2022, the Vicat Group demonstrated resilience amid tough conditions. Faced with an unfavourable basis of comparison as a result of the sharp post-Covid rebound in business trends during 2021, a very strong increase in energy costs and non-recurring industrial costs in the US, France and India, we responded rapidly, raising our selling prices significantly across almost all the markets in which we operate to offset the impact of inflation. We have made progress with our policy of lowering our greenhouse gas emissions by harnessing existing solutions and investing in technologies that will enable us to reach our new 2030 targets.”

Australia: Rampant inflation, restructuring costs and a softening US housing market have been blamed for a third earnings downgrade at building materials group James Hardie. The company’s new chief executive officer Aaron Erter has also warned of ongoing challenges for the business in Australia, where the housing boom is grinding to a halt in the face of surging interest rates and the end of the federal government’s HomeBuilder stimulus.

James Hardie reported an adjusted net income of US$129.2m in the three months to December 2022, down by 16% year-on-year from the same quarter of 2021. Global net sales of its fibre cement and cladding products were down 4% during the quarter, at US$860.8m, driven down by falling sales volumes in its largest market in the US, as well as in Europe and the Asia-Pacific region.

More widely, price increases partially offset an 11% decline in global sales volumes across James Hardie’s entire range of business lines. The challenging conditions led to full-year earnings guidance for the 12 months to 31 March 2023 being cut for a third time, to US$600 - 620m, in line with the prior fiscal year.

Pakistan: Lucky Cement recorded sales of US$876m in the first half of its 2023 financial year, up by 42% year-on-year from US$616m in the first half of the 2022 financial year. It sold 3.57Mt of cement and clinker, down by 24% year-on-year from 4.7Mt. The producer's costs rose by 50% to US$585m from US$391m. It recorded a profit of US$73.1m, up by 6.8% from US$68.4m.

During the half-year period, total national cement sales dropped by 17% year-on-year to 20Mt, while Pakistan's cement exports fell by 49% to 1.7Mt. The aftermath of flooding, high interest rates, inflation and cost of goods and cuts to government spending all impacted the domestic cement market, while 'global recessionary trends' cut into exports, according to Lucky Cement.

Lucky Cement holds a 15% share in the Pakistan market and a 34% share in the export market.

Brazil: Data from the Brazilian National Cement Industry Association (SNIC) shows that sales of cement fell by 3% year-on-year to 63.1Mt in 2022 from 64.4Mt in 2021. Sales fell in the Nordeste, Sudeste and Sui regions but grew elsewhere. Exports declined by 14% to 0.40Mt from 0.47Mt. SNIC has blamed the falling sales on a declining real estate sector, high inflation rates and a poor response from a new house-building campaign. It also attributed the Football World Cup in late 2022 as having a detrimental effect on national cement sales! SNIC forecasts sales growth of 1% in 2023 despite considerable market uncertainty.

Kazakhstan: Steppe Cement's full-year sales were US$86.5m during 2022, up by 11% year-on-year from 2021 levels. This came about despite a 1.2% year-on-year drop in its cement volumes. The producer also overcame high inflation, which reached 20% year-on-year in Kazakhstan in December 2022.

Steppe Cement said "We continue our capital expenditure programme to increase our production capacity of clinker and cement by mid-2023, as well as to reduce power and coal consumption."

India: Dalmia Bharat sold 12Mt of cement during the first half of its 2023 financial year, up by 20% year-on-year from 10Mt in the first half of the 2022 financial year. Its income was US$757m, up by 21% year-on-year from US$624m. Meanwhile, the company's earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 28% to US$116m from US$161m. The company noted the growth effects of 'fuel price corrections' during the second quarter of 2022, which it expects to increase its profitability during the second half of year.

Managing director and CEO Punit Dalmia said “We are pleased with the performance of the first half of this year despite the intense inflationary environment, and are confident that we will be among the best in the industry, leaving the bad times behind. While the geopolitical turmoil continues, we are confident in the resilience of the Indian economy, which is further cementing its position at the centre of global growth and consumption.” Dalmia continued “In view of the government's continued momentum in the infrastructure sector, driven by the revitalisation of the housing sector, we expect the demand for cement to grow rapidly. Looking ahead, we will remain focused on our capacity expansion progress.”

Dalmia Bharat's 14 integrated cement and grinding plants span 10 Indian states and have a capacity of 37Mt/yr, India's fourth largest.