South Africa: PPC has appointed Njombo Lekula as the managing director of its Sothern Africa Cement division. The appointment is part of a number of changes to the cement producer’s executive team that have been announced in an operational update for its first financial quarter that ended on 30 June 2017. Mokate Ramafoko has also been appointed as the managing director of the Rest of Africa Cement division and Matodzi Mukwevho has been appointed as the group executive finance and business support officer in support of the chief finance officer.

Previously, Lekula was the managing director for PPC Zimbabwe following his appointment in 2013. An engineer by profession he studied chemical engineering and holds a Masters in Business Administration from the University of Stellenbosch Business School.

Ramafoko holds over 23 years of experience in the cement in the cement manufacturing, quality assurance and cement process optimisation industries. He has held various leadership positions in PPC, including working for Cimerwa in Rwanda, as well positions with Holcim South Africa. He holds a Master’s degree in Business Administration, a BSc and BSc (Hons) Metallurgy.

Mukwevho has held various positions including that of chief finance officer (CFO) at Sasol International Energy responsible for South Africa, Nigeria, Qatar, India and Uzbekistan. He also held the position of CFO at Sasol Polymers in South Africa, Iran, Malaysia, China, Hong Kong and UAE. Matodzi holds a Master’s of Business Administration and is a chartered accountant.

India: Manish Bhatia has been appointed as the chief financial officer of Prism Cement. He succeeds Pramod K Akhramka who has resigned from the company. Bhatia holds over 20 years experience in corporate finance.

Colombia: Rafael Olivella Vives has been appointed as the Vice President of Legal and Institutional Affairs at Cementos Argos. He succeeds Juan Luis Múnera who has secured the role as vice president of Corporate Legal Affairs at Grupo Sura. Olivella trained as the Universidad Pontificia Bolivariana and the Universidad de los Andes before working for Ignacio Sanín Bernal & Cía. He joined Cementos Argos in 2008 and subsequently became the vice president of Corporate Affairs at Celsia, the energy business of the Argos Group.

Kenya: Janerose Karanja has been appointed as the head of human resources at East African Portland Cement Company. Previously, Karanja worked for the Ministry of Industry, Trade and Cooperatives for over 25 years, according to the Kenyan Star newspaper. He holds an MBA in Human Resource Management from Kenyatta University, a human resource professional certificate from the Institute of Human Resource Management and a bachelor's degree in education from the University of Nairobi.

After a couple of weeks looking at the capacity-rich cement markets of Angola and Vietnam, we turn our attention this week to some of those countries on the receiving end of overcapacity.

Costa Rica is an unlikely place to start but it came to our attention this week due to a short but significant news item. In summary, the amount of cement imported into Costa Rica increased by a factor of 10 between 2014 and 2016, from around 10,000t to over 100,000t. This is around 5% of its 2Mt/yr domesitic capacity, so the change is already fairly big news. The fact that an incredible 97% of this came from just one country, China, makes the story far more interesting as it shows the effects that Chinese overcapacity can have on smaller markets.

But when we look at how the value of the cement imports has changed over time, we see an even more dynamic shift. While the amount of cement imported into the country increased by nearly 10-fold, the value of the same imports only increased by around half as much between 2014 and 2016. If these figures can be taken at face value, the implication is stark. Taking the very low base as effectively ‘zero,’ each tonne of cement imported must cost around half as much as it used to.

Digging a little deeper and the picture gets more complicated. While they have fallen, Costa Rican cement prices have not fallen by 50% and why the sudden deluge of imports anyway? In 2015 the country changed its rules on cement imports to facilitate more flexible imports and lower prices for consumers. It did this by changing a regulation relating to how long cement can be stored, previously set at just 45 days, with the aim of allowing cement to come from further afield and, crucially, in bulk rather than bags.

The effects on price were immediate. Previously as high as US$13/bag (50kg) in December 2014, fairly high by global standards, Sinocem, the first Chinese importer, immediately sold its first shipment at US$10/bag. This effect of lower prices has now forced the average sales prices down to around US$10/bag across the country by 2017. This is good for consumers but not necessarily the local plants.

Back in 2015, the two local integrated plants operated by Cemex and Holcim warned that cement quality would suffer if cement bags were not used within 45 days. This apparently self-serving ‘warning’ went unheeded by the Ministry of Economy, Industry and Trade (MEIC), which pointed out that other countries in South America, as well as the European Union and United States, had no analogous short use-by dates for cement bags.

The rule remains in place, although discontent rumbles on. Indeed LafargeHolcim noted in its third quarter results for 2016 that ‘Costa Rica was adversely affected by increased foreign imports.’  This may well be a little bit of posturing and it doesn’t square with the fact that Costa Rica exported three times more cement that it imported in 2016. Of total exports of 0.34Mt, over 95% went to neighbouring Nicaragua, which has a single 0.6Mt/yr wet process plant owned by Cemex. It seems that the two Costa Rican plants have found a way to keep a little bit of the Chinese producers’ margin for themselves.

Of course, Chinese cement overcapacity doesn’t only affect the Central American market. It has been rippling all around the Pacific Rim. In July 2017, this column looked at the decision by Cementos Bío Bío to stop making clinker at its Talcahuano plant in Chile. It now favours grinding imported clinker from Asia. Before that, Holcim New Zealand closed its Westport cement plant in 2016, finally admitting that domestic clinker was not viable.

In the grand scheme of things, this all makes sense. The market has forced those operating on thin margins to adjust. Ultimately, the end consumer is likely to benefit from lower prices, at least for as long as reliable low-cost imports can be secured. What happens, however, if China actually gets round to curtailing its rampant cement capacity, or simply decides to charge more for its cement? Flexible imports, the main aim of the Costa Rican rule change, may then prove vital, as long as there is more than one international supplier of cement.

Dominican Republic: Colombian cement producer Cementos Argos has announced the appointment of Gary Manuel de la Rosa as its new Director General in the Dominican Republic. Previously, de la Rosa acted as a director of the industrial business unit at Cementos Argos in the Caribbean and Central American region.

One of the surprises from the recent round of half-year results has been HeidelbergCement’s struggle to grow its sales so far in 2017. Part of this has been down to a variable market in Indonesia where the German cement producer runs the second largest player, Indocement.

Cement consumption for the country as a whole dropped by 1.3% year-on-year to 29Mt in the first half of the year, according to Indonesian Cement Association figures. This appears to be due to a particularly poor month in June 2017 where local consumption fell by 27% to 3.7Mt. Prior to that, consumption was actually showing 4% growth up until the end of May.

Fairly reasonably HeidelbergCement blamed the decline in part on this year’s timing of Ramadan. Unfortunately this could not explain everything, as its total sales volumes including exports fell by 2.4%. Remove the exports and its sales volumes fell by 4.4%, more than the national average. It said this was due to its concentration in weaker markets in Jakarta, Banten, and West Java where competition pressures had forced prices down ‘significantly.’

They weren’t alone in feeling the pain in June 2017 with both Semen Indonesia and LafargeHolcim reporting reduced sales. However, LafargeHolcim also raised the issue of production overcapacity creating increased sales volumes and pushing down prices. This was reflected in lower earnings for its Asia Pacific division. HeidelbergCement too saw its earnings crumble.

Graph 1: Cement production capacity and consumption. Source: Semen Indonesia investor presentation, March 2017.

Graph 1 shows quite nicely the fix the Indonesian cement market is in at present. Consumption surpassed production capacity in the early 2010 before incoming capacity jumped ahead again around 2013. You can also view Global Cement’s version of this graph here. Even at an optimistic annual growth rate of 8%, consumption won’t get close to capacity until 2020. Yet before the market collapsed in June, consumption was growing at 4%, which is the weakest of Semen Indonesia’s growth scenarios.

Admittedly the graph is in an investor document so we can forgive ebullience but they are going to need a magic bullet to dodge this one. Lucky then that the graph also has infrastructure highlighted. The cement producer says that the Indonesian government earmarked US$26bn for infrastructure spending in 2017 and that this spending campaign can be seen in the changing ratio of bulk to bagged cement it has been selling. Independent of Semen Indonesia, the Fitch credit rating agency was also predicting rising consumption off the back of infrastructure plans in a report it put out in June.

However, as more cement plants are being built, cement plant utilisation rates seem destined to stay subdued for the foreseeable future unless the government seriously ups its infrastructure investment or unless the economy goes into overdrive. Unsurprisingly exports have shot up so far in 2016, by 74% to 1.14Mt. Cement producers in neighbouring countries beware!

Nigeria: Brian Egan has been appointed as an executive director to the board of Dangote Cement. Currently the company’s Chief Financial Officer, he has worked for the cement producer since 2014. Previous to this he worked as the executive director and chief financial officer of Petropavlovsk and of Aricom. He has also held senior finance positions at Gloria Jeans Corporation, Georgia – Pacific Ireland and Coca-Cola HBC-Russia. He trained with KPMG and is a member of the Institute of Chartered Accountants in Ireland.

India: Manoj Agarwal has resigned as the company secretary and compliance officer of Star Cement, with effect from 2 August 2017. His successor is Debabrata Thakurta, a member of the Institute of Company Secretaries of India.

Cement sales volumes are down at the larger multinational cement producers so far in 2017. As the first half-year results emerge, a picture seems to be appearing of sluggish growth at best for the major internationals. Reduced working days and poor weather have been blamed for the underwhelming performance.

Graph 1: Cement sales volumes for selected multinational cement producers during the first half of 2017. Source: Company financial reports.

True, LafargeHolcim’s sales rose by 0.4% year-on-year on a like-for-like basis, probably due to the assets the group has been sloughing off since the merger, but this is hardly the dynamic growth shareholders may have hoped for. Meanwhile, HeidelbergCement, following its acquisition of Italcementi in late 2016, has only been able to increase its cement and clinker sales by 1% for the first half of 2017 once consolidation effects were excluded. Here the problem appears to be reduced sales in both the US and Indonesia at the same time. This then leaves Cemex with a 2% drop in sales volumes to 33.9Mt with a big drop in the US despite a promising construction market otherwise. It blamed the decline on a high comparison base in 2016 and the weather.

The larger regional players examined here appear to have fared better. Both UltraTech Cement in India and Dangote in sub-Saharan Africa reported flat or falling sales volumes. However, delve a little deeper and there’s more going on. UltraTech didn’t offer any reason for the decline although it was likely focused on its acquisition of assets from Jaiprakash Associates and the knock-on from the demonetisation process last year. That purchase increased its cement production capacity by nearly 40% to 91.4Mt/yr from 66.3Mt/yr and it seems keen, to investors at least, that it will be able to rocket up the capacity utilisation rate at the new plants.

Dangote meanwhile has taken a blow from the poor economic situation in Nigeria, where it still produces most of its cement. Here, sales fell by 21.8% to 6.86Mt from 8.77Mt, causing its overall sales to fall by 11.3% to 11.5Mt. Almost incredibly though, as Graph 2 shows, Dangote upped its sales revenue by a whopping 41.2% to US$1.13bn off the back of improved efficiencies and a much better fuel mix in Nigeria. The turnaround is impressive considering the pressure the company faced in 2016. Today’s news that the firm has sold a 2.3% stake to foreign investors adds to the impression of a company on the move.

Graph 2: Sales revenue for selected multinational cement producers during the first half of 2017. Source: Company financial reports.

Looking at overall sales revenue shows a happier picture for most of the producers detailed here, with the exception of HeidelbergCement. Although Graph 2 shows declines for LafargeHolcim and Cemex on a like-for-like basis, at least growth is occurring. HeidelbergCement though has reported static revenue on an adjusted basis for the period. This suggests that the producer has hit problems just as it is starting to integrate the Italcementi assets into its portfolio. In theory the geographic spread of its new production units should shield it from lowered growth elsewhere but if this doesn’t happen it may be in for a rougher ride than LafargeHolcim following its merger.

In summary, being a large-scale multinational cement producer doesn’t quite seem to be offering the balanced growth one might expect so far in 2017. Cement sales volumes are slipping and revenue is also down on a direct comparison basis. It’s barely a case for comparison but smaller regionally based producers like UltraTech Cement and Dangote, in the right locations, seem to be capitalising on their positions. We’ll see how the big Brazilian producers Votorantim and InterCement, Buzzi Unicem and CRH fit this trend when they release their financial results over the next few weeks.