UK: Laurence Millington has been appointed the managing director of Vortex’s operations based from Darlington in the UK. He succeeds Travis Young, who managed the company’s international operations in Europe, the Middle East and Africa (EMEA) and Asian markets since 2008. Young will become the Executive Vice President of Marketing and Global Strategy at Vortex’s corporate headquarters in Kansas, US.

Millington has been employed with the company since 2009 and was promoted to the role of Sales Director, EMEA and Asia, in 2015. Young has been with the company since 2004. Founded in 1977, Vortex designs and manufactures valves and dustless loading equipment for handling dry bulk material in the mineral, chemical and food industries.

Given the low oil price the economies of the Gulf Cooperation Countries (GCC) (including the UAE) have taken a knock in recent years. So, the news this week that Arkan has closed its Emirates Cement plant in Al Ain for good may not be too surprising. The building materials producer opened its whopping 5.7Mt/yr Al Ain Cement plant in late 2014 and, now that rising energy costs have become too much of a burden it appears to have shut down the older plant for good and moved the production across. Now it says the new unit is operating at nearly full capacity.

Arkan’s cement business saw its revenue fall by 9% year-on-year to US$220m in 2016 from US$239m in 2015. Net profit fell more sharply, by 25% to US$20.6m. The chairman cited a ‘harsh current market cycle’ as the cause of his company’s woes and also blamed a heavy rainstorm in March 2016. The storm caused an interruption in production due to a damaged conveyor belt at its Al Ain Cement plant that stalled the production on half of its raw material handling line. The producer turbocharged its sales and profits in 2014 with the opening of the new plant and managing to continue the growth in 2015 but it slowed down in 2016. Arkan has also been in the alternative fuels news this week with the announcement of plans to test burning spent pot lining. This certainly hints at a producer trying to minimise its fuel spend.

Other local producers have had similar experiences. Fujairah Cement reported that its revenue fell by 2.5% to US$162m from US$167m although it did manage to grow its profit by 12% to US$15.4m. Earlier in the year it attributed the rise in profits to higher prices and cost control on the production side. The producer, a subsidiary of India’s JK Cement, operates a dual Ordinary Portland Cement and White Cement plant. Union Cement’s revenue fell by 10% to US$153m from US$170m and its profit fell by 19% to US$22.9m from US$28.2m.

A report by Deloitte on the construction market in Dubai published in early 2016 showed that the UAE became a net exporter of cement in 2010. Local producers exported 3Mt of cement in 2012 and this was aided by high energy cost subsidies. Prior to this the nation had been importing large amounts of cement and building up its local production capacity to meet its voracious real estate market. However, this previously caused problems in 2007 when the real estate market crashed. More recently the Dubai Chamber reported that the potential value of construction projects awarded in 2016 was US$36.5bn. Overall in the GCC the value of contracts fell by 17% year-on-year. Locally, the Dubai construction sector’s real added value, or its contribution to the national gross domestic product, fell in 2012 before rising slowly subsequently but its growth rate picked up in 2013 and then started to slow down.

Looking at the broader economy the World Bank reckoned in the autumn of 2016 that growth in the UAE was predicted to continue slowing in 2016 before picking up in 2018 due to rising oil prices. In the midst of uncertain times a report by the Dubai Chamber called for cement producers to improve their competitiveness, save on production costs, use more alternative fuels and push exports. To this end Arkan’s trial with spent pot lining and today’s news of a technology start-up promoting a fly ash and slag cement for 3D printing suggest a cement and construction industry marking time before growth returns.

South Africa: AfriSam is preparing to replace its chief executive officer (CEO) to aid its merger discussions with PPC. Rob Wessels, a former chief investment officer at AfriSam’s black empowerment partner Phembani Group, is set to replace current Stephan Olivier on a short-term contract, according to sources quoted by Boomberg. The personnel manoeuvring would also potentially place PPC’s current CEO Darryll Castle in a strong position to become the merged company’s new leader. PPC and AfriSam announced that they had resumed merger talks in February 2017 after a previous attempt stalled in 2015.

Kenya: Bamburi Cement has appointed three women to its board of directors. Alice Owuor, Rita Kavashe and Hellen Gichohi have been appointed to the board, according to the Business Daily newspaper. Two female directors Sheila M’Mbijjewe and Catherine Langreney, resigned from the board in 2016 leaving it with an all-male composition and no female representation.

Owuor was the former Kenya Revenue Authority Commissioner for Domestic Taxes until she retired in 2016. Kavashe has been the chief executive of General Motors East Africa since 2011 and has worked for the motor vehicle dealer for more than two decades.

Gichohi is the managing director of the Equity Bank’s social arm, the Equity Group Foundation. She joined the Equity Group Foundation in 2012 from the African Wildlife Foundation (AWF) where she served for 11 years from 2001, as the President from 2007, Vice President from 2002 and Director of the Conservation Program from 2001 when she joined AWF. She holds a PhD in Ecology from the University of Leicester in the UK, a Master of Science degree in Biology of Conservation, and a BSc in Zoology from the University of Nairobi and Kenyatta University respectively.

The Global Cement Weekly column of 22 February 2017 entitled ‘European Union (very) slowly tightens the screws on its Emissions Trading Scheme,’¹ bears witness to the misconception that we must choose between protecting the cement industry OR the climate. Quite the opposite is true: the objective is the cohesion between economic prosperity, meeting cement market demand AND lowering CO₂ emissions.

It is undisputed that, if climate protection is aspired to, there needs to be an adequate regulatory incentive that supports, perhaps even strengthens, industry’s profitability when companies act to lower their CO₂ emission. Some companies have tried selling low CO₂-cement at a price premium, marketing their lower embedded carbon. In a commodity market of a grey powder where low prices are a decisive purchasing point, this obviously doesn’t fly.

The only sustainable business incentive is to pass on the full cost of CO₂ not only in production but also in consumption of products. This would effectively result in higher cement sales prices for high-CO₂ cement and lower prices but higher margins for low-CO₂ cement, without losing competitiveness to producers that do not face regulatory CO₂ constraints. Hence, a win-win-win situation for low carbon cement producers, consumers and the environment. This is after all the purpose of the sectoral ETS mechanism with inclusion of importers and no free allowance allocation.

The studies undertaken by Boston Consulting Group (BCG) for CEMBUREAU simulated the potential gross margin for the domestic cement industry in case of different leakage prevention mechanisms. While this may sound shocking for some, there is nothing wrong with aiming at maximisation of gross margin. Quite the opposite, gross margin maximisation is absolutely necessary for the cohesion between economic prosperity and climate protection and the effectiveness of an ETS.

The BCG studies led to the conclusion that in case of a tightening CO₂ allowance cap and under certain market conditions the importers’ inclusion mechanism can yield the best margin for the industry. Since however, as the Global Cement Weekly column mentions, the EU only very slowly tightens the screws on the supply of emission allowances, there will be sufficient free allocation for industry and there remains little need to lower emissions and thus little need for an importers’ inclusion mechanism.

CEMBUREAU called into doubt the representativeness of the technology penetration reported by the Cement Sustainability Initiative’s Getting the Numbers Right database. It is a well-established fact that the penetration of modern preheater precalciner kilns in most emerging countries is higher than in Europe, because the industry is younger outside of Europe and hence most installations have been built with more recent, more energy-efficient technology. Besides the CSI database, cement CO₂ inventories exist for about 10 emerging countries. They all confirm the same.

Beyond the comparison with other regions however, an emissions trading system that after 12 years still enables one fifth of production being made using the most energy-intensive technologies objectively misses its purpose.

Despite consuming up to 50% more energy than the Best Available Technology, such installations can survive thanks to free allocation and the revenues from waste derived fuels. The industry legitimately highlights the environmental benefits of using waste as a fuel. However, it is questionable whether keeping energy-intensive installations alive thanks to cheap energy from waste is consistent with this environmental narrative.

The proposed changes to the EU ETS will not improve its effectiveness for the cement industry. Quite the opposite, it will make it even less effective because the introduction of a dynamic allocation based on a clinker benchmark completely nullifies the need for the industry to lower the clinker content in cement.

CEMBUREAU indeed has the right to protect the industry it represents, but is probably short sighted and ill informed when it does so to the detriment of society’s necessity to mitigate climate change. The rejection of the importers’ inclusion mechanism is a missed opportunity for the European Union to make the ETS effective and for the cement industry to maintain its competitiveness in a carbon constrained world.

Eric Olsen, CEO of LafargeHolcim, the largest global cement company, and chairman of the Cement Sustainability Initiative, has called for a meaningful and increasing carbon price that can be passed through the whole product value chain and for trade policy to be included in the ETS.²

Lakshmi Mittal, Chairman of ArcelorMittal, the largest global steel company, has also called for a border adjustment measure and inclusion of consumption in climate policies.³ High quality research by leading economists exists on this topic.⁴ Now that the reform of the EU ETS enters the trilogue negotiation between European Council, Commission and Parliament, these industry leaders should step forward with a concrete and workable solution to combine industrial, trade and climate policies by 2020.

1. http://www.globalcement.com/news/item/5836-european-union-very-slowly-tightens-the-screws-on-its-emissions-trading-scheme
2. WEF, Davos: https://www.youtube.com/watch?v=O_mhqcNR0uA
3. Financial Times: https://www.ft.com/content/8341b644-ef95-11e6-ba01-119a44939bb6
4. Climate Strategies, UK: http://climatestrategies.org/?s=consumption

China: China Pioneer Cement, the sole shareholder of Shandong Shanshui Cement, has removed Li Maohuan, Yu Yuchuan, Zhao Liping and Chen Zhongsheng as directors of Shandong Shanshui. In their place Liu Yiu Keung, Stephen, Yen Ching Wai, Chong Cha Hwa and Liu Dequan have been appointed as directors.

Sri Lanka: Nandana Ekanayake has been appointed as the chief executive officer of Siam City Cement Lanka. Previously Ekanayake was the Finance Director at Holcim Vietnam and was the Vice President of Holcim Lanka, according to the Daily News newspaper. Thailand’s Siam City Cement purchased Holcim Lanka in mid-2016.

The publication of LafargeHolcim’s annual financial results for 2016 this week starts to give us a review of the year as a whole for the multinational cement producers. Of the larger producers, CNBM, Anhui Conch and Votorantim are expected to make their releases in April 2016, so we’ll focus here on the available data from LafargeHolcim, HeidelbergCement, Cemex and BuzziUnicem, with UltraTech Cement included for some regional variety.

Graph 1: Sales revenue from multinational cement producers in 2015 and 2016 (Euro millions). Source: Company financial reports.

As can be seen in Graph 1 currency exchange effects have caused problems for producers’ sales revenues, with LafargeHolcim, HeidelbergCement and Cemex all reporting falling sales on a direct comparison. Subsequently like-for-like adjustments have cropped up repeatedly on balance sheets to try and present a more investor-friendly picture, although even this has still seen LafargeHolcim and HeidelbergCement report small declines. In this sense it’s a little unfair to include India’s UtraTech Cement, given that the bulk of its business is in just one country. Operating in just one country though has its own risks, one of which we’ll discuss below.

Unsurprisingly, given the poor sales, the focus for the multinationals has generally been on earnings measures such as operating earnings before interest, taxation, depreciation and amortisation (EBITDA). Here, LafargeHolcim and Cemex have done far better as they have streamlined their businesses. For example, LafargeHolcim’s operating EBITDA rose by 12.9% year-on-year to Euro4.895bn in 2016.

Graph 2: Cement sales volumes from multinational cement producers in 2015 and 2016 (Mt). Source: Company financial reports.

Graph 2 looks at cement sales volumes. Most of the producers have made small gains or losses in 2016 with the stark exception of LafargeHolcim. Its cement sales fell by 12.9% to 233Mt in 2016. More alarmingly, for the fourth quarter of 2016 LafargeHolcim blamed an increased rate of declining cement sales volumes on demonetisation in India, tough trading conditions in Indonesia and a unusually good year (in 2015) to compare itself against in the US.

On that point about India, UltraTech may not have released any sales volumes figures but other larger Indian producers have experienced problems with the government’s decision to remove certain banknotes from circulation in November 2016. A report by HDFC Securities this week suggests that cement volumes fell by 13% year-on-year in January 2017 following a 9% decline in December 2016. The country may be facing its first decline in cement sales volumes since 2001. This is squarely down to government policy.

On a regional basis probably the most worrying theme has been an apparent slowdown in the US towards the end of the year. As mentioned above LafargeHolcim has blamed it on a good previous year and Cemex concurred. Buzzi Unicem also reported the same trend but didn’t attribute it to anything in paticular. President Donald Trump’s push for US$1tr investment on infrastructure in the US should help to reverse this along with anything that happens with his Mexican border wall plans.

The other area to pay attention to is Indonesia. Both LafargeHolcim and HeidelbergCement reported tough trading here prompted by production overcapacity. Locally, Semen Indonesia said this week that its sales revenue fell by 3% to US$1.95bn in 2016 and it still has new cement plants to be commissioned in 2017.

The overall picture for 2016 from these cement producers appears to be one of companies treading water and making savings as their sales were battered. As mentioned previously (The global cement industry in 2016, Global Cement Magazine, December 2016) the geographic spread of assets the multinationals own doesn’t seem to be protecting them from world events as well as they once did. On the plus side northern Europe seemed to pick up or at least hold steady in 2016 but various political shocks such as the UK departure from the European Union and elections in France and Germany may scupper this. In a similar vein India remains one of the key markets but government policy has potentially dented its growth this year. In the US cement volumes may be slowing but Donald Trump is riding to the rescue! With this continued high level of potentially disruptive events cement producers are probably hoping for a quiet year in 2017.

Turkey: Mehmet Göçmen has been appointed as the new chief executive officer of Sabancı Holding, the owner of several Turkish cement companies including Çimsa and Akçansa. He replaces Zafer Kurtul, who will vacate his position from 30 March 2017. Göçmen currently serves as Sabancı Holding Energy Group Head.

Göçmen graduated from the Department of Industrial Engineering at the Middle East Technical University in 1981. He also holds an MS degree from the Department of Industrial Engineering at Syracuse University in the US. He worked in executive positions between 1983 and 1995 at Steel Wire & Rope Industry, at Lafarge between 1996 and 2003 and he was appointed as General Manager of Akçansa in 2003. He has served as Human Resources Group Head, Cement Group Head and Energy Group Head at Sabancı Holding since 2008.

A couple of news stories from Australia this week give us a reason to look at the country’s cement industry. All the main producers have now released their preliminary reports for the second half of 2016, with the exception of LafargeHolcim, one of the joint owners of Cement Australia. Essentially, the picture is mixed from two of the three main producers - Adelaide Brighton and Boral - with falling sales revenues but growing sales in the east. In mid-2016 the Australian Industry Group Construction Outlook survey predicted that the infrastructure, commercial and residential sectors would start to recover in the second half of 2016 leading to an upturn in 2017, although falling mining and heavy engineering construction was expected to continue to contrast in 2016.

The local market is split in clinker production terms with most of the producers (relatively) concentrated in the south and east of the country. Cement Australia leads in cement production capacity with 2.8Mt/yr or 42% of the country's production base from two integrated plants. Adelaide Brighton then comes next with 2.3Mt/yr or 35% from three plants and Boral follows with 1.5Mt/yr from one plant since the closure of clinker production at its Waum Ponds Plant in Victoria in 2012. The cement grinding plant situation is more varied with Adelaide Brighton's Northern Cement plant in the Northern Territory and BGC Cement plant in Western Australia amongst the country's 12 units, according to Global Cement Directory 2017 data. This total also includes a few slag cement grinding plants such as the Australian Steel Mill Services' plant and the Cement Australia-Ecocem plant that are both in Port Kembla.

Adelaide Brighton reported that its sales volumes of cement were down in 2016 due to major declines in Western Australia and the Northern Territory. Here, volumes had fallen by around 20% year-on-year. Unfortunately, a revival in southern and eastern Australia in the second half of the year wasn’t enough to stem the tide of poor sales. Power supply issues in Southern Australia also caused disruptions at both the company’s own plants and at those of its customers, leading to reduced sales. The cement producer also said that its import volumes had fallen by 2Mt due to lower sales in Western Australia and the Northern Territory and that import costs had increased due to a drop in the value of the Australian Dollar. Adelaide Brighton's reliance on imports is interesting given that this week Semen Padang, a subsidiary of Semen Indonesia, announced that it had started exporting cement to Australia.

Meanwhile, Boral Australia said that its cement revenue had fallen by 3% year-on-year to US$95.3m for its first half to 31 December 2016. However, cement sales volumes grew by 3% driven by higher direct sales. It also noted that competition and energy costs had increased in the period. HeidelbergCement, the other joint owner of Cement Australia, along with LafargeHolcim, said that its operations in Australia had delivered solid development due to strong residential construction demand and strong demand on the East Coast that compensated for a weaker mining sector. LafargeHolcim confirmed this in its half-year report adding that road infrastructure projects had also helped. It also noted that benefits to its adjusted operating earnings before interest, taxation, depreciation and amortisation (EBITDA) had been accrued through energy savings and lower clinker import costs.

LafargeHolcim's financial results for 2016 are due later this week on 2 March 2017. Potentially they have big implications for the Australian cement market given the rumours that were swirling around a year ago about a potential divestment. Although the signs so far suggest that its subsidiary Cement Australia did okay in 2016, pressure elsewhere in the group might prompt a sale of its share. We discussed this issue in December 2015 but since then Adelaide Brighton publicly said it was working on an acquisition plan, including strategy on how to cope with any potential competition issues. All eyes will be on LafargeHolcim later in the week.