India: Dilip Gaur has replaced K K Maheshwari as the managing director of Grasim Industries, with effect from 1 April 2016. Maheshwari will remain on the board as a non-executive director.

Gaur was previously the deputy-managing director of Ultratech Cement. Before that he worked for Birla Copper, Alexandria Carbon Black and Pan Century Edible Oils. He also worked for over 20 years with Hindustan Unilever. Gaur holds a bachelor of engineering degree in chemicals and took the Advanced Management Program at Harvard, US.

Tata Steel put up its UK business for sale last week. The Indian multinational declared that enough was enough having reported losses of over Euro2.5bn in the territory over five years. Non-UK readers may well wonder what the fuss is about. UK crude steel production comprised 10.9Mt in 2015 or about 0.7% of global production according to World Steel Association data according to World Steel Association data. By contrast the country produced 9.3Mt of cement in 2014 or about 0.2% of world production according to CEMBUREAU data according to CEMBUREAU data.

The UK’s flailing steel industry is worth discussing here for two reasons. Firstly, any decline in the local iron and steel industry will have implications for the supplementary cementitious materials (SCM) market as slag levels vary. Secondly, the cement industry in Europe may have lessons for a fellow heavy industry facing capacity rationalisation.

UK ground granulated blastfurnace slag (GGBS) production levels are low compared to total world supply. However, the UK Competition Commission certainly took note of the GGBS market in 2014. It was worried by LafargeTarmac’s and Hanson’s prominence in both the local GGBS supply chain and local cement production. At that time it ordered the HeidelbergCement subsidiary Hanson to sell one of its slag grinding plants to increase competition in the supply chain for GGBS. A GGBS plant in Scunthorpe was eventually sold to Francis Flowers in July 2015.

The general point here is that a Tata sale of its UK operations could have ramifications for the UK GGBS sector as existing deals are renegotiated following the shakeup. It would be even worse for the local slag market if any of the plants closed. No doubt the Competition Commission would also want to have its say to maintain some sort of competition in an already concentrated market. The UK cement market has been the bright spot in the multinational cement producers’ European regions in 2015. However, construction growth is starting to slow again with hints that the looming European Referendum in June 2016 may be having a negative effect. Uncertainty over GGBS supplies is not helpful in this atmosphere.

A wider lesson for other national cement industries looking in is that if Chinese steel continues flood the world market it will also hit the cement industry. Tata’s woes have been squarely blamed on China dumping its steel on the world market. Various jurisdictions promote the use of SCM cements and concrete for their low-carbon and sustainability properties. If local or existing GGBS supplies are hit then the cement industries may be penalised while the lawmakers and competition bodies play catch-up.

The wider point about heavy industry reducing its production capacity is one that the European cement industry will be well used to. Spain, for example, has seen its cement production drop from 55Mt in 2007 to 15Mt in 2014 according to Oficemen data. Alongside this, demand for cement has dropped to levels not seen since the 1960s. The European response has been to shut plants, sell assets and to merge companies.

The big question following the 2008 recession is whether ‘this’ is the new normal for mature construction markets. Eight years later global interest rates are still lagging and China’s economy is slowing down. All of the European infrastructure was built long ago meaning that steel and cement will only be required to maintain it. Luckily it looks likely that demand for SCMs should stay buoyant as industries are encouraged to decarbonise. The problem though is where the slag comes from. Oversupply in the short term in areas like Europe might be great for cement producers but as the iron and steel industries readjust to market reality there might be a hangover in store.

Austria: A TEC Group has appointed Wolfgang Hammer as its new managing director. The former Global Sales Manager at the company replaces Hans Joachim Grieb who retired on 31 March 2016. Stefan Kern has been appointed his deputy. He is responsible for the markets Northern Europe, Eastern Europe and South Africa. These appointments are effective from 1 April 2016.

South Africa: PPC has appointed Peter Nelson as its interim chairman following the retirement of Bheki Sibiya. A permanent replacement for Sibiya is expected to be recruited by September 2016.

Nelson was appointed to the Board as an independent non-executive director on 25 January 2015. His experience covers manufacturing, mining, telecommunications, healthcare, leisure, property, packaging and the motor industry in listed and private entities in South Africa, the United Kingdom, Zimbabwe and Nigeria. He has served as chief financial officer on several Boards including Telkom, Netcare and Mondi.

LafargeHolcim was the last of the major non-Chinese cement producers to report its annual financial results when it did so on 17 March 2016. With the full set in, as it were, Global Cement will compare the progress of the world’s largest multinational cement companies in 2015.

The first thing to note is that whilst cement production growth rates have hardly been inspiring in 2015, growth or holding the status quo is occurring. The emerging markets have faced challenges in 2015 following the prolonged depression in the construction sector in Europe since 2008. As Wolfgang Reitzle and Eric Olsen put it in the forward of the 2015 LafargeHolcim annual report, “…our share price has been significantly affected, mainly by the volatility associated with emerging markets.”

Figure 1: Cement & clinker sales volumes from five major cement producers, 2011 – 2015. Source: Annual reports. Note: Sales volumes are calculated for LafargeHolcim for 2011 – 2013.

Figure 1 shows cement and clinker sales volumes for the major cement producers from 2011 to 2015. This graph isn’t quite as depressing as it looks because it shows a drop in cement production for the major producers and it has started to show remedial action being taken. Where growth isn’t happening in a market, pressure builds to find it through mergers and acquisitions.

So, Lafarge and Holcim merged and the decision may be now starting to show promise with its sales volumes remaining static year-on-year in 2015 rather than falling. It should be noted here that the drop from 2013 to 2014 is due to the divestments Lafarge and Holcim both made before the merger to satisfy competition bodies and because the sales volumes were calculated here from the separate Lafarge and Holcim annual reports.

Even more so, HeidelbergCement’s plan to buy Italcementi may be a good idea here. Already it has been growing its cement production each year since 2013. The acquisition could potentially speed up the growth considerably. Elsewhere, both Cemex and Buzzi Unicem are showing signs of picking up cement production since 2013.

Figure 2: Earnings before interest and taxation (EBIT) for five major cement producers, 2011 – 2015. Source: Annual reports. Note: Cemex and LafargeHolcim figures have been converted from US Dollars and Swiss Francs respectively at current exchange rates.

Figure 2 shows one indicator of profitability for the major cement producers by comparing their earnings before interest and taxation (EBIT). This is less useful than cement sales volumes because it covers the producers’ entire businesses including aggregate and concrete sectors. However, it does show the problems Italcementi has faced and it offers one reason why the company might have allowed itself to be taken over. Note also how Cemex has continued to increase its EBIT despite its high levels of debts.

Returning to the LafargeHolcim comments about volatile emerging markets, most of the producers reported tough trading in their Asian territories in 2015. The exceptions were Cemex with its reliance on the Philippines booming market and Buzzi with its limited assets in the region. However, Cemex suffered in its own major emerging market in South and Central America. Despite these setbacks though all of the producers featured here benefitted from growing sales volumes in North America, particularly in the US.

Both LafargeHolcim and Cemex announced divestments promptly following their results announcements suggesting that they feel they need to do more to regain the profitability they once had. LafargeHolcim plans to sell assets in South Korea and Saudi Arabia. Cemex has agreed to sell cement plants in Bangladesh and Thailand and a minority stake in its business in the Philippines. This last decision may suggest how serious Cemex is about tackling its debts considering the strong market in that country at present. HeidelbergCement is due to complete its acquisition of Italcementi in the second half of 2016.

Finally, the major changes to the multinational cement producers will continue in 2016 as CRH asserts itself following its major acquisitions from Lafarge and Holcim in 2015. Already its Europe Heavyside Divison reported sales revenue of Euro3.61bn in 2015 surpassing that of Buzzi Unicem. Other international producers such as Eurocement, InterCement and Votorantim were also poised for continuing growing but poor domestic markets (Russia and Brazil) may cripple their ambitions in the short term.

UK: Hanson Cement has appointed Robert Keough as technical development manager at its cement plant in Ketton, Lincolnshire. His role will involve promoting the sustainability credentials of concrete specifications and emphasising the use of ground granulated blast furnace slag (GGBS) as a sustainable cement replacement product.

Keough has two years’ experience working for Hanson UK’s parent company, HeidelbergCement Group, as an engineer in training, giving him a firm foundation in the organisation’s values. During this time he worked in the continuous improvement team where he focused on reducing costs and increasing operational performance across the aggregates business.

Keough, aged 26 years, holds a bachelors degree in chemistry with management from the University of Bath and a master’s degree in minerals engineering from the University of Exeter. He holds experience with the financial services company Hargreaves Lansdown.

Sandbag, a climate policy think tank, published its report on the European cement sector entitled ‘Cement - The Final Carbon Fatcat’ last week on 16 March 2016. Amongst its findings the report accused the European Union (EU) Emissions Trading Scheme (ETS) of pushing up emissions created by the cement industry. Unsurprisingly, Cembureau, the European Cement Association, took exception to some of the content of the report and issued a rebuttal. Notably, it said that ‘allegations that the ETS has incentivised overproduction are based on thin air.’

Here we present a section of the executive summary of Sandbag’s report that describes the current situation with the EU ETS and how Sandbag argue this has distorted the European cement industry.

The depressed carbon price under the EU ETS has done little to effect a reduction in emissions from the European cement sector. A surplus of more than 2bn EU allowances (EUAs) has built up in the European carbon market since 2008 with no expectations for the situation to change significantly over the medium term. Industry sources cite that the costs of upgrades to best available technology are tantamount to greenfield investments. The current low carbon price alone is not enough to render such investments economic, especially in the context of a depressed cement market. This applies even more so in the case of capturing and storing/using direct emissions (CCUS) which at this stage seems to be an expensive technology merely in the development stages across Europe.

Figure 1: Expected development of allowance surpluses for major industrial sectors until the end of Phase 3. Source: EUTL (Sandbag calculations).

The rules governing free allocation of allowances have failed to incentivise abatement in the cement sector. In particular, the sector’s inclusion on the list of sectors exposed to the risk of carbon leakage, as well as insensitivity to production changes, will cause its over-allocation to balloon. As we reveal in Figure 1, if activity levels continue at 2014 levels, by 2020 this surplus will be larger than 2.5 years’ worth of emissions. This is more than would be the case for almost any of the other major industrial sectors, practically all of whom expect to lose all or most of their earlier surpluses by the end of this decade.

The chronic oversupply of EUAs to the cement sector is partly due to the fact that cement firms are able to optimise their production of different products across different facilities to maximise their free allocation. Free allocation to cement installations is based on benchmarks relating only to the manufacture of clinker, an intermediate product. Many firms have been able to retain maximum free allocation, corresponding to peak production, by keeping a range of their facilities operating at just above 50% of their historic activity levels – the level required to retain 100% free allocation.

Figure 2: EU net clinker trade. Source: UN COMTRADE (Sandbag calculations).

This free allocation loophole has resulted in both windfall profits and a de facto production subsidy for highly carbon-intensive clinker. This clinker is then either blended in higher than necessary shares into cement or, as we show in Figure 2, actually exported, as EU cement subsidised by free allowances has a competitive advantage compared to manufacturers outside the ETS. This creates a net import of emissions to the EU – the complete reverse of the carbon leakage threat that many industry groups have emphasised. As we show in Figure 3, this stimulation of clinker exports to countries outside the EU has been the single most damaging factor to the decarbonisation of this sector, pushing 2013 emissions nearly 15Mt higher than they could have been.

Figure 3: Different factors’ contribution to cutting the cement sector’s emissions EU-wide during 2005 - 2013. Source: Cement Sustainability Initiative ‘Getting the Numbers Right’ database (Sandbag calculations).

As well as causing a surge in emissions, the insufficiently responsive free allocation rules leave cement companies strongly over-allocated. Table 2 shows the surpluses we estimate that the five cement majors have accumulated (or monetised) since the beginning of Phase 2.

Table 2: Largest cement companies’ surpluses and emissions (millions of EUAs, euros and tonnes). Source: EUTL (Sandbag calculations).

These five companies from the cement sector have collectively received nearly Euro1bn worth of spare EU allowances (EUAs) for free between 2008 and 2014. As the number of free allowances available to all industry is fixed, over-allocation to cement companies reduces the allowances available to other sectors that might really need protection.

The ETS therefore provides few incentives for these firms to invest in decarbonisation technologies. Given widespread expectations for an over-supplied carbon market well in to the 2020s and, consequently, a low carbon price, the opportunity cost of holding onto allowances is negligible when compared to the high cost of investment in abatement technologies.

Thanks to Alex Luta and Wilf Lytton at Sandbag for letting Global Cement publish this extract of their report. The full version of ‘Cement - The Final Carbon Fatcat: How Europe’s cement sector benefits and the climate suffers from emissions trading flaws’ is available to download from Sanbag’s website.

Ireland: CRH appointed William J Teuber, Jr as a non-executive Director with effect from 3 March 2016.

Teuber, aged 64 years and a US citizen, is the Vice Chairman at EMC Corporation, a global leader in enabling businesses and service providers to transform their operations and deliver IT as a service. In previous roles he was responsible for EMC’s global sales and distribution organisation (2006 – 2012) and served as Chief Financial Officer leading the company’s worldwide finance operation (1996 - 2006). Prior to joining EMC he was a partner in the audit and financial advisory services practice of Coopers & Lybrand.

Teuber is a member of the Board of Directors of Popular, a diversified financial services company, and Inovalon Holdings, a healthcare technology company. He holds an MBA degree from Babson College, a Master of Science in Taxation from Bentley College, and a Bachelors Degree from Holy Cross.

Cemex has taken action towards its debts over the course of the last week. First, it announced that it had amended its credit agreements in order to delay the looming effects of consolidated financial leverage and coverage ratio limits by one year to March 2017 with other similar deadlines also delayed. Then it announced the pricing of US$1bn of Senior Secured Notes due in 2026, a form of secured borrowing. This was followed by confirmation of asset sales in Bangladesh and Thailand. Finally, it announced that it was seeking regulatory permission to sell a minority stake in its subsidiary in the Philippines.

This column has discussed the on-going financial travails at Cemex a few times, notably recently when the group released its fourth quarter results for 2015 and in the wake of HeidelbergCement’s announcement to buy Italcementi. Basically, it all comes down to debt, as the following graph shows.

Figure 1 - Cemex assets, debt and equity, 2006 - 2015

Cemex took on large amounts of debt following its acquisition of Rinker in 2007. Since then the value of its assets have been falling faster than it has been able to reduce its debts. However, its equity (assets minus debts) is looking like it might dip below its debts in 2016. Hence, action needs to be taken. Cemex appears to have attempted to do this over the last week. Will it be enough?

The credit amendment was probably the most pressing issue for the Cemex management given that the terms have been reliant on maintaining a leverage ratio (debt divided by assets) below a set limit. Cemex has extended the terms of the borrowing in its favour so it can keep the leverage ratio higher for longer without penalty from its creditors. Note that the leverage ratio here means the ratio between debt and operating earnings before interest, taxation, depreciation and amortisation (EBIDTA).

Selling assets and shares in Asia is the next step in cutting debt in the window the group has negotiated for itself. It holds minor cement production assets in Thailand and Bangladesh that it is selling to Siam City Cement for US$53m. These include a 0.8Mt/yr integrated cement plant in Saraburi, Thailand and a 0.52Mt/yr cement grinding plant in Madangonj, Bangladesh. Unfortunately for Cemex it purchased the Saraburi plant for US$77m in 2001 from Saraburi Cement making it a loss of at least US$24m.

A minority sale of shares in its Philippines assets is more promising. The group runs two integrated cement plants in the country, the Solid Cement Plant in Rizal and the APO Cement Plant in Cebu with a combined cement production capacity of 6.23Mt/yr and a new 1.5Mt/yr production line on the way at Solid Cement also. Local media estimate that the sale could earn Cemex as much as US$850m from the booming market. The Cement Manufacturer's Association of the Philippines reported that cement sales volumes grew by 14.3% to 24.4Mt in 2015 with more growth predicted for 2016.

The credit amendment and asset sales of US$0.9bn may give Cemex the breathing room it requires to keep the creditors at bay for a while longer. It originally refinanced its debts in 2009 at the height of the financial crisis to keep the business running until the markets picked up again. They haven’t. A question that might be legitimately asked at Cemex’s analyst day later this week, on 17 March 2016, is this: when is Cemex going to seriously tackle its debts? As the situation continues the group may end up devoting more time to managing its debts than it will to actually making cement and other building products.

Germany: Johan Cnossen has resigned as the Chief Executive Officer and a member of the Management Board of KHD with immediate effect from 11 March 2016. He cited personal reasons. Other Management Board members will take over his responsibilities for an interim period.