Global Cement Newsletter

Issue: GCW356 / 06 June 2018

Headlines


CRH announced changes to its structure this week. The changes to its divisions follow the rapid growth of the company and may also anticipate the new cement assets it is about to take on-board once its acquisition of Ash Grove Cement completes in the US. Buried in one its regulatory filings covering the news were two graphs of changes in cement demand in the US and Europe through various financial depressions since the 1930s.

 Graph 1: Changes in cement demand in US and Europe during financial depressions. Source: CRH with data from US Geological Survey, PCA, United Nations, Morgan Stanley etc.

Graph 1: Changes in cement demand in US and Europe during financial depressions. Source: CRH with data from US Geological Survey, PCA, United Nations, Morgan Stanley etc.

The graphs serve their purpose for a public company as they show both markets in the current downturn starting to rise again. In other words it looks like the perfect time to invest in a building materials company! However, thinking more broadly the graphs give a timely reminder of how bad the last decade has been for the cement market, particularly in Europe. The period only really compares to the 1930s in decline and duration if the figures are accurate. It must be considered though that while the West has suffered, markets in the East, notably led by China and India, have boomed.

The financial crash in 2008 was precipitated by the US subprime mortgage market. Other potential market killers lie ahead no doubt. One such might be the so-called ‘Carbon Bubble.’ This idea has gained media traction this week with the publication of a paper in the Nature Climate Change journal examining the economic impact of decarbonisation, if or when it happens.

It’s not a new argument but it makes the assertion that as new technologies that replace fossil fuels start to influence the markets, traditional fuel producers like oil companies may face being stuck with ‘stranded’ assets as legislation toughens up and technology mounts. This in turn could cause a financial crash and it’s this aspect that the paper has looked at.

The ace in the hole from the Nature Climate Change paper is that the modelling here suggests a way out of the usual prisoner’s dilemma approach to climate change action. Once sufficiently-low carbon technologies hit a certain level of adoption, then any country holding out and using fossil fuels instead of taking of action may start to suffer economically. Or in other words cheating won’t pay.

The carbon bubble theory is pretty convenient for the climate change lobby as it gives it a financial reason to fight its enemies by targeting investors. One counter argument is realistically how fast and deep would the decarbonisation technologies actually have to be to cause significant financial disruption. Surely the oil producers would get out of risky assets before it was too late. Then again, maybe not.

The cement industry is in exactly the same situation as the oil producers as it too depends on carbon rich assets, in this case limestone, for its business to operate. If limestone assets become ‘stranded’ due to toughened legislation then how can production continue? In addition though, volatility in the fuels and secondary cementitious materials (SCM) markets already being observed from the cement industry may make one wonder about the existence of the carbon bubble. Markets for waste-derived fuels and granulated blast furnace slag are currently changing in the wake of the tightening of Chinese legislation both in and out of the country. In theory this could mean cheaper inputs for cement production but the market is hard to predict. The other classic recent example is how the US natural gas boom from fracking has reduced global oil prices with further effects on the coal and gas that cement producers use. This in turn has placed pressure on various countries that are reliant on their petrodollars and caused pain to their local cement industries, like Saudi Arabia for example. The price of Brent Crude may be rising at the moment but once it hits a certain threshold, the hydraulic fracking of gas wells in the US will resume pumping. Of course both waste inputs and fracking could just be attributable respectively to market distortions by a large country changing policy and a new technology finding its feet.

If the carbon bubble theory carries any weight then CRH’s cement demand graph during recessions may carry a warning to producers about what might happen if decarbonisation leaves the fossil fuel producers behind. With good timing for this theme South Korea’s Ssangyong Cement announced this week that it is close to completing a waste heat recovery (WHR) unit at its Donghae plant, one of the biggest in the world with seven production lines. The interesting detail here is that the WHR unit will work in conjunction with an energy storage system to form a microgrid. This kind of setup is well suited to using energy from renewables as well as from conventional sources like a national electricity grid. In other words, this is exactly the kind of development at a cement plant that might in a small way lessen its reliance on fossil fuels in the face of any potential supply issues.

The 2nd Future Cement Conference and Exhibition looking at how the cement industry can operate in a low- or zero-carbon world will take place in Belgium in May 2019


Kenya: CDC Group has replaced its board members at ARM Cement Ketso Gordhan and Pepe Meijer with Sofia Bianchi and Rohit Anand. The UK government-backed investment company owns a 41% stake in the company. In addition ARM Cement has appointed Konstantin Makarov as its new executive director, replacing Rick Ashley who resigned in May 2018, and John Maonga as its company secretary. Maonga succeeds Ramesh Vora who resigned in April 2018.

Bianchi worked as head of Special Situations at Blue Crest Capital, a European hedge fund, from 2007 to 2016. She brings experience in investment roles from sectors including mining and telecommunications. Bianchi has an MBA from the Wharton School of Business.

Anand holds over 11 years of experience investing in emerging markets across Asia and Africa. He has invested in sectors across infrastructure, telecoms, manufacturing, logistics and healthcare. He is currently responsible for the Industrial Businesses equity investments team covering manufacturing, real estate and logistics across South Asia and Africa. Prior to joining CDC, Anand worked with IDFC Private Equity in Mumbai where he was part of a team managing around US$1.3bn focused on growth capital investments in infrastructure in India. Anand started his career with Ernst & Young’s corporate finance team in India. He is a CFA charter holder, holds an MBA from the Indian Institute of Management and a Bachelors degree in Electronics and Communication Engineering from the University of Delhi.

Makarov holds over 15 years of experience in the financial markets in general and emerging markets in particular. He is responsible for launch of African practice and oversight of all sub-Saharan African and South East Asian transactions at StratLink Africa. Previously, he was directly responsible for market entry of US and Commonwealth of Independent States (CIS) based companies into sub-Saharan Africa and has been involved in activity focusing on emerging economies in Africa and South East Asia. He holds a Master of Science in Risk Management from Stern School of Business, New York University and Amsterdam Institute of Finance and a Bachelor of Science in Marketing from University of Massachusetts, Amherst.

Maonga, a Certified Public Secretary who is a Member and Fellow of the Institute of Certified Public Secretaries of Kenya, has over 30 years of experience in Company Secretarial and Registration Services.


US: Plibrico has appointed Aaron Ingalls as Territory Manager for the Northeastern section of the US. He is tasked with supporting and developing relationships with a network of partners and Plibrico owned construction operations. He will report to Plibrico’s Vice President of Sales, Norm Phelps.

During Ingalls’ 24-year refractory industry career, he has held various business development and sales management positions at Resco and companies that were acquired by Resco. Most recently he worked for Emerald Refractories, a refractory specialty company in Pennsylvania that he helped to launch in 2014.


US: Simon Shipp has taken over as general manager at Aumund Corporation USA, Aumund Fördertechnik’s subsidiary in the US. Shipp holds over 25 years of experience in mechanical engineering, in particular with conveying equipment for bulk materials. He succeeds Geoffrey Conroy, who has retired after 20 years in the role. Conroy will remain with the business as a consultant.


US: US Cement is in the process of obtaining a draft air permit from the Texas Commission on Environmental Quality to build a white cement plant in Brady, Texas. A public hearing on the application will be made in late June 2018. The subsidiary of Royal White Cement plans to build a single line 0.5Mt/yr white cement plant.


Hungary: Germany’s IKN has provided information on its role with an environmental upgrade to Duna-Dráva Cement’s Vác plant. The Euro22m project was commissioned in April 2018. The 2400t/day clinker production line was modified by IKN to handle a refuse-derived fuel (RDF) substitution rate of up to 100% in the calciner. The two lower cyclone stages were replaced, a complete new preheater tower with the inline calciner was erected, a new bypass system and a new static inlet in the clinker cooler were installed. IKN says that it completed the project in just less than two years on an engineering, procurement, and construction (EPC) basis.

Denmark’s FLSmdith also worked on the project replacing the line’s bag filters with an electrostatic precipitator system. This part of the environmental upgrade cost Euro4.7m.


Canada/France: Canadian pension companies La Caisse de dépôt et placement du Québec (CDPQ) and the Public Sector Pension Investment Board (PSP) completed their acquisition of a minority stake of France’s Fives in late May 2018. The equipment manufacturer will remain controlled by its management, with Ardian as another minority shareholder. The group said that the new investment would enable it to expand and to explore research and development programs that aim to improve energy efficiency and a lower environmental footprint.


Afghanistan: The Ministry of Mines and Petroleum has cancelled the Afghan Investment Company’s (AIC) contract to operate Ghori cement factory in Baghlan province. The AIC has been accused of not meeting a contractual obligation to upgrade the plant, according to Salam Watandar radio. Minister Nargis Nehan said that the company has due to invest US$152m in the unit but that it had only spent US$51m on the project. In addition it had acquired an outstanding loan of US$13m from the ministry. Mehmood Karzai, brother of the former president Hamid Karzai, is a shareholder in AIC.


Turkey: Medcem Çimento has obtained the ISO 14001-2015 certification for environmental management. The ISO 14000 family of standards provides tools for companies to manage their environmental responsibilities.


Cameroon: Cimencam will spend US$70m to upgrade its integrated plant at Figuil. A new kiln is being built at the plant to meet increased demand from export markets in Chad and the Central African Republic, according to the Cameroon Tribune newspaper. The subsidiary of LafargeHolcim is also building a cement grinding plant at Nomayos.


Mozambique: Cement imported illegally from South Africa has been seized at the border town of Ressano Garcia. Customs impounded 36 railway wagons containing an estimated 29,000 bags of cement being imported by Kawena, according to the O Pais newspaper. Due to a lack of proper documentation the customs office is treating the case as fraud. The shipment is valued at US$0.12m and duties of US$74,500 should have been paid on it. Kawena says it has the documentation for the consignment, according to the Mozambique News Agency.


Algeria: Lafarge Algeria says it plans to focus on exports and roads in 2018. Serge Dubois, director of public relations at the company, said that it intends to export 5Mt or 30% of the market by 2020, according to the El Watan newspaper. The cement producer has already conducted seven export operations since Decemebr 2017 to West Africa. The other priority is to encourage the use of cement in local infrastructure, incuding road expansion plans.


Estonia: Kunda Nordic Tsement plans to spend Euro2.2m on upgrades to its operations. The investment will be used for emission improvements, updating its plant’s power distribution system, starting to use clinker dust in cement grinding and dredging the port of Kunda, according to the Virumaa Teataja newspaper.

The subsidiary of Germany’s HeidelbergCement increased its output of clinker and cement by 20% and 60% respectively in 2017. Its plant relaunched its second kiln in 2017 but this increased its CO2 emissions. It produced 1081kg of CO2 per ton of clinker compared to the European target of 766kg. The plant operates two wet process kilns but it plans to switch to a dry production process in the future as this would help it reduce its emissions.

HeidelbergCement holds a 75% stake in the company with the rest belonging to Ireland’s CRH.


Sri Lanka: Insee Cement’s new grinding plant at Galle is scheduled to be completed in August 2018. Chairman Paul Hugentobler said that the company had spent US$50m on the project, with US$5m of this total on environmental features, according to the Daily News newspaper. The 0.45Mt/yr mill is being supplied by Germany’s Loesche. It will grind clinker and granulated blast furnace slag into Portland Limestone Cement and Portland Slag Cement (PSC) with a throughput of up to 60t/hr.


India: The Supreme Court has said that the final sale of Binani Cement cannot complete without its approval. It added that no decision on the sale will now be made until at least early July 2018. However, it has allowed the debt resolution process to continue, according to the Press Trust of India. UltraTech Cement and Dalmia Bharat have both made bids for the bankrupt cement producer but they have fought each other legally over the process.


Philippines: Phinma Corporation has secured a US$16.7m loan for its cement business, PhilCement, to build a terminal at Mariveles in Bataan. The five-year fixed term loan agreement was signed with Security Bank on 1 June 2018, according to Business World. PhilCement was set up in September 2017. Phinma Corporation owns a 85.7% stake in the business.


South Korea: Ssangyong Cement plans to install a waste heat recovery (WHR) unit at its Donghae plant in Gangwon. The upgrade will be operational by August 2018, according to the Maeil Business Newspaper. The new unit is expected to save the cement producer about 33% of its electricity costs or US$24m/yr.

The investment is the largest that the cement producer’s owner Hahn & Company has approved since it took control. The WHR will work with an energy storage system (ESS) that was installed in March 2018. The ESS saves power consumption by storing energy during the night and then using it during the day. The 22MWhr storage system is power by powered by 2880 batteries. The company said that it would save it at least US$2.4m/yr.

Ssangyong Cement’s Donghae plant is one of the largest in the world with a cement production capacity of 11.2Mt/yr across seven production lines. It occupies an areas of 11.3MM2.


Canada: NovaAlgoma Cement Carriers (NACC) has bought a 25% stake in JT Cement. It joins Norway’s KGJ Cement Holdings (KGJ) and Sweden’s Erik Thun (Thun) in ownership of the cement company, which operates a fleet of seven smaller specialised pneumatic cement carriers. The investment is intended to expand NACC's global footprint into the Northern European market where KGJ and Thun have a strong presence. The daily operations of the JT Cement fleet will not change as a result of the NACC investment, with the vessels continuing to be commercially managed by KGJ's office in Bergen, Norway.

"This investment will allow us to each apply our experience and knowledge in the pneumatic cement carrier market to create additional shipping solutions to meet the needs of customers," said Ken Bloch Soerensen, president and chief executive officer (CEO) of Algoma Central Corporation. NovaAlgoma Cement Carriers is a 50/50 joint venture company between Algoma Central Corporation and Luxembourg’s Nova Marine Holding.

In January 2016 Nova Marine Carriers and Algoma Central Corporation created NovaAlgoma Cement Carriers. The fleet comprises pneumatic cement carriers that utilise a compressor and pump system to load and unload cement powder.

Algoma Central Corporation operates a fleet of dry and liquid bulk carriers on the Great Lakes and St Lawrence Waterway, including self-unloading dry-bulk carriers, gearless dry-bulk carriers and product tankers. Algoma also owns ocean self-unloading dry-bulk vessels operating in international markets.


Kenya: ARM Cement’s net loss more than doubled to US$55m in 2017 due to poor demand in Kenya and Tanzania. Its sales fell by 32% year-on-year to US$85m from US$127m. Elections in Kenya reduced cement demand, a coal import ban in Tanzania caused production issues at its Tanga cement plant and both countries saw increased competition.

“2017 was the most challenging for the group since the company’s listing on the Nairobi Securities Exchange in 1997. Whilst the management has navigated many business difficulties well in the past, raised capital for expansion, increased net profits and market capitalisation continuously over a 14 year period up to 2015, the challenges of the past year have been unprecedented,” the company said in a statement.

The cement producer says it is undergoing a ‘significant’ review of its current operations, asset base and financing structure to address its problems. It has also been cutting staff benefits as part of its plan to save money.

UK-government investor CDC Group, which holds a 41% stake in the company, has also replaced its board members Ketso Gordhan and Pepe Meijer with Sofia Bianchi and Rohit Anand.


Vietnam: The Ministry of Industry and Trade has proposed that the government transfers the management of Quang Son cement plant to the Vietnam Cement Industry Corporation (Vicem) from the Vietnam Industrial Construction Corporation (Vinaincon) due to high losses and mounting loans. Both companies are run by the government, according to the Viet Nam News newspaper. The loans have grown to 95% of the total investment of US$153m of the project, putting financial pressure on Vinaincon.

Under the proposal, Vicem will have to take care of all the loans taken by Vinaincon for Quang Son cement plant, formerly known as Thai Nguyen cement plant. The project started commercial operation in July 2011 with a production capacity of 1.5Mt/yr of cement.


India: Police have arrested the owner of a factory near Gaurichak in Bihar manufacturing counterfeit cement. Over 5000 bags of cement were seized, according to the Telegraph of India newspaper. Cement bags falsely branded as Birla Gold, Lafarge and other companies were found at the site. Packaging machines were also impounded. Police said the unit was collecting expired bags of cement and reusing them. The investigation will now move on to finding contractors who have been selling the fake products.


Senegal: Trade minister Alioune Sarr says that the government will investigate a rise in the price of cement. He said that a committee has been set up to review the prices of essential commodoties including cement, according to PressAfrik. The decision follows a rise in the price of cement at the end of May 2018.


Italy: Colacem has purchased the Maddaloni cement plant from Italcementi. The transaction was part of the measures requried by the Italian Competition Authority when Italcementi acquired Cementir.


Ireland: CRH plans to reorganise its business structure into three core divisions in January 2019. Its European Heavyside and Asia operations, including cement production, will form into Europe Materials. Its Europe Lightside, Europe Distribution and Americas Products operations will form into Building Products. Its Americas Materials operations will remain as it is. The new divisions are expected to generate approximately 30%, 30% and 40% respectively of earnings before interest, taxation, depreciation and amortisation (EBITDA).

CRH is also in the final stages of buying Ash Grove Cement in the US. The US$3.5bn deal will add eight cement plants across eight US states, combined with ready mix concrete, aggregates and associated logistics assets across the US Midwest to CRH’s portfolio. It will also increase the scope of its Americas Materials division. The deal had earlier been expected to close in May 2018.


Cambodia: The Battambang Conch Cement Company has officially inaugurated its US$230m plant in Rattanak district, Battambang province. The unit has a production capacity of 5000t/day, according to the Phnom Penh Post newspaper. The company intends to supply cement to Pursat, Pailin, Banteay Meanchey and Siem Reap provinces. The plant is a joint venture between China’s Conch International Holdings and local cement firm Battambang KT Cement.

Following the opening of the new unit Cambodia has a cement production capacity of 7Mt/yr from four plants. The country has six licenced cement plants including Kampot Cement, Cambodia Cement Chakrey Ting, Mong Insee Cement Corporation, Thai Boon Rong Cement, and Southern Cement Cambodia. Thai Boon Rong Cement, and Southern Cement Cambodia are projects that are currently being built.


Ukraine: China’s Anhui Conch has discussed building a cement plant in Odessa with Anatoliy Urbansky, the chairman of the Odessa Regional Council. Delegates from the General Consulate of China in Odessa and the Ukrainian branch of China Metallurgical Construction Engineering Group attended the meeting as well, according to Interfax. Anhui Conch is also considering building a construction materials park and investing in tourism in the region.


Brazil: SNIC, the national cement industry union, says that 70% of cement plants have suspended operation due to a strike by truck drivers. A survey the union ran found that less than 3% of the average daily cement distributed has been delivered to its final destination since the start of the strike action on 21 May 2018.

Before industrial action started the local cement industry distributed around 200,000t/day. At the start of the strike this fell to 10,000t/day and has since dropped further to 6000t/day. Paulo Camillo Penna, president of SNIC, said that the cement industry was suffering disproportionately because plants have been affected by raw materials failing to be delivered and lack of space to store cement inventory. SNIC expects that once the strike ends, it will take two to three weeks for production at cement plants to return to normal.


Jamaica: Cemex España, a subsidiary of Cemex, has agreed to lend Caribbean Cement US$102m to purchase assets mainly consisting of the Kiln 5 and Mill 5 processes at its plant at Rockfort plant Kingston. Any remaining funds will be used for ‘general corporate purposes.’ In May 2018 Caribbean Cement signed an agreement to buy plant equipment from its parent company Trinidad Cement for US$118m that was originally leased to it. Cemex owns a controlling stake in both companies.


Saudi Arabia: Sinoma International Engineering has agreed to pay an outstanding tax bill of US$3.5m to the Saudi tax bureau. The bill relates to a dispute in 2009 and 2010. The settlement includes delay charges and further charges are applicable if the bill is not paid by the end of June 2018. In 2016 the subsidiary of China national Building Materials (CNBM) was appealing against a charge of US$18m for unpaid tax in the mid 2000s.


India: Orient Cement has cancelled a deal to buy three cement plants from Jaiprakash Associates. The companies signed an agreement in May 2017 to buy a 74% stake in Bhilai Jaypee Cement for US$225m and the acquisition of the Nigrie cement grinding plant in Singrauli, Madhya Pradesh from Jaiprakash Power Ventures for US$77m. Orient Cement said that the terms of the agreement allowed either party to terminate it if it did not complete within 12 months.

Bhilai Jaypee Cement, a joint venture between Jaiprakash Associates and the Steel Authority of India Limited (SAIL), has a 2.2Mt/yr integrated Portland slag cement plant in Satna Madhya, Madhya Pradesh and a grinding plant in Bhilai, Chhattisgarh.


Czech Republic: Lafarge Czech Republic plans to spend nearly Euro4m on upgrades for its Ciskovice plant. Half of this investment has been spent on rebuilding an electrostatic precipitator for the main chimney for the plant. An additional Euro1.5m will be spent on improvements to the warehouse, handling and dosing of alternative fuels for the kiln. Upgrades to improve the unit’s noise and fire protection are also scheduled.