Global Cement Newsletter

Issue: GCW358 / 20 June 2018

Headlines


South African cement producer PPC reported this week that its annual profits rose due to ‘strong’ performance in Rwanda and Zimbabwe. Unfortunately it had no such luck in the Democratic Republic of the Congo (DRC) where its new plant near Kimpese in Kongo Central province has suffered from political instability, lower cement demand and subdued selling prices.

As the group went on to describe the local market as ‘challenging’ with production capacity above market demand. Research from the International Finance Corporation (IFC) suggests that the country will only reach a cement supply deficit by 2022. On top of this the country’s elections have been delayed from December 2017 to December 2018, creating uncertainty in the construction market and delaying infrastructure projects. Following an impairment assessment PPC took an impairment cost of US$14m on the unit. Or in other words it concluded that the value it might gain from selling its new 1.2Mt/yr plant was less than the estimated US$280m it cost to build it.

This outcome is depressing given that the plant was only commissioned during the last quarter of 2017 and the fundamental need for development in the DRC. The unit is run by local subsidiary PPC Barnet DRC, a joint venture 69% owned by PPC, 21% owned by Barnet Group, with the remaining 10% owned by the IFC. The plant was 60% debt funded by the IFC and Eastern and Southern African Trade and Development Bank. In January 2018 PPC agreed with its lenders to reschedule debts from the project until 2020. Then in April 2018 it was reported that PPC was in talks with China National Materials (Sinoma) over selling its stake in the plant. PPC chief executive officer (CEO) Johann Claassen said that the deal was dependent on the price and the on going merger between Sinoma and China National Building Material (CNBM).

With the merger between the Chinese cement giants close but yet to be confirmed, PPC remains stuck with a cement plant it’s losing money on. No doubt also the Chinese producers will aim for a bargain on the unit, especially since Sinoma built the plant. This also raises one potential method how the merged Sinoma-CNBM might expand internationally by scooping up plants it builds that have subsequently gotten into financial trouble.

All in all it’s a cautionary tale about how fast cement companies are able to expand in Sub-Saharan Africa. The demographics are enticing to investors but if the market isn’t there or if competitors get there first then building cement plants can go wrong. A 1.8Mt/yr joint-venture plant run by Lucky Cement started up in late 2016 also in the Kongo Central province. On top of this neighbouring countries have targeted DRC for exports. A local ban on imports of cement was implemented in mid-2017 and reportedly renewed in the west of the country for another six months in February 2018. However, Nigeria's Dangote Cement said in its first quarter results for 2018 that its operations in the Republic of Congo were targeting exports at the DRC. As PPC has discovered, investing in Sub-Saharan African has its risks.


China: Peng Shou has been appointed as the president of China National Building Materials (CNBM). Other new appointments announced in the wake of the company’s annual general meeting include the assignment of Chang Zhangli as a non-executive director and Yu Kaijun as secretary to the board.

Peng Shou, aged 57 years, holds has over 30 years of experience in business and management in the building material industry with various senior roles at both CNBM and Triumph International Engineering. Peng holds a bachelor’s degree in engineering from Wuhan Institute of Building material industry (now Wuhan University of Technology) and a master’s degree in management from Wuhan Polytechnic University (now Wuhan University of Technology).

Chang Zhangli, age 47 years, has held a variety of senior management roles at companies including CNBM, Jushi Group, Southwest Cement, China Triumph International Engineering, China United Cement, China Composites Group, North Cement and Beijing New Building Materials.

Yu Kaijun, aged 55 years, is a vice president of CNBM. He holds over 35 years of experience in financial management and corporate governance with positions at Sinoma, BBMG, Xinjiang Tianshan Cement, Ningxia Building Materials Group. Notably he was the chief financial officer of Sinoma from 2010 to 2018 and Sinoma International Engineering from 2001 to 2011. He holds a masters degree in accounting from the Hong Kong Polytechnic University.


China: Yang Yongzheng has resigned as a non-executive director of China Tianrui Group Cement Company due to a prison sentence. Yang has also resigned as a member of the group’s nomination committee. He has been replaced on the nomination committee by Li Liufa, the chairman of the company.


Spain: LafargeHolcim España has appointed Carmen Díaz as its commercial director. Díaz was previously the general manager of the group’s ReadySet Mix digital venture. She succeeds Simón Kronenberg in the post who has moved on to a new role with the group in Switzerland.

Díaz is a chemical engineer from the University of Oviedo and she also holds an MBA. She joined LafargeHolcim in 2002 and has held various roles including Area Manager in Madrid and the Vice President of Commercial Performance and Head of Ready Mix Commercial in France.


Australia: Boral has appointed Kathryn Fagg as chairman with effect from 1 July 2018. It follows the resignation of Brian Clark as chairman and a non-executive director due to health reasons. Clark has been a director of the company since 2007 and was elected chairman in late 2015.

Fagg, who joined the board in 2014, holds more than 25 years of executive and management experience across a range of industries in Australia and Asia, including steel based building products at BlueScope Steel, transport and logistics at Linfox Logistics Group, banking at ANZ and professional consulting services at McKinsey & Co.

Fagg commenced her professional career as a chemical engineer with Esso Australia, now Exxon Mobil. She holds a number of board positions, including as a non-executive director of Incitec Pivot and a non-executive director of Djerriwarrh Investments. She is the current president of Chief Executive Women and only recently completed a five year term as a director of the Reserve Bank of Australia.

Boral has also appointed Peter Alexander as its first North American-based non-executive director, with effect from 1 September 2018. Alexander has spent eight years as the chief executive officer (CEO) of Building Materials Holding Corporation and then the merged company BMC. He was president and CEO of ORCO Construction Distribution from 2005 to 2009 and was managing partner of KinderOaks Business Services from 2002 to 2005. He holds a BA from the Ohio State University and an MBA from the Pennsylvania State University.


Colombia: The Council of State has confirmed a fine to Cemex imposed by the Superintendent of Industry and Commerce (SIC) for fixing the price of cement. The ruling found that an agreement between Cemex Colombia, Holcim Colombia and Cementos Argos distorted the price, supply and sales of Ordinary Portland Cement in the second half of 2005. In particular the tribunal found that the way in which Argos gave information about Cementos Andino’s involvement in the national market to Cemex and Holcim was be anti-competitive.


Brazil: The Public Labour Ministry has signed an agreement with producers to reduce the standard weight of cement sacks sold locally to 25kg from 50kg. 33 cement producers, the local competition authority (CADE), the national cement industry union (SNIC), the Brazilian Portland Cement Association (ABCP) and Labour minister Ronalo Fleury all signed the arrangement, according to Surgiu. The agreement has been planned to reduce workplace accidents involving cement despatches.

The agreement establishes a deadline of 31 December 2028 for companies to adapt to the new standard, after which period only cement specifically for export can be over the 25kg limit, with all other sacks over 25kg to cease being sold from 1 January 2029. The agreement follows four years of negotiations.


Egypt: Helwan Cement has received several preliminary non-bidding offers for its white cement plant located in Minya Governorate. The subsidiary of Suez Cement and HeidelbergCement is now conducting financial, legal and technical due-diligence on the offers, according to Reuters. No values or timescale for the sale have been disclosed.


Namibia: Ohorongo Cement’s captive 5MWAC solar plant is preparing to start commercial operation by the end of June 2018. The unit is equipped with approximately 20,000 crystalline silicon modules mounted on a tracking system and an installed capacity of 6.5MWDC for an output of 5MWAC, according to the Daily Observer newspaper. Once it starts commercial operation it will provide an estimated 14GWhr/yr to the cement plant.

Investors have reached financial close in the project. The site has been developed and built by Germany’s SunEQ and its local partner Hungileni. Local financial partners also include Namibia Infrastructure Finance. Gildemeister Energy Solutions also worked on the project.


UK: Cemex UK will move its headquarters from Thorpe, Surrey to its offices in Rugby, Warwickshire from 1 July 2018. The new premises were the former global head offices for the Rugby Group until 2000. To date the Rugby offices have provided a regional centre for the company. From July 2018 the senior leadership team and all back-office functions such as taxation, communications and human resources will be based at Rugby, working alongside business areas such as the national customer service centre, Marketing and logistics.

“Rugby lies geographically at the centre of our UK business and with changing patterns of working such as increased working from home and from operational sites, it makes good business sense to consolidate our offices. Rugby and the Rugby brand are at the ‘heart’ of our business and the creation of the new headquarters will ensure greater efficiency and communication,” said Michel Andre, Country President, Cemex UK.


Algeria: Groupe des Ciments d’Algérie’s (GICA) aims to export 1 - 1.5Mt of cement in 2018. The Ministry of Industry and Mines said that the group has signed a deal to export 30,000t via its SODISMAC subsidiary, according to the Algeria Press Service. GICA is also in discussion with foreign partners to export other products such as limestone and gypsum. The cement company handles its exports via the ports of Arzew and Djendjen.

In 2017, the group recorded record cement production of nearly 14Mt compared with 12.6Mt in 2016. It exported 45,000t of cement in May 2018 under a contract with a total volume of 200,000t.


Italy: MDG Handling Solutions has been awarded the UNI EN ISO 9001:2015 certification for ‘Design, engineering, production control entrusted to third parties and after-sales support of solutions for handling and storage of solid materials.’ MDG says that the new certification allows it to be a ‘top class partner’ for all cement end users.

MDG Handling Solutions is a material handling project consultancy that provides engineering and procurement (EP) services, engineering, procurement and construction (EPC) services and supply of equipment. It was started by Davide Gambarotta in late 2017.


US: BinMaster has launched its new DD-3000 Dust Alert sensor product. The product is targeted to detect baghouse leaks when installed in stacks, ducts or pipes. The sensor is designed to save time by eliminating the need for manual inspections, reduce maintenance and prevent emissions and downtime.

The product uses inductive electrification technology to detect when particulate emissions exceed a preset level. As particles flow past and over the sensing probe, they induce a charge into the probe that creates small electrical currents. This method minimises the influence of sensor contamination, particulate velocity change or temperature drift.

Sensor models are available with either an alarm relay, generally used to alert to a need for maintenance, or a 4-20mA transmitter output option used for monitoring trends and compliance.


Belarus: The government is in talks with Ireland’s CRH to sell Krasnoselskstroymaterialy. Anatoly Kalinin, the Deputy Prime Minister of Belarus, told the Belarusian Telegraph Agency that the government wants US$200 for the state-owned cement producer but that CRH wants to pay less or buy a share of the business. Negotiations are on going.


Nigeria: BUA Group is ready to commission a new 1.5Mt/yr cement production line at its Sokoto Cement plant in the northwest of the country. The upgrade will increase production at the unit to 0.5Mt/yr, according to the Vanguard newspaper. The company exports cement from the plant to neighbouring Niger. The new line will run on coal and natural gas. The cement producer also operates a 3.5Mt/yr plant at Okpella & Obu in Edo state in the mid-west of the country.


India: The Kerala High Court is investigating how files have disappeared from its premises regarding a corruption case into Malabar Cement. The files were part of a 2015 petition, seeking a Central Bureau of Investigation probe into alleged instances of corruption in the cement producer, according to the Press Trust of India. Justice B Sudheendra Kumar described the situation as ‘alarming.’

In early 2017 the Vigilance and Anti-Corruption Bureau, a corruption body in the state of Kerala, arrested Prakash Joseph, a legal officer at Malabar Cements, in relation to a loss of US$0.4m. Previous to this in mid-2016 the Vigilance and Anti-Corruption Bureau arrested K Padmakumar, the managing director of Malabar Cements, on charges of corruption and irregularity.


India: UltraTech Cement’s costs are growing over its offer to buy Binani Cement. A legal counsel in the National Company Law Tribunal (NCLT) told the Business Standard newspaper that the subsidiary of Aditya Birla Group is liable to pay lenders around US$0.22m/day in additional interest until the takeover is completed. Any decision made by the NCLT will still have to go before the Supreme Court further delaying the process.

UltraTech Cement made a direct bid of US$1.12bn for the bankrupt Binani Cement following an auction in March 2018 that was originally won by Dalmia Bharat. However, Dalmia Bharat’s offer did not include paying interest to lenders. Binani Cement’s insolvency resolution process has overrun its 270-day time frame by nearly two months.


Indonesia: Yostinus Hulu, the chairman of the Association of North Nias Community (Himni) has urged the city administration of Gunungsitoli, Nias in North Sumatra to set up a government-backed company to cope with cement shortages. He said that cement supplies had been disrupted by infrastructure projects in the region, according to the Antara news agency. The city has faced frequent cement shortages.


Germany: Beumer has opened a new sales office in the Ruhr area. The new ‘West’ office will enable Beumer Customer Support to handle worldwide retrofitting and modernisation projects including, for example, currently operating conveying systems like bucket elevators and clinker conveyors, and those from other suppliers. The engineering company says that its goal is to cooperate closely with its headquarters in Beckum and provide everything from one source, from receiving a query, to technical dimensioning and on-site installation.


China: Austria’s Semperit has closed its Sempertrans Best (Shandong) Belting plant in Shandong. The decision was made as part of review of the group’s production footprint. The plant had a higher margin than other sites. The closure is also expected to reduce the complexity of operations at the group level. 120 employees will be affected and the shutdown is expected to burden the group’s earnings before interest and taxation (EBIT) by Euro10m in 2018.

The groups subsidiary in Shandong was founded by Semperit as a joint venture with the state-owned energy company Wang Chao Coal & Electricity Group in 2010. The Chinese partner currently holds a 16.1% stake. The production site manufactures textile and steel cord belts and has served the export markets and the Chinese market so far.


South Africa: PPC’s profit rose due to strong performance in Zimbabwe and Rwanda. Its gross profit rose by 3% year-on-year to US$174m in the financial year that ended on 31 March 2018 from US$169m in the same period in 2017. Its revenue grew by 7% to US$762m from US$715m. However, its earnings before interest, taxation, depreciation and amortisation (EBITDA) fell by 9% to US$140m from US$153m.

"Our performance has been resilient against the backdrop of challenging economic and political environments in markets in which we operate. While our rest of Africa operations, particularly Zimbabwe and Rwanda, achieved good results, our materials division faced reduced demand and increased competition. Our results have also been impacted by a number of significant abnormal items: corporate action, impairment of Democratic Republic of the Congo (DRC) operations and restructuring costs,” said chief executive officer (CEO) Johan Claassen.

By region, the group’s sales in South Africa and Botswana fell slightly due to a fall in cement sales volumes of 2 – 3%. Imports rose by 32% although PPC said it was from a low base. Elsewhere in Africa, PPC’s sales volumes rose by over 50% supported by ‘robust’ volume growth in Rwanda and Zimbabwe. The group’s PPC Barnet cement plant in Democratic Republic of Congo was commissioned in November 2017.

PPC’s lime division increased its revenue by 2% to US$59m, with volumes and selling prices similar to 2017. Volumes were constrained by key steel-customer shutdowns and non-extension of a significant contract. Lime's EBITDA contracted by
18% after higher variable costs for maintenance and raw material inputs.


India: ACC forecasts that demand for cement will grow by up to 7% in 2018. However, intense competition and insufficient consumption will lead to excess capacity it added, according to the Press Trust of India. Demand is expected to benefit from government-based infrastructure projects, rural development and affordable housing schemes.

Around 66% of ACC’s cement demand came from the housing sector, followed by infrastructure with 18% and 16% from the commercial sector. The country has a total cement production capacity of 465Mt/yr but it is only producing 305Mt/yr, giving it an utilisation rate of 66%. Cement plants in the south of the country are pulling the rate down compared to northern, central and eastern regions. Excess capacity is expected to continue until 2019, with the increased outlays on housing, infrastructure development and agricultural sector initiatives.


Thailand: King Maha Vajiralongkorn has taken personal ownership of royal assets including a stake in Siam Cement. In March 2018 stock exchange data showed that the king acquired around a US$150m stake in the cement and chemical producer, according to Reuters. The Crown Property Bureau has transferred ownership of the assets worth at least US$30bn to the monarch.


US: The Federal Trade Commission has forced CRH to sell the Three Forks cement plant in Montana as part of its proposed acquisition of Ash Grove Cement. The plant and its quarry will be sold to Mexico’s Grupo Cementos de Chihuahua (GCC). Also under the settlement, because the CRH cement plant in Montana currently sells a significant amount of cement into Canada through two CRH terminals in Alberta, GCC will have the option to use those terminals for three years. CRH also has agreed to purchase, at GCC’s option, cement produced at the plant for distribution in Canada for up to three years.

The commissions ruled that the acquisition would harm competition in Montana, Nebraska and Kansas. Other divestments the Irish building materials company has agreed to include selling two sand-and-gravel plants, one sand-and-gravel pit, three limestone quarries and two hot-mix asphalt plants.

Following the agreed divestments, the FTC has issued its consent for CRH’s proposed acquisition of Ash Grove Cement. No further regulatory approvals are now outstanding for the transaction. The acquisition is expected to complete in June 2018. Ireland’s CRH agreed to buy Ash Grove Cement for US$3.5bn in mid-2017.


Tunisia: Ciments de Bizerte is planning to upgrade the cement grinding capacity by 20% at its plant in Bizerte. Other anticipated upgrades include the installation of a new 10,000t cement silo and the contruction of a captive wind farm, according to the L'Economiste Maghrébin magazine.


Taiwan/Turkey: Taiwan Cement has arranged a market strategy cooperation and development deal with Turkey’s Sanko Group, according to Reuters. No other details on the arrangement have been released do far. Following the growth of clinker exports to Africa and Europe the cement producer is hoping to sign a contract to export 0.25Mt of clinker in 2018 – 2019. The deal is expected to generate up to US$8.5m for the company.


Armenia: Hrazdan Cement has been purchased by GM Holding and is back in operation. According to local media reports the cement plant was bought by a company owned by Arsen Mikaelyan, the chairman of Armbusinessbank, in late 2017. The bankrupt cement producer was previously taken over by its creditor, the VTB Bank (Armenia).

Hrazdan Cement, originally known as Mika Cement, was built in 1970. The company was privatised in 2001 and has had financial problems since 2013. The cement plant has two production lines and a clinker production capacity of 1Mt/yr and a cement production capacity of 1.2Mt/yr.


US: Schenck Process has launched a new Vertical Cartridge Filter (VCF) that removes industrial dust when handling medium to high air volumes. A core feature of the product is a cartridge clamp system that is intended to simplify replacement of the filter media and minimise maintenance time.

The filter is also equipped with a smart timer which includes an on-board sensor that reads the pressure drop across the filtering elements for on demand cleaning. A standard radial inlet allows for material separation during moderate air volume applications while an optional high entry inlet with a pre-separation chamber is designed for high volume systems. The chamber separates the largest powder particles protecting the media from excess loads of pollutants and aiding longer media life.

Each unit is constructed with reinforced carbon steel that is rated for 6.5psi Pred. The VCF has also been Pred validated through a full scale third party explosion test. Explosion mitigation devices are also available with the new VCF. The new filter will be manufactured in the US.


Italy: The Administrative Regional Court of Lazio has confirmed fines on local cement producers for cartel-like behaviour after an appeal process. Italcementi has been fined Euro84m, Buzzi Unicem has been fined Euro60m and Cementi Moccia has been fined Euro0.69m, according to the ANSA news agency.

The Italian Competition Authority (AGCM) originally imposed total fines of over Euro180m in late 2017 upon Italcementi, Buzzi Unicem, Colacem, Cementir, Sacci, Holcim, Cementirossi, Barbetti, Cementeria di Monselice, Cementizillo, Calme, Cementi Moccia, TSC and the Italian Cement Association (AITEC) for allegedly coordinating sales prices and agreeing market share from June 2011 to January 2016. The other cement companies are currently awaiting the outcome of their own appeals.


Russia: Yakutcement has started the third kiln at its plant at Mokhsogollokh in Khangalassky. The new production line has a clinker production capacity of 0.5Mt/yr, according to Sakha Life. Representatives of local government and the management of the cement plant’s owner’s Vostokcement attended the opening. Cement from the new line is intended to support local demand in the region.


Mozambique: The Mozambican customs service has defended the seizure of a 1440t import consignment of cement from South Africa in early June 2018. Fernando Tinga, the press attaché of the National Customs Directorate, said that the seizure of the cement was because the importing company Kawena did not present the legally required documentation at the time, according to the Noticias newspaper. Kawena has defended its actions saying that it has imported cement from South Africa for ‘many years’ and that its goods belonging to Mozambican migrant workers living in South Africa are exempt from taxes. However, it admitted that it did not have the correct documentation for the consignment.


Pakistan: Germany’s Aumund Fördertechnik is supplying equipment for a new 8000t/day production line that Flying Cement is building at its Mangowal plant in Punjab Province. Aumund is providing bucket elevators, pan conveyors and silo discharge gates for the project.

One belt bucket elevator will feed raw meal to the silo. It is designed with a centre distance of 87.6m and will reach a capacity of around 650t/hr. The other belt bucket elevator will also have a capacity of 650t/hr. Its centre distance is 115m and it will take raw meal to the heat exchanger. Flying Cement will use an Aumund KZB 1200/400 pan conveyor to transport clinker to the main silo. This conveyor will be approximately 115m long, with a lift of 43.5m, and a capacity of up to 580t/hr. The off-spec silo will be served by an Aumund KZB 1200/400 pan conveyor which is 42m long and has a capacity of 580t/hr. The order also includes 13 silo discharge gates.

The bucket elevators will be dispatched to Pakistan at the beginning of August 2018 and the pan conveyors will be supplied in a second consignment at the end the year.