Global Cement Newsletter

Issue: GCW361 / 11 July 2018

Headlines


Holcim Indonesia was forced to refuse to comment on rumours this week that it might be selling up. Local business press in the country was running stories that parent company LafargeHolcim was in the early stages of a possible divestment. Although the stories seemed pretty spurious, Holcim Indonesia’s share price rose on the news.

The situation is reminiscent of an anecdote attributed to the former US president Lyndon Johnson by Hunter S Thompson about making a political opponent deny a ridiculous rumour. If they don’t respond then it looks like they have something to hide and if they do engage with a denial then they look silly anyway. In Holcim Indonesia’s case, as soon as the cement producer actually refused to comment the story gained more credence.

Part of the reason why the Holcim Indonesia story has legs is because LafargeHolcim has said it plans to make divestments of Euro1.7bn in 2019. There is rampant production overcapacity in Indonesia. The territory is exactly the kind of place you might expect LafargeHolcim to consider leaving. As recently as early in 2017 Semen Indonesia, the main producer, was showing the gaping production capacity – consumption gap in its investor presentations with no catch-up until at least 2020. Romauli Panggabean, an analyst for Bank Mandiri, was even more blunt in a forecast for the Jakarta Post in mid-2016. She ran a model predicting that if production capacity doubled to 150Mt/yr by 2017 then it would take the market until 2032 to catch up with an assumed 7% construction growth rate. Panggabean’s simulation seems to massively overstate capacity growth in the country as Global Cement Directory 2018 data places integrated (clinker) plant capacity at 79.3Mt/yr. By comparison the Indonesia Cement Association (ASI) placed cement production capacity at 108Mt/yr in 2017. Both of these figures are far below 150Mt/yr.

Graph 1: Domestic and export sales in Indonesia, 2013 – 2017. Source: Indonesia Cement Association. 

Graph 1: Domestic and export sales in Indonesia, 2013 – 2017. Source: Indonesia Cement Association.

The graph above sets the scene for the capacity wobble worries in 2016 and 2017 as sales growth faltered. It picked up in 2017 with domestic sales rising by 7.6% year-on-year to 66.4Mt. Sales so far in 2018 support this trend, with domestic sales growing by 6.4% to 21.06Mt for January to April 2018. The other trend to note here has been the explosion in exports in recent years with a near doubling to 2.93Mt in 2017 and an accelerated continuation of this trend so far in 2018.

Holcim Indonesia operates four integrated cement plants at Narogong in West Java, Cilacap in Central Java, Tuban in East Java and Lhoknga in Aceh with a production capacity of 15Mt/yr. In addition it runs two cement grinding plants at Ciwandan in West Java and Kuala Indah in North Sumatra respectively, although this last unit is currently mothballed. It also owns cement terminals in Lampung and a new one in Palembang in Sumatra.

LafargeHolcim owns an 80% share of Holcim Indonesia, its main subsidiary in the country. In 2017 Holcim Indonesia described the local situation as one of ‘hyper competition’ due to market overcapacity. Production capacity was over 100Mt/yr but consumption was only 70Mt/yr. Its overall cement sales volumes including exports rose by 7.8% year-on-year to 11.1Mt in 2017 from 9.6Mt in 2016. But despite this its net sales fell slightly to US$953m due to falling prices as new competitors entered the market. Its earnings before interest, tax, depreciation and amortisation (EBITDA) also fell. The positioning of its production units is relevant in Indonesia given the concentration of sales in Java but the faster growth in sales rates and higher competition in other regions.

Both of the other market leaders, Semen Indonesia and Indocement, reported similar problems in 2017 but they don’t appear to be looking to make cuts. Put it all together in LafargeHolcim’s case and you have a group-level desire to sell off parts of the business, overcapacity locally with no end in sight in the short to medium term, falling earnings and profits and some hope that consumption is heading back to its normal brisk rate. All of this seems to suggest that now would be the perfect time for it to exit Indonesia if it decided to. So, if LafargeHolcim isn’t already soliciting offers then maybe it should be. The tough call would be deciding whether to leave the country altogether or to just sell a share of the business. Leaving totally would significantly reduce the group’s presence in South-East Asia and reduce its profile as a truly global player. However pride and money-making are not the same thing. In the meantime though, the only people making a fortune will be the speculators.


UK: The Global Cement and Concrete Association (GCCA) has appointed Benjamin Sporton as its chief executive. He will take up the role in early October 2018.

Sporton joins the GCCA from the World Coal Association where he has served as chief executive for almost four years. As chief executive of the newly-formed GCCA, Sporton will lead the association’s efforts to drive advances in sustainable construction, working to enhance the cement and concrete industry’s contribution to a variety of global social and developmental challenges.

A dual Australian-British national, Sporton joined the World Coal Association as its Policy Director in 2010 and became deputy chief executive two years later. Before his appointment as chief executive in 2014, Sporton led the World Coal Association’s strategic and business planning and was responsible for its policy and advocacy work with a particular focus on sustainable development and climate change issues. He holds an honours degree in politics from the University of Adelaide and has also studied at the University of Buenos Aires and the Australian Institute of Management.


Saudi Arabia: Mattar Alzahrani has resigned as the chief executive officer of Hail Cement. He will leave the post at the end of August 2018 to take up another position elsewhere. Ahmed Sulaiman Abdul Aziz Al Rajhi has also resigned as an independent member of the company’s board.


Canada: Sparta Manufacturing has appointed Terri Ward as Vice President of Business Development. Ward brings nearly three decades of industry experience to the role having previously worked for SSI Shredding Systems. Sparta Manufacturing is an integrated engineering and manufacturing company specialising in recycling system design and development.


US/China: The Office of the US Trade Representative has proposed placing a 10% tariff on mineral and other products from China including cement. The list includes over 600 items and it will come into force following a period for public comment in August 2018.

Mineral products affected by the proposed tariffs of interest to the cement industry include limestone flux, quicklime, slaked lime, gypsum, anhydrite, clinkers of Portland, aluminous, slag, supersulfate and similar hydraulic cements, white Portland cement, Portland cement, aluminous cement, slag cement, refractory cements, additives for cement, cement based building materials and more.

The inclusion of additional products to a tariff list follows an earlier decision by the US government to tax imports from China worth US$34bn that came into force in early July 2018.


Kazakhstan: Steppe Cement’s turnover rose by 23% year-on-year to US$30.8m in the first half of 2018 from US$25m in the same period in 2017. Its cement sales volumes rose by 14% to 0.74Mt from 0.65Mt. The company said that the cement market in Kazakhstan increased by 7% during the first half of 2018. However, overall cement shipments from local companies increased by 15%, imports rose by 30% and exports doubled to 0.9Mt from 0.45Mt. Steppe Cement's local market share increased slightly to 16% in the first half of 2018 from 15% in the same period of 2017 and it exported 12% of its sales compared with 11% in 2017. The company estimates that local cement consumption will reach 9.4Mt in 2018.


Pakistan: The Supreme Court has stopped cement producers near Katas Raj from using drinking water supplies. The order follows a ruling in May 2018 to stop the producers using water linked to a pond near to a Hindu heritage site, according to the Pakistan Today newspaper. However, the ruling was not followed. The senior judge presiding over the hearing said that local plants had been using water without paying for it.


Algeria: China Triumph International Engineering (CTIE) is set to start procuring equipment for a US$211m production line at STG Engineering and Real Estate Development’s plant at Adrar. The line will be the second production line at the site and it will have a production capacity of 4200t/day of marine cement, according to Inside International Industrials. CTIE is the engineering, procurement and construction contractor for the project and its subsidiary Beijing Triumph International Engineering will manage the engineering design work.


Namibia: Kaptau Packaging has signed a deal with Ohorongo Cement to supply 1.2 million bags by the end of August 2018. The agreement is part of a five-year deal, according to the Namibian Sun newspaper. Kaptau Packaging, a local company, manufactures bags in Oshakati.


Syria: Declassified notes from the French secret service reported upon by the Libération newspaper have revealed that the Islamic State of Iraq and Syria (ISIS) terrorist group made at least US$11.5m in 2014 from cement it plundered from Lafarge Syria’s Jalabiya cement plant.

In December 2014 the Directorate of Military Intelligence (DRM) reported that ISIS had taken control of an estimated US$25m worth of cement at the site. Subsequently in late December 2014 the DRM monitored a meeting between Turkish businessmen and IS representatives from the cement plant that took place at the Turkish-Syrian border. 65,000t of cement from the plant had already been sold for US$6.5m and another 50,000t was contracted to be sold for US$5m.


France: LafargeHolcim France is spending Euro3.5m on upgrades to its Dunkirk grinding plant. Construction started in late May 2018 on the project and commissioning is scheduled for early 2019. The new equipment is intended to increase the unit’s production capacity. The upgrade at the site is part of the company’s Euro300m investment plan that was announced in 2016.


Germany: HeidelbergCement has highlighted occupational safety and research into CO2 reduction as priorities in its sustainability report for 2017. It reduced its accident frequency rate for employees with at least one lost working day per 1,000,000 hours across cement, ready-mixed concrete and aggregates to 1.8 in 2017 from 2.2 in 2016.

“This represents a significant improvement. A large number of locations have now been accident-free for several years, while others have seen drastically reduced accident rates. Nevertheless, serious accidents still occurred in 2017. We will therefore further intensify our efforts to prevent accidents on a permanent basis,” said Bernd Scheifele, the chairman of HeidelbergCement.

The building materials producer has also singled out its commitment to reduce its specific CO2 emissions by 30% in 2030 compared with 1990. It plans to support this by continually increasing the proportion of alternative raw materials and fuels and, wherever possible, to make its production processes more efficient. In addition, HeidelbergCement has invested in research programmes on carbon capture and its utilisation as a raw material. In 2017, it spent Euro141m on research and technology, an increase of around Euro24m from 2016.

Following HeidelbergCement’s acquisition of Italcementi in 2016 its CO2 emissions have increased. Its specific net CO2 emissions (per tonne of cementitious material) rose by 1.9% year-on-year to 609kg Co2/t in 2017 from 598 kg Co2/t in 2016. Its overall proportion of alternative fuels has also decreased slightly dropping to 20.8% from 21.4%. However, its specific energy consumption for cement and clinker continued to fall in 2017.


Qatar: Qatar National Cement has signed a provisional acceptance certificate with France’s Fives for the construction of new production line at the Umm Bab plant. The new 5000t/day line is the fifth at the site. It covers the whole equipment from the raw material preparation to the cement dispatch. Previously Fives and Qatar National Cement collaborated on lines two, three and four at Umm Bab.


Indonesia: Holcim Indonesia has refused to comment on local media stories that its parent company, LafargeHolcim, is planning to sell it. Both Kontan and CNBC Indonesia have reported that LafargeHolcim is looking for buyers for its subsidiary as part of its global divestment scheme. LafargeHolcim owns an 80% share in Holcim Indonesia.


Burkina Faso: A new cement plant project being built in Bobo-Dioulasso has drawn complaints from local residents and businesses. The unit is being built in an agricultural indstury section of the city and local companies fear that dust from plant might damage their products, according to the Le Pays newspaper. Food from the region is exported to Europe. Morocco’s Ciments de l'Afrique (CIMAF) announced that it had started building a grinding plant in Bobo-Dioulasso in mid-2016.


China: Anhui Conch expects that its profit will double year-on-year for the first half of 2018. The company reported an unaudited net profit of US$1.01bn in the first half of 2017. It has attributed the growth in profit to a ‘significant’ increase in the price of its products and an increase in revenue. The cement producer plans to release its half year report by the end of August 2018.


India: Jaiprakash Associates has secured an order worth US$415m from Chenab Valley Power Projects. The deal is to build a diversion tunnel and concrete face dam for a hydroelectric project in Jammu and Kashmir, according to the Economic Times newspaper. The company is currently attempting to sell its remaining cement production assets to ACC.


Chile: Fuchs Group has purchased a controlling stake in the lubricants business of Comercial Pacific. The agreement will see it hold 65% of the company with Comercial Pacific retaining the remaining 35%. The acquisition focuses in particular on the customer base and workforce. Comercial Pacific is a long-standing Fuchs distributor in Chile in the mining, food, paper and cellulose industries. The company employs 13 people in sales and application engineering.


France: LafargeHolcim France has inaugurated a new clinker loader at its Martres-Tolosane cement plant. The Euro4.4m project consists of a 1000t silo fed by a belt conveyor and a loading area for trains and trucks. It is intended to supply the grinding mill at LafargeHolcim’s La Couronne plant with raw materials. The loader was built by DB2i, a subsidiary of engineering company Demathieu & Bard with the assistance of Comminges Bâtiment and Alibert & Fils. The project is part of a wider Euro100m investment initiative at the site.


Switzerland: Cement deliveries grew by 3% year-on-year to 1.22Mt in the second quarter of 2018 from 1.19Mt in the same period in 2017. Deliveries for the first half of the year grew slightly to 2.06Mt according to the CemSuisse.


Pakistan: Cement despatches rose by 15% year-on-year to 23.7Mt in the first half of 2018 from 20.5Mt in the same period in 2017. All Pakistan Cement Manufacturers' Association (APCMA) data showed that despatches in the north of the country rose by 13% to 17.5Mt and in the south they grew by 7% to 3.8Mt. However, despatches in the south fell by 13% year-on-year to 4.2Mt in June 2018.


Cameroon: Engineering Construction Manufacturing and Trading plans to build a new 0.5Mt/yr cement plant. The project has an investment of US$27m, according to the Agence de Presse Africaine. The local company has signed an agreement with the Investment Promotion Agency to build the plant. It enables it to receive customs and tax breaks as part of the deal.


Africa: The establishment of the African Continental Free Trade Area (AfCFTA) is expected to help Dangote Cement’s production capacity to expand 27.5Mt/yr by 2030. The Nigerian Office for Trade Negotiations (NOTN) made the forecast as part of a report on the potential benefits of the free trade area, according to this This Day newspaper. The report follows a meeting of the African Union in Mauritania in late June 2018. It used the cement industry as a case study for the benefits of the free trade arrangement.


Saudi Arabia: Cement sales revenue is expected to fall quarter-on-quarter in the second quarter of 2018 due to restructuring in the industry and holidays in the period. A report by Al Rajhi Capital found that cement sales volumes fell by 16.7% year-on-year in April and May 2018. 15 cement companies reported falling sales volumes, led by Riyadh Cement and Cement City with 44.1% and 37.5% declines respectively. Only two companies, Tabuk Cement and Hail Cement, reported growth. Total inventory for the industry grew by 1.2% quarter-on-quarter to around 36.2Mt at the end of May 2018. The financial services company forecasts that revenue in the cement sector will fall by 6% year-on-year.


Nigeria: Aramando Martinez, the director of Dangote Cement’s Ibese plant, says that the unit exports 15 – 20% of its total production to markets in Benin, Togo and Ghana. The plant has a production capacity of 12Mt/yr, according to the Business Daily newspaper. Martinez added that the plant has also concluded plans to export 2Mt of clinker to grinding plants in Ghana and Cameroon in the second half of 2018.


Ghana: The Cement Manufacturers Association of Ghana (CMAG) formally inaugurated itself at the start of July 2018. The association is intended to protect and accelerate the development of the industry, according to MyJoyOnline. Members of the association include Ghacem, Diamond Cement and Ciments de l’Afrique (CIMAF). In its constitution the association stated that it, “is not a cartel, but an umbrella body for cement manufacturers in the country.”

Raju Baddharaju, Diamond Cement, has been appointed as the first chairman of the association’s board. George Dawson-Ahmoah, Strategy & Corporate Affairs Director of Ghacem has been appointed as the executive secretary with effect from August 2018. Other members on the governing board include: Morten Gade-Member, Ghacem; Eugene Laryea-Member, Ghacem; N. Venkatesh-Member, Diamond Cement; Mohamed Bennis-Member, CIMAF; and Joseph Aboo-Member, CIMAF.

Previously, the Ghana Cement Manufacturers Association (GCMA) published its memorandum of understanding in 2015 with Ghacem and Diamond Cement as its founding members. Dawson-Ahmoah was the chairman of an interim executive body for the association.


Oman: Northern Ireland’s Telestack has won a Euro5.7m deal to supply a mobile shiploading system to the Port of Salalah. The system will be used to load limestone, gypsum and cement clinker and will be operational later in 2018, according to the Irish News newspaper. The project is part of an on-going Euro17bn government infrastructure investment to support mining, quarrying and the cement industry. It is Telestack’s largest single order to date.


Ukraine: The Interdepartmental Commission on International Trade has started an anti-dumping investigation on imports of cement from Russia, Belarus and Moldova. It will look at the conduct of Dyckerhoff Cement Ukraine, HeidelbergCement Ukraine, Podilsky Cement and Ivano-Frankivskcement, according to the Uryadovy Courier newspaper. The probe will examine the cement market between 2015 and 2017.