Global Cement Newsletter

Issue: GCW411 / 26 June 2019

Headlines


The Malaysian Competition Commission took the rather ominous step this week of saying it was taking extra care to watch the cement industry. Ouch! It said that had taken note of recent price rises by both cement and concrete producers and that it was working with the Ministry of Domestic Trade and Consumer Affairs as it met with the sector. It also said it was well aware of the recent merger between YTL and Lafarge, “...which had led to the market being more concentrated at the upstream and downstream level.”

The background here is that at least one unnamed cement producer announced a price hike of 40% in mid-June 2019. End-users panicked and the local press took up the story. The Cement and Concrete Association of Malaysia then defended price rises in general, when it was asked for comment, due to all sorts of mounting input costs. Although, to be fair, to the association the Malaysian Competition Commission acknowledged the price pressures the industry was under due to input costs in a report it issued in 2017.

Back in the present, the government became involved and Saifuddin Nasution Ismai, the head of the Domestic Trade and Consumer Affairs Ministry, calmed the situation down by saying that producers had agreed not to raise their prices after all and that any future planned price adjustments would be ‘discussed’ with the authorities first. Finance Minister Lim Guan Eng then followed this up with calls for an investigation into prices in Sarawak state in Eastern Malaysia. In response, Suhadi Sulaiman, the chief executive officer (CEO) of CMS Cement, batted this straight back by blaming industry mergers in Peninsular Malaysia and saying the company had no plans ‘anytime soon’ to raise its prices.

As the Malaysian Competition Commission kindly pointed out, this entire furore took place about a month on from the competition of LafargeHolcim’s divestment of its local subsidiary to YTL. The commission agreed to the acquisition of Lafarge Malaysia by YTL knowing that it was giving YTL ownership of over half of the country’s production capacity. With this in mind it is unsurprising that the commission might have wanted to look tough in the face of even a whiff of market impropriety, whether it was real or not.

The problem, as the Malaysian Competition Commission alluded to in its statement, is that the local industry suffers from production overcapacity. On top of this local demand has been contracting since 2015. The country has 11 integrated cement plants with a production capacity of 27.1Mt/yr, according to Global Cement Directory 2019 data. Production hit a high of 24.7Mt in 2015 and then fell year-on-year to 18.8Mt in 2017. Data from the Cement and Concrete Association of Malaysia painted a worse picture taking into account both integrated and grinding capacity reporting an estimated production capacity utilisation rate of just 59% in 2016. Lafarge Malaysia reported a loss before tax of US$97.7m at the end of 2018 as well as declining revenue. Shortly thereafter it announced it was leaving the country, as well as neighbouring Singapore.

In theory the buyout by YTL should have been one step closer to solving Malaysia’s overcapacity woes as either it gained synergies through merging the companies or shut down some of its plants. Certainly, the system appears to be working at some level, as the proposed 40% price rise hasn’t happened. Yet, if the government is reacting to voters rather than the market it could prolong the capacity-demand gap indefinitely. Under these conditions LafargeHolcim’s decision to exit South-East Asia may prove prescient.


Spain: Pedro Carranza, the chief executive officer (CEO) of Grupo Cementos Portland Valderrivas, has been named as the president of Fundación Laboral Andaluza del Cemento y el Medio Ambiente (FLACEMA). He succeeds Francisco Zunzunegui, who has held the post since late 2017. FLACEMA promotes the co-procesing of waste by the Andalusian cement industry. It was set up in 2003 by the Association of Manufacturers of Cement of Andalusia (AFCA) and a group of major unions.


Malaysia: Suhadi Sulaiman, the chief executive officer (CEO) of CMS Cement, says that the company does not intend to increase its prices ‘anytime soon.’ He said that any potential enquiry into a differene in prices between Peninsular Malaysia and Sarawak would show that the cement producer had not riased its prices since early 2016, according to the Borneo Post newspaper. He made the comments in a reponse to a call by the Finance Minister Lim Guan Eng for such an enquiry.

“We welcome the enquiry for two reasons... Firstly, it will show that the disparity in prices is purely due to the recent aggressive price war, which led to industry mergers and acquisitions in Peninsular Malaysia,” said Suhadi. “Secondly, an enquiry of this nature will also serve to show once and for all that Sarawak is not, and never has been, a cement monopoly.”

Lim said previously that an investigation was necessary to determine whether cartel-like behaviour was responsible for higher cement prices in Sarawak. He noted that the price was ‘significantly’ higher in the state than in Peninsular Malaysia.


Bangladesh: The Bangladesh Cement Manufacturers Association (BCMA) says a new import tax on raw materials and a distribution levy will increase the price of cement and place a burden on the construction industry. The new duties will add 8% to the existing 15% of value-added tax (VAT) already liable on raw materials, according to the Daily Sun newspaper. The association is lobbying against the government’s proposed budget for 2019 – 2020. It has described the new budget as business friendly but not favourable for the cement sector. Any additional taxes are also expected to worsen the effect of growing international prices of raw materials.


India: Cement producers and the World Business Council for Sustainable Development (WBCSD) have launched the Indian Cement Sector SDG Roadmap. The planning framework uses the United Nation’s (UN) sustainable development goals (SDG) to set a series of goals in energy and climate, people and communities, the circular economy and natural resource management. It is intended to contribute to the UN’s 2030 Agenda for Sustainable Development.

This initiative has been convened by nine cement companies: ACC, Ambuja Cement, CRH, Dalmia Cement (Bharat), Heidelberg Cement, Shree Cement, Orient Cement, UltraTech Cement, Votorantim Cimentos. It is also partially funded by the Swiss Agency for Development and Cooperation (SDC).

Notable goals from the roadmap include promoting railway and waterway transport networks, improving transport safety, increasing the use of blended cements and encouraging the use of alternative fuels. The framework also plans to increase the number of women in the indsutry workforce at every level from entry to board.


Azerbaijan: Cement demand has dropped ‘significantly’ due to a slowdown in economic growth and the lack of implementation of major projects. The country’s three cement plants are producing more than enough cement to cover local demand, according to the Trend News Agency. Concrete plants are also operating below full production capacity. Despite this downturn, growth has been noted in the housing sector. Producers are now focusing on export markets.


Saudi Arabia: Najran Cement plans to resume production by its third production line from the start of July 2019. The line has a production capacity of 6500t/day. At the same time it will temporarily suspend its second production line. This line has a production capacity of 3000t/day. The cement producer says it is making the changes to to compensate for decreased clinker inventory levels.


Rwanda: South Africa’s PPC is considering buying the government’s stake in Cimerwa. Cimerwa chief executive Bheki Mthembu said that PPC Group is performing a share valuation excersise, according to the East African newspaper.
Soraya Hakuziyaremye, the Minister of Trade and Industry, announced the sale in mid-June 2019, after the divestment was first proposed in March 2019.

PPC already owns a 51% stake in the cement producer. The government owns a 16.5% stake and other shareholders include the Rwanda Social Security Board with 20.2%, Rwanda Investment Group with 11.5% and Sonarwa Group 0.8%. The entire 49% stake is currently for sale. Potential buyers have until 5 July 2019 to register their interest.


Egypt: Cement sales fell by 7.7% year-on-year to 10.9Mt in the first quarter of 2019. Data from the Central Bank of Egypt shows that production fell by 8.1% to 11.2Mt, according to Mubasher.


France: Cem’In’Eu has obtained NF hydraulic binders certification for its Aliénor plant in Tonneins from the Technical Association of Hydraulic Binders. It covers CEM I 52.5 R cement. The cement producer is currently seeking NF certification for other types of cement in its product range. The latest certification follows ISO 9000 and ISO 14000 accreditation at the cement grinding plant.


Germany/Czech Republic: Gear unit specialists Flender and Wikov Industry have announced a service cooperation deal for gear units from other manufacturers. Both companies will add gears from other producers to their service portfolio with the aim of becoming a global ‘one-stop-shop’ in the industry. The intention is to reduce the complexity that end-users can encounter when components from multiple manufacturers are deployed in a single application.

The agreement will allow customers to benefit from Flender's service network with more than 50 repair centres around the world. Wikov holds experience regarding spare parts for gear units from other manufacturers.

Both companies will continue to offer their service portfolio for their original products.


Paraguay: The Italian cement manufacturer Colacem has confirmed that it will start construction of a US$200m integrated 2Mt/yr cement plant in the district of San Alfredo, Concepción, Paraguay in early 2020. Representatives from Colacem, along with the Italian Ambassador to Paraguay and Paraguayan Minister for Industry and Commerce made the announcement at a meeting with Paraguay’s President Mario Abdo Benítez.

Paraguayan Minister for Industry and Commerce Liz Cramer said that the projected investment will benefit the entire northern area of the eastern region in terms of new jobs, incorporation of technology and environmental sustainability.

Construction will take three years and the plant will create 700 jobs during construction. There will be around 500 permanent positions, with a further 2000 indirect new jobs arising from the plant.

Italian ambassador to Paraguay, Gabriel Annis, said, "I thank the Government of Paraguay for its support and I confirm the support of my Government for this investment, which for us is fundamental and strategic.” He added that the investment includes technology transfer, social projects and care of the environment and said that he was confident that they will bring development for a Paraguayan region that needs economic injection.


Tajikistan: Tajikistan exported nearly 0.62Mt of cement in the first five months of 2019, with average monthly cement of around 0.124Mt. This represents a significant increase compared to the recent past. In 2015 monthly exports typically averaged 42,000t.

Between 1 January and 31 May 2019, Tajikistan exported 0.346Mt of cement to Uzbekistan, 0.247Mt to Afghanistan and 27,000t to Kyrgyzstan, according to the Ministry of Industry and New Technologies. Over the same five-month period, Tajikistan made more than 0.1Mt more cement than in the same period of 2018.

Tajikistan now has 18 cement plants with a total production capacity of about 5Mt/yr, with Huaxin Gayur Cement, Chzhungtsai Mohir Cement and Huaxin Gayur Sughd Cement accounting for more than 85% of the overall volume made in the first five months of 2019.

The country exported


Singapore: The Singapore Exchange has blocked the International Cement Group’s (ICG) proposed acquisition of Schwenk Namibia. It said that the transaction did not meet the requirements of a very substantial acquisition (VSA) because the target business was not profitable and because the buyer did not have sufficient cash resources to fund the purchase.

In order to approve the acquisition in the future the exchange requires: that ICG commissions implement anti-money laundering measures on any potential funds for the transaction; that it put into place ‘adequate’ internal controls and risk management systems for any of its operations in Kazakhstan, Tajikistan, Namibia and any other developing country; and that the audit committee uses external auditors.

ICG announced in March 2019 that it had arranged to buy a 100% stake in Schwenk Namibia for US$104m. Schwenk Namibia owns a 69.8% share of Ohorongo Cement.


France: Cem’In’Eu has ordered a 0.25Mt/yr grinding unit from Fives for its Portes les Valence plant in Drôme. The plant has an investment of Euro24m and it is scheduled to open in the second half of 2020. The scope of supply includes raw materials loading, clinker, limestone and gypsum hoppers, a 34t/hrt CEM II A/L FCB B-mill (ball mill) operating in a closed circuit with a FCB TSV dynamic classifier. The Portes les Valence project follows the opening of Cem’In’Eu’s grinding plant at Aliénor in Tonneins in 2018.


Azerbaijan: Norm Cement plans to increase its clinker production in order to expand its export markets. It intends to export 1Mt in 2019, according to the Trend News Agency. In 2018 it exported 10,000t to Georgia. In 2019 it hopes to send 0.1Mt to Kazakhstan.


Vietnam: Xuan Khiem Group is seeking government approval to build a US$214m cement plant in Hoa Binh province. The Xuan Son plant will have a production capacity of 2.3Mt/yr and it is scheduled to be completed in 2020, according to the Viet Nam News newspaper. The People’s Committee of Hoa Binh province and Xuan Khiem Group signed a memorandum of understanding to build the plant in late 2018.


Vietnam: Vicem Hoang Mai plans to build a 3Mt/yr cement plant in Nghe An province with an investment of US$286m. The unit will be built in the province’s Hoang Mai 2 Industrial Zone, according to the Vietnam Economic News newspaper. The project was approved in principle by the Provincial People's Committee in May 2019. It is part of the country’s cement industry development plan in 2030.


Ethiopia: A new bag-packing unit at Dangote Cement Ethiopia’s Mugher plant in Oromia is unable to start operation due to a lack of raw materials. The US$20m polypropylene bag plant was completed in April 2018 but it is restricted by government controls on foreign currency that are limiting its import of input materials, according to the Reporter newspaper. The unit can produce up to 120 million bags per year.

The cement producer has also suspended plans to build a second 2.5Mt/yr production line at the plant. An agreement was signed with China’s Sinoma International for the project but it has since been abandoned due to a shortage of foreign currency, a lack of electrical power and general security issues. Deep Kamara, the country manager of Dangote Cement Ethiopia, was killed in an gun attack in mid-2018. No one has been arrested in relation to the murder.


Ivory Coast: LafargeHolcim Ivory Coast has launched online sales of its products on the Jumia e-commerce platform. The online store is aimed at individual and small business customers, according to the Agence Ivoirienne de Presse. The project is starting in a pilot phase in Abidjan and Bingerville. Deliveries of orders made online are coordinated with the company’s Binastore network around the country.


India: Dalmia Cement and South Eastern Railways have inaugurated a freight train. The ceremony marked the start of an agreement whereby the cement producer will use its own locomotives with branded rakes of goods wagons, according to the Pioneer newspaper. The deal covers five such freight trains.Image


Argentina: Loma Negra has signed an agreement with the Asociación Obrera Minera Argentina (AOMA) union and the government to keep the Barker cement plant open. The deal follows three months of negotiations, according to La Nacion newspaper. The cement producer wanted to reduce the number of shifts at the grinding plant. It previously said it had started to close the plant in early-June 2019. The plant will continue to operate with 160 staff working a reduced workload amongst other concessions.


Japan: Taiheiyo Cement says it agrees with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). It is promoting research and development business strategies to mitigate and adapt to climate change. The cement producer is also intending to publish a long-term plan to reduce its CO2 emissions by 2050.


South Africa: Lafarge Africa has agreed to sell its full stake in Lafarge South Africa business to Caricement for US$317m. The deal is expected to complete in the third quarter of 2019 subject to regulatory approval. Proceeds from the transaction will be used to pay off Lafarge Africa’s shareholder loan of US$293m.

The subsidiary of Lafarge Holcim said that net sales fell by 2.6% year-on-year to US$218m in the first quarter of 2019 from US$224m in the same period in 2018. Its operating profit rose by 35% to US$23.4m from US$17.3m. Growth was driven by the Nigerian market and it described its cement volumes as ‘flat’ in South Africa. It also reported that its revenue rose by 3% year-on-year to US$855m in 2018 from US$829m in 2017. It reduced its loss to US$25.6m from US$43.7m.


Philippines: The Philippine Cement Importers Association (PCIA) has refuted the claims of local cement manufacturers that an increase in cement imports has caused ‘serious injury’ to their operations. In a position paper submitted to the Tariff Commission on the imposition of safeguard measures on imported cement, the PCIA said that some local producers were reporting continued profits despite the level of imports, according to the Manila Bulletin newspaper. It also denied accusations that cement imports were absorbing 17.2% of local production and 14.2% of total market demand.

"We have a domestic cement industry that is robust and resilient amid the import surge, and already competitive against imports,'' said the PCIA. "The 2013 to 2017 results of operations of the domestic cement industry showed its ability to compete with cement imports. Despite the surge of imports during the period of investigation (2013 - 2017), the domestic industry continued to exhibit improving revenues and continuing profitability." It finished by saying that the Philippine cement industry was globally competitive and did not require any structural adjustment.


France/Syria: The Court of Appeal in Paris will decide on 24 October 2019 whether charges of financing terrorism and crimes against humanity will be upheld. Lafarge and its former executives Bruno Lafont, former chief executive officer (CEO) of Lafarge, former safety director Jean-Claude Veillard, and one of the former directors of its Syrian subsidiary, Frédéric Jolibois have challenged the indictments, according to the Agence France-Presse. The legal case is investigating Lafarge’s conduct in Syria between 2011 and 2014. It has been accused of financing terrorism through indirect payments to extremist groups to keep its Jalabiya cement plant operational after the outbreak of war in Syria.


Myanmar: June Cement Industry’s new 5000t/day plant is waiting for permission from the government to use 15MW of electricity generated from two coal power plants. The US$471m unit is based at PyarTaung, KawPaNaw Village, Kyaikmayaw Township in Mon State, according to the Mon News Agency. The plant will extract limestone from the Pyartaung Mountain area. Coal for the plant is expected to be delivered via the River Attran. Local residents have expressed concern that barges may cause flood damage along the river’s banks.


Peru: Cemento Inka plans to start civil engineering work on its new 0.7Mt/yr grinding plant at Pisco by September 2019. The US$20m project is expected to take 12 months to complete with a commissioning date scheduled for the second half of 2020, according to the Gestión newspaper. The cement producer is also in talks with quarry owners to source limestone for the unit.


Argentina: Loma Negra is challenging a proposed US-based court case on behalf of US-based shareholders. The legal challenge alleges that the cement producer misled investors by misrepresenting its exposure to a corruption scandal and downplayed the potential impact of the economic crisis in 2018, according to the Ámbito Financiero newspaper. Loma Negra says that it was never involved in any bidding process related to the corruption case relating to its Brazilian owner Camargo Correa. The US lawsuit is also taking legal action against the banks involved with Loma Negra’s initial public offering (IPO) in late 2017.


Malaysia: Cement producers have agreed not to raise their prices after a meeting with the Domestic Trade and Consumer Affairs Ministry, despite mounting raw material costs and negative currency exchange issues. Minister Saifuddin Nasution Ismail said that the producers were also asked to ‘discuss’ any future prices rises with the ministry first, according to the Malaysian National News Agency (BERNAMA). He added that cement is a controlled item and action under the Control Of Supplies Act could be taken against producers found to increase the price without the government’s approval. The government is also working on a target-based petrol subsidy, although further work is required on this.

Earlier in June 2019 the Cement and Concrete Association of Malaysia has defended a reported 40% rise in the price of cement due to unsustainable mounting input costs. It said that over the last few years the cement industry had suffered from increased costs for electricity, packing materials, imported fuels, raw materials and equipment.


Burkina Faso: Harouna Kaboré, the Minister of Commerce, Industry and Handicraft, has inaugurated a new mill at Cimburkina’s cement grinding plant at Kossodo in Ouagadougou. By installing the new mill the unit has doubled it production capacity to 2Mt/yr, according to the Sidwaya newspaper. The upgrade cost US$25m.

François Sangline, the director general of the subsidiary of Germany’s HeidelbergCement, said that the 2000t limestone silo feeds the production line consisting of two 150t/hr cement grinding mills. This is followed by a 120t/hr bagging unit. Sangline noted that the country’s cement consumption of 2.5Mt/yr is below the domestic cement production capacity of 6Mt/yr. Due to this he lobbied the government to protect local production against imports and fraud.


India: ICICI Bank has asked the National Company Law Appellate Tribunal (NCLAT) to speed up an insolvency petition against Jaiprakash Associates. It said that there had been no progress on the plea since September 2019, according to the Hindu newspaper. The private bank alleges that the subsidiary of Jaypee Group has delayed the petition through adjournments of the process. It owes the bank around US$185m.

Jaiprakash Associates sold six integrated cement plants and five grinding plants to UltraTech Cement for US$2.5bn in 2017. It was reportedly in talks with LafargeHolcim’s subsidiary ACC in mid-2018 to sell its remaining cement business.


India: Ramco Cements’ Ramasamy Raja Nagar integrated plant has won the ‘Green Award 2018 for Industries of Tamil Nadu’ from the Tamil Nadu Pollution Control Board. It was bestowed in recognition of the contribution towards protection of environment made by the company. Special focus is acknowledged to best practices adopted to achieve best environmental quality in emissions, discharge of waste water, solid and hazardous waste management and green belt development.


Eurasian Economic Union: The Eurasian Economic Union (EEU) produced 12Mt of cement in the first quarter of 2019. Armenia produced 68,000t and imported 47,200t. Belarus produced 0.84Mt, imported 79,500t and exported 0.26Mt. Kyrgyzstan produced 0.35Mt, imported 38,600t and exported 0.15Mt. Kazakhstan produced 1.47Mt, imported 0.11Mt and exported 0.33Mt. Russia produced 9.3Mt, imported 0.18Mt and exported 0.17Mt. Usually production in the first quarter represents 16 – 19% of annual production. Consumption of cement in the EEU region is expected to grow by 2.5% year-on-year in 2019.


Morocco: Denmark’s FLSmidth has won a contract to deliver a greenfield cement plant to a new customer in Morocco. The contract is worth US$45m.

The contract was signed by FLSmidth, together with Société Générale des Travaux du Maroc (SGTM) on 19 July 2019 signed a contract with TEKCIM S.A. to co-deliver a 3600t/day (1.2Mt/yr) cement plant. The plant will be built in Ouled Ghanem in Morocco’s El-Jadida Province and is scheduled to be fully operational during the third quarter of 2022.

This is the first business cooperation between FLSmidth and TEKCIM. The process leading to the agreement has involved the African Development Bank as well as local commercial banks, and the parties involved have set very high standards in terms of quality and sustainability.

“The project includes state-of-the-art equipment that will provide TEKCIM with a very efficient cement plant,” said Jan Kjaersgaard, FLSmidth’s President of Cement. It also demonstrates FLSmidth’s ability to support customers where financing is involved, which has been a key aspect to be awarded this project. The plant will fulfil strict international standards, which is a clear statement that we as a premium player in the industry are following suit on our agenda of delivering sustainable productivity.”

The contract scope includes engineering, supply of a full range of equipment from crushing to packing and load-out, supervision, commissioning and training of a local workforce. The order is effective immediately and has been recognised in the order intake for the second quarter of 2019.