Global Cement Newsletter

Issue: GCW423 / 18 September 2019

Headlines


Pradeep Paunrana’s latest attempt to wrest back control of ARM Cement was dismissed this week in Kenya. Administrators PricewaterhouseCoopers rejected a US$12.5m guarantee to stop the sale to a rival, according to Business Daily newspaper. Paunrana, the former managing director and majority shareholder of ARM Cement, had teamed up with Rai Group to thwart a rival bid for his company from National Cement.

The guarantee was a 20% portion of a full bid of US$63m by Paunrana and Rai Group but the administrators rejected it on the grounds that it had a nine-month time limit. They were reportedly concerned that legal proceedings over ownership of the cement producer could last beyond this. A deal to sell ARM Cement to National Cement for US$50m was agreed in May 2019. However, Paunrana fought back and the courts are expected to deliberate over the issue for some time.

ARM Cement entered administration in August 2018 following a growing loss in 2017 and poor markets in Kenya and Tanzania. At the time the cement producer blamed its poor performance on elections in Kenya causing reduced cement demand, a coal import ban in Tanzania causing production issues at its Tanga cement plant and increased competition in both countries.

The implications of National Cement actually succeeding in its bid for ARM Cement would mean a realignment of the local industry. LafargeHolcim’s subsidiary Bamburi Cement leads the sector by production capacity and market share. It operates one integrated and one grinding plant. Mombassa Cement and then a variety of smaller companies, trail it.

The Devki Group-backed National Cement has steadily been expanding in recent years. In April 2018 it was announced that the International Finance Corporation (IFC) was going to invest US$96m in National Cement and that Devki Group chairman Narendra Raval was going to commit a similar sum towards a new integrated line in Kenya and two new grinding plants in Kenya and Tanzania. More recently it acquired the long-running Cemtech plant project in West Pokot, along with its mineral deposits and licences. If it were able to successfully buy ARM Cement it would become Kenya’s second largest cement producer by market share.

ARM Cement is not the only Kenyan cement producer facing these kinds of problems. The Kenyan government is the majority shareholder East Africa Portland Cement Company (EAPCC) and it has been working on a rescue package for it since early 2019. The local market had similarly negatively affected the EAPCC’s financial performance and it has been attempting to cut its debts. In its case, it has been trying to sell land to pay off its debts but it has faced disputes with local residents. It has also tried reducing its workforce, with varying degrees of success. Its integrated plant at Athi River near Nairobi was reported to be operating at a 50% capacity utilisation rate in late 2018.

 Table 1: Cement production in Kenya, 2015 – 2019. Source: Kenya National Bureau of Statistics (KNBS).

Table 1: Cement production in Kenya, 2015 – 2019. Source: Kenya National Bureau of Statistics (KNBS).

Overall cement production in Kenya peaked at 6.7Mt in 2016 and has fallen since. It fell by 2.8% year-on-year to 2.9Mt in the first half of 2019 from 3Mt in the same period in 2018. Consumption fell by a similar amount to production in the first quarter of 2019. Analysts like Knight Frank have blamed this on a slowdown in the real estate market, although it holds up hope for government house building scheme to rescue the situation.

In this kind of market it is understandable that the cement market is rationalising. The World Bank has forecast gross domestic product (GDP) growth of 5.8% in 2019 and better in the years ahead. Whoever is left in the cement business once the corporate dust settles stands to benefit.


Iran: Iran increased its cement production in the five months to 22 August 2019 to 23.1Mt, a 4.8% increase from 22.1Mt in the same period of 2018. In spite of this, the country’s cement exports in these first five months of the Iranian year fell by 17% to 5.48Mt from 6.60Mt. Clinker exports fell by under 2%. Though still the World’s number 10 cement producer, demand for Iran’s cement is hampered by US trade sanctions. This has led the country to seek to improve sales in neighbouring countries, such as Afghanistan.


Switzerland: LafargeHolcim has revealed a Euro145m investment plan to reduce its CO2 emissions in Europe by 3Mt/yr, equivalent to 15% of its carbon footprint, by 2022. The investment will target advanced equipment and technology to increase the use of low-carbon fuels and materials.


Ireland: Kevin Lunny, chief operating officer of Quinn Industrial Holdings, has suffered ‘very severe but non-life-threatening injuries,’ including facial injuries and broken leg, following his abduction from outside his home at 18:40pm on 17 September 2019. The UK-based company, whose Fermanagh/Cavan cement plant spans the UK-Irish border, has called on police on either side of the border to bring an end to the violence against its employees. In February 2019, a masked man attacked two Quinn Industrial Holdings executives at a Ballyconnell service station. Police have opened an investigation into the attack against Lunny.


Ecuador: Sambito, the Ecuadorian environmental consultant, has endorsed the certification of two LafargeHolcim cement products as carbon neutral. Metro Ecuador has reported that both Agrovial and Base Vial, prepared at low heats for foundations and roads respectively, have 54% lower emissions than ‘traditional’ cement. Carbon neutrality was achieved by Holcim Ecuador’s ownership of the 6078 hectare Cerro Blanco Protected Forest, 2175 hectares of which suffices to offset the emissions from production of both products.


Spain: The Association of Spanish Cement Producers (Oficem) has elected Víctor García Brosa its president. García Brosa is deputy general director of Cementos Portland Valderrivas (CPV). He was chief executive officer (CEO) at the company from 2015 to 2019. He joined CPV’s strategic planning department in 2005. He now faces the challenge of keeping the Spanish cement sector competitive globally, in addition to being director of multiple companies.

Energy costs for Spanish producers are 20 - 30% higher than in Germany and France. García Brosa has stated that he sees EU carbon dioxide (CO2) emissions rules not as an additional cost, but a challenge to the industry to reconcile its activities with its environment. Domestic cement consumption has fallen by 80% since 2007.


India: Barathi Cement has commissioned a 10MW solar power station at its 5.0Mt/yr integrated Barathi Cement Plant. The Hindu Times has reported that the facility, which spans 16.6 hectares, will partially replace combustion-derived electricity sources at the plant.


Oman: Oman Cement has engaged the services of a leading consulting company for construction of its 1.8Mt/yr integrated cement plant in Duqm. The company announced the appointment of the consultancy firm to its US$212m project, which has been ongoing since December 2018, on 12 September 2019.


Brazil: Votorantim Cimentos has created a business unit to manage and provide services throughout the co-processing chain of alternative materials used in cement production with a five-year investment plan of US$98m. Valor has reported that the unit, named Verdera, will offer waste disposal services to various industries. Votorantim is targeting 80% petrocoke use in future cement production, compared to 25% at present. Its 2018 production used 0.9Mt of alternative materials, corresponding to a reduction of 0.5Mt in CO2 emissions compared with conventional materials.


Italy: The 0.4Mt/yr integrated cement plant at Travesio, which has been out of operation since early 2016, has not been purchased by w+p Zement, a subsidiary of Weitersdorfer, the Austrian cement and construction materials group. Diego Franz, the mayor of Travesio, has expressed the hope that Buzzi Unicem will now oversee the decommissioning of the plant itself.


Germany: Thyssenkrupp’s Materials Services division has launched a platform for digital transformation, enabling machines of different makes to communicate. The system of integrated information exchange, called Toii, has already enabled Thyssenkrupp to improve operating efficiency in-house.


France/Syria: Four Lafarge Cement Syria executives, including Bruno Lafont, CEO of Lafarge from 2006 until its 2015 merger with Holcim, have appeared in court in France to challenge their June 2017 indictments on charges of funding terrorism. This related alleged payments by Lafarge Cement Syria of Euro13m to IS to ensure the safe activity of its Syrian sites throughout the country’s civil war. A ruling will be handed down on 24 October 2019. Agence France Presse has reported that the Syrian-Canadian Amro Taleb, a former Lafarge Cement Syria intermediary whom executives have described as a ‘crook,’ has been indicted on the same charge.


US: The Illinois Institute of Technology (IIT) will host the 6th International LafargeHolcim Awards, North America, in 2020. The awards seek sustainable design in the construction sector and are open for entries until 25 February 2020. Reed Kroloff, Rowe Family Dean of the College of Architecture, IIT, heads the panel of nine judges.


Kazakhstan: Steppe Cement’s consolidated revenue in the six months to 30 June 2019 grew by 34% year-on-year to US$36.5m from US$27.3m. Its operating profit before working capital changes was US$7.9m compared to US$5.3m in the corresponding period of 2018, an increase of 49%. Negative currency exchange effects reduced the cement producer’s net profit, despite a boost from the local economy and the company’s reduction of its administrative expenses.

Steppe Cement’s consolidated revenue in the six months to 30 June 2019 grew by 34% year-on-year to US$36.5m from US$27.3m. Its operating profit before working capital changes was US$7.9m compared to US$5.3m in the corresponding period of 2018, an increase of 49%. Negative currency exchange effects reduced the cement producer’s net profit, despite a boost from the local economy and the company’s reduction of its administrative expenses.


Iraq: Arab Swiss Engineering Company (ASEC) will cover operation and maintenance of KAR Group’s 1.9Mt/yr integrated Qarachogh cement plant in Erbil. In a press release, ASEC stated that it has already overseen recruitment and planning and implementation of personnel development programs. ASEC's chairman and managing director Khaled El-Sebaie said he was ‘thrilled’ at the completion of the plant's hand-over.


US: Cementos Argos has won its case before the Court of Appeals for the Third Circuit. Spartan Construction accused it of unlawfully selling cement at a lower price to a competing buyer in the US Virgin Islands. Mondaq reports that Argos traded with both Spartan and Heavy Materials on St. Thomas between 2010 and 2013, when Spartan withdrew its ready-mix concrete business from the island. Only the latter received a 10% volume discount. The court found Argos not in violation of competition law due to lack of proof of harm attributable to discriminatory prices.


Russia: After two years of transporting its product by land only, Siberian Cement has reported a busy summer shipping window in 2019. In the two months to the end of August 2019, it shipped 15,500t of cement to Novy Port on the Gulf of Ob, Arctic Ocean. The company has announced its intent to move 17,000t in 2020 and 13,000t in 2021 by means of it 1000t-capacity barges.


North America: Cemex’s venture capital division has invested an undisclosed sum in the construction materials delivery and logistics brand GoFor. Gonzalo Galindo, the chief executive officer (CEO) of Cemex, has stated the importance of improving efficient on-site delivery as ‘a critical point in the construction value chain’ of its North American divisions.


US: Grupo Cementos de Chihuahua’s 0.9Mt/yr integrated cement plant in Odessa, Texas, will run entirely on wind and solar power. Adpren has reported that the company engaged an unnamed energy provider on a 10-year power purchase agreement for the entirety of its electricity consumption, beginning in July 2022. This will cut 45,000t/yr of carbon dioxide (CO2) emissions and represents a saving of US$4.6m in energy costs over its period of effect, a saving of 22% annually compared to Grupo Cemento’s current bill.


Paraguay: Bolivia-based Itacamba Cemento has increased its cement exports to Paraguay in the eight months to 31 August 2019 to 38,000t, 10% of the latter’s market demand. This represents an increase of 322% compared to 9000t in the same period of 2018. Pagina Siete has reported that the company additionally imported 36,000t of clinker, a 32% decrease of from 53,000t in the eight months to August 2018. Itacamba Cemento general manager Alexander Capela has expressed the company’s desire to use the Paraguay-Paraná Waterway to export surplus finished product, mainly to wholesale distributors in Asunción. The company aims to consolidate its 1.2Mt/yr capacity to meet Bolivia’s increasing domestic demand, currently 4.5Mt/yr.

Itacamba Cemento began exporting cement to Paraguay in 2017 due to the favourable exchange rate and hence a high profit margin for Bolivian produce exchanged for Paraguayan guaraní.


Egypt: Alexandria Portland Cement has sold a 15.9km2 parcel of disused land in Ad Dakhila. Mubasher reports that the company, the losses of which increased by 29.5% year-on-year to US$10.3m in 2019, received US$1.93m from the sale.


Belarus: The Council of Ministers has received a recommendation from the State Control Commission (SCC) that punitive measures be taken against officials responsible for cement production in the midst of another disappointing year. Belapan has reported that members of the SCC blamed the failure to secure efficient performance on untenable costs due to intermediaries. Investigators from the SCC’s Financial Investigations Department (FID) found that Russian intermediaries were selling cement produced in Belarus to Belarusian state-owned companies at a marked-up price. A total of 13 criminal cases have been opened in connection with the findings, including one against an executive of a Belarusian cement company.

In 2013, Belarus completed the modernisation of its three state-owned cement producers, Belarusian Cement, Krasnoselsktroymaterialy and Krichevcementnoshifer to a total capacity of 2.3Mt/yr, at a cost of US$1.1bn. In 2018, the companies missed eight of their 10 key performance targets. Besides cost reduction, capacity utilisation and labour productivity targets were not met.

Elsewhere, Krasnoselsktroymaterialy has tendered for the supply of gas cleaning equipment, including the replacement of bag filters at two of the mills in its grinding facility.