Global Cement Newsletter

Issue: GCW470 / 26 August 2020

Headlines


North Korea: The state-run KCNA news agency has announced that cement, iron and steel and timber production units throughout North Korea are ‘pushing forward’ with production to supply building materials to flood-ravaged areas, including in Unpha County (North Hwanghae Province) and Ichone County (Kangwon Province). It stated that the Sunchon Cement plant had provided 10,000t of cement to reconstruction sites in ‘a short span of time.’


Back on 11 March 2020, this column drew attention to the seemingly intractable overcapacity situation in Vietnam. On that day, incidentally the day that the World Health Organisation (WHO) declared the Covid-19 outbreak to be a full-blown pandemic, Vietnam held firm on its previous estimate that it would produce 103Mt of cement in 2020. 70Mt would be consumed domestically, with 33Mt exported. At the time much of the world was heading down the coronavirus rabbit hole and we were incredulous. South East Asia was worst affected by lockdowns at that point and demand was poor. It was clear that the country would struggle to find buyers, even with its famously reasonable prices.

Fast forward five months and figures from last week show that Vietnam’s cement producers actually exported an incredible 19.5Mt in the first seven months of 2020. The volume was 11% higher than the 17.6Mt exported in the corresponding period of 2019. However, prices suffered, with the value of exports falling by 5.4% to US$732m. That works out at US$37.54/t in 2020 against US$43.98/t in 2019 - a drop of US$6.44/t. Now, just as in March, the Ministry of Construction has maintained again that Vietnam will export 32-33Mt of cement and clinker in 2020. The volumes seem impressive, but it’s ‘sales for show, profit for dough.’ How much longer can the country continue to pour such vast amounts of cement into the global market at these low prices?

Well it seems the answer is ‘not any more.’ Following an announcement in May 2020 that no new cement plant projects would go ahead in 2020 after all, there is now a new cement industry development strategy to help move the sector forward. Under the plans, all plants with a capacity under 0.9Mt/yr will be forced to improve their productivity, product quality, energy efficiency and, crucially, environmental performance, by 2025. While the government says it will help to facilitate the changes, we can be reasonably sure that it wants to reduce its domestic capacity to a fairly meaningful extent. The Global Cement Directory shows that Vietnam has at least 28 plants of less than 0.9Mt/yr capacity, jointly contributing around 16.6Mt/yr. While we should be clear that the government is not calling for the wholesale elimination of capacity, removing these plants would leave the country with around 86Mt/yr of cement production and halve exports to around 16.4Mt/yr, assuming 70Mt/yr of domestic consumption. On the surface the government says it will help plants ‘facilitate’ the changes, but it remains to be seen whether its many older, less efficient plants will actually be able to jump through the hoops the authorities put in their way. Of course, one need look no further than neighbouring China to see how effective such directives from the top of government can be.

For its part the Vietnamese government is clear: Plants that don’t pick up the pace will be closed. It says that the strategy aims to “Develop the cement industry to an advanced and modern level, to produce cement of international standard quality with economical and efficient use of energy, giving high competitiveness in the international market, while meeting the needs of the domestic market, completely eliminating out-dated, natural resource-consuming and polluting technology.” The government stops just short of mentioning profitability, but it is clear that this would be another nice effect of reduced capacity in an economy where the state is effectively selling the cement by itself. China again shows what should happen next. Following major profitability improvements in 2017, 2018 and 2019, China’s producers continue to go from strength-to-strength in 2020, even taking coronavirus closures into account. This week Anhui Conch reported a 5.3% increase in its first half net profit (to a tidy US$2.33bn), with China Resources Cement chiming in with an 11% rise to US$541m. While it is unclear from outside of China just how much capacity has been terminated, the changes are having the desired effect.

So, after looking for perhaps slightly too long at dwindling returns, Vietnam’s government appears to be serious about overcapacity. Its (larger) cement producers look set to gain from supply-side reforms in the same way that many in China have. The industry will shrink over the next few years and, while closures and job losses will be unpopular, the country, its economy and its environment will benefit from this policy in the long run.


China: Color Star Technology, owner of Beijing Xin Ao Concrete Group and Beijing Ao Hang Construction Materials Technology, has announced the Appointment of Hung-Jen Kuo to its board of directors. Kuo will chair the nominating and corporate governance committee and sit on the audit committee and the compensation committee. He is executive president of Fosun Capital and was previously security services director and head of Deutsche Bank China and managing director of Gopher Asset Management.

CEO Biao Lu said, “Mr Kuo is a great addition to our Board of Directors, and his expertise and reputation as an executive and experience in corporate finance can improve our efforts to represent Color Star's stakeholders. He has established a track record of driving great values, and his scope of experience can support his work alongside his fellow directors and the company's leadership.”


Namibia: Ohorongo Cement, despite not having any coronavirus cases itself, has seen a steep decline in demand for cement due to the economic effects of the Covid-19 pandemic. In an interview with local press, Frankleen Alberts, Manager of Customer Relations and Public Affairs at Namibia’s only integrated cement plant, said that, while domestic sales had suffered from a slowdown in public works and lower private construction levels, the closure of Namibia’s borders had all but eliminated opportunities for exports. It had also hampered the company’s supply chains.

Alberts said, “Cement sales have been affected since the outbreak of the virus. We were able to continue supplying our Namibian market without major interruptions while adhering to the regulations under the state of emergency. However, due to the restrictions and quarantine rules by neighbouring countries, our export market suffered adversely.” She added, “Due to the restrictions on travel and flights, the supply chain is affected and this includes inbound and outbound logistics, in terms of export sales.”

Alberts said that day-to-day operations at the company have not been affected by the ongoing Covid-19 pandemic as the company had introduced regulations as published by government and as required by the ministry of mines and energy to ensure the safety of employees while continuing with operations. None of the company’s employees was furloughed or laid off.


China: West China Cement has announced that its profit attributable to owners of the company was US$108.8m in the six months to 30 June 2020, a year-on-year decrease of 5.2%. The improvement in profit came despite a 9.1% fall in revenue to US$440m. This trend follows a number of other Chinese producers that have seen markedly increased profitability in 2020 on the back of the Chinese government’s supply side reforms.


India: Shiva Cement has reported a standalone net loss of US$365m for the first quarter of the current fiscal year (1 April 2020 – 30 June 2020). However, the loss was 33% lower than the US$556m that it lost in the corresponding quarter of the 2019-2020 fiscal year. Shiva’s net revenue also declined substantially, by 22.6%, to US$1.11bn during the quarter, compared to US$1.43bn a year earlier. The company’s operating profit slipped to a loss of US$273m, as against a profit of just US$12,000 a year ago.


India: JSW Group has announced the combination of the distribution and supply chain of its cement and steel businesses under an integrated JSW One initiative to make it easier for customers to source its products. JSW One has commenced operations in eastern India and will be scaled-up across the country over the next couple of years.

“JSW One will derive synergies to benefit both the steel and cement businesses by streamlining and maximising the depth and expanse of JSW Group’s sales and supply chain network,” said the group in a statement. “It will also combine the group’s expertise across product portfolio to provide comprehensive service capability to its customers.”


Peru: Cementos Pacasmayo subsidiary Cementos Selva has begun shipping 2550t/yr of cement produced at its 0.4Mt/yr integrated Rioja, San Matrín plant to the city of Iquitos via the Huallaga, Marañon and Amazon rivers following refurbishment of its Port of Yurimaguas cement terminal. The company said, “The facilities provided by the Port of Yurimaguas with its modern infrastructure and equipment, together with a coordinated logistical operation with the Rioja plant, has made it possible to considerably reduce reception and shipment times, demonstrating that good practices in the jungle are possible,” according to the Diario Gestión newspaper.


UK: Mexico-based Cemex has published plans for the redundancy of its entire South Ferriby, Lincolnshire logistics team. A total of 26 jobs are at stake. The Lincolnshire Today newspaper has reported that “it is no longer financially viable for Cemex to continue to operate the fleet at South Ferriby” following the mothballing of its 0.8Mt/yr integrated South Ferriby cement plant, according to the company. Its Rugby, Warwickshire fleet, Tilbury, Essex fleet and Hull, East Riding of Yorkshire fleet will pick up the remaining footprint.

Cemex said, “We understand that this news will be a further disappointment to the local community following the previous announcements about mothballing the South Ferriby plant. Thank you for your on-going support – we remain proud to have been such a valued part of the community. We would like to reiterate that all commitments to the local community will be maintained, including the work agreed as part of the Environment Agency flood protection project.” The South Ferriby plant was devastated by a tidal surge and resulting flooding in December 2013.


Paraguay: The government has re-opened borders to imports of cement due to a national shortage. The Última Hora newspaper has reported that importers will be free to bring cement into the country without having first applied for a provisional import licence. The situation is the result of growth in demand after the coronavirus lockdown and the suspension of production at Yguazú Cementos due to ‘a problem with a transformer.’ The government has already issued Yguazú Cementos with a 15,000t/yr cement import licence due to this.


El Salvador: LafargeHolcim subsidiary Holcim El Salvador has announced an alteration to the composition of its flagship product, Cuscatlán cement, developed in laboratories in France and Mexico. Strategic marketing manager Amalia Palacios said, “The new formula offers the end user higher quality and less waste, that is to say a yield of around 20% more for the same price, so that we are improving quality without an impact on the customer's pocket."


US: Grupo Argos subsidiary Cementos Argos has said that the Environmental Protection Agency (EPA) has awarded Energy Stars to its 1.1Mt/yr Harleyville, South Carolina cement plant and its 1.7Mt/yr Roberta, Alabama cement plant. This signifies that both plants are in the top 25% of US integrated cement plants for energy efficiency.

Legal and sustainability vice president María Isabel Echeverri said, “We are delighted to be granted again these certifications, which reaffirm our commitment to sustainability and to give value to our society. The responsible use of energy is an essential pillar of our company and we work every day in the development and implementation of technologies that enable efficient use and strategic management of this resource.”


China: Anhui Conch Cement has recorded a profit of US$2.33bn in the first half of 2020, up by 5.3% year-on-year from US$2.21bn in the first half of 2019. Revenues rose by 3.3% to US$10.7bn from US$10.4bn. The company attributed the increases to the resumption of construction across Asia after the coronavirus lockdown and increase sales in western China throughout the period.


Paraguay: Argentina-based Loma Negra has sold its 51% stake in Yguazú Cementos. The El Cronista Comercial newspaper has reported that the proceeds of sale of the 0.8Mt/yr installed cement production capacity subsidiary will go towards paying off Loma Negra’s debts. The company said, “Loma Negra’s objective is to seek and execute projects with high potential. For this reason, after having started marketing operations in Paraguay in 2000, built and operated the factory since 2013 and reached high standards of production and profitability, we have finally decided to finalise its sale.”

Yguazú Cementos sold 260,000t of cement in the first half of 2020, down by 6.8% year-on-year from 267,000t in the first half of 2019. This generated revenues of US$25.4m, up by 39% from US$18.3m and constituting 12% of Loma Negra’s total sales of US$212m over the period. The company valued the asset at US$80m on 30 June 2020. The buyer is a Paraguayan company reportedly connected to remainder shareholder Intercement.

Yguazú Cementos’ 0.4Mt/yr Ascunsción cement plant in Capital District and 0.4Mt/yr Villa Hayes cement plant in Presidente Hayes Department supplied 40% of Paraguay’s cement demand in 2019.


China: China Resources Cement (CRC)’s first-half net profit increased by 11% year-on-year to US$541m in 2020 from US$481m in 2019. This was in spite of a 3% fall in revenues to US$2.18bn from US$2.25m. CRC said, “The gradual stabilisation of infrastructure construction and the real-estate market - as well as the steady progress of urbanisation and rural construction - will be conducive to the stable development of the cement industry."


Vietnam: Siam Cement Group (SCG) has donated four mobile pressure chambers for use by medical staff to collect samples without coming into contact with patients at the Da Nang Centre for Disease Control in Da Nang, South Central Coast Region. Viet Nam News has reported that the equipment has already been successfully used for mass sample collection in Thailand.

SCG subsidiary Vietnam Construction Materials general director Nopporn Keeratibunharn said, “Amid the rise of Covid-19 in the central area, SCG deeply understands and shares the responsibility to support and protect the local medical workforce via our innovation and expertise. When collecting samples, the medical workforce is prone to get in contact with the virus in micro-droplets from talking, sneezing, and coughing during the swab. Designed and built by SCG, these mobile positive-pressure chambers aim to avoid direct contact between the sample-collecting staff and the person providing the sample.”


Colombia: The National Association of Entrepreneurs and Dinero Magazine have named Cementos Argos fourth among 242 of Colombia’s most innovative companies. Chief executive officer (CEO) Juan Esteban Calle said, “This recognition fills us with pride and motivates us to continue to advance. We are convinced that it is possible to help materialise more dreams of housing and a better infrastructure for millions of people.”


Turkey: Germany-based IKN has announced its appointment by Kentçim Çimento for engineering and installation of a 4500t/day kiln line at the company’s upcoming 1.6Mt/yr Muğla integrated cement plant in Muğla Province. Production manager Mehmet Fatih Ekici said, “May it be good and auspicious for our country.”


Uzbekistan: Uzpromstroymaterialy and South Korea-based Caris have formed an 80:20 public-private partnership for the establishment of a 1.5Mt/yr integrated cement plant in Berinuy region at a cost of US$350m. The Cement and Applications Journal has reported that the upcoming plant, called the Caris Karakalpak Cement, will generate sales worth US$182m/yr and profit of US$126m/yr, according to the owners.


Vietnam: The government has adopted a cement industry development strategy under which all plants below 0.9Mt/yr capacity must make investments to improve their productivity, product quality, energy saving and environmental protection by 2025. In order to facilitate this, the government says it will improve institutions and policies and improve the efficiency of raw materials exploitation, scientific research and industrial application, promoting domestic consumption, increasing available training and tightening environmental protections, according to Việt Nam News. Plants which fail to increase productivity in the specified ways will face closure.

The government says that strategy aims, “to develop the cement industry to an advanced and modern level, to produce cement of international standard quality with economical and efficient use of energy, giving high competitiveness in the international market, while meeting the needs of the domestic market, completely eliminating out-dated, natural resource-consuming and polluting technology for production.” The measure specifically targets the country’s overcapacity issue in its efforts to develop demand and its emphasis on product quality.


India: Metals producer Hindalco has won a contract to supply fellow Aditya Birla subsidiary UltraTech Cement with 1.2Mt/yr of bauxite residue from its aluminium operations, up by 180% from 250,000t in the 2020 financial year, which ended on 31 March 2020. The Economic Times newspaper has reported that UltraTech Cement will use the bauxite residue – or ‘red mud’ – in cement production at 14 of its plants across seven states. As a result of the deal, Hindalco, the world’s largest producer of rolled aluminium, will have full bauxite residue utilisation across three of its refineries. Managing director Satish Pai said, “We have been working with producers to develop high-grade inputs for the cement industry.”


Ireland: CRH recorded a profit of US$406m in the first half of 2020, down from US$602m in the first half of 2019. Sales fell by 4.9% year-on-year to US$12.2bn from US$12.8bn. Price rises in many markets offset the general reduction in cement volumes caused by coronavirus lockdown, while volumes grew in Germany, the Benelux countries, Brazil and the US.

Chief executive officer (CEO) Albert Manifold said, “We took swift and comprehensive action in response to the Covid-19 crisis, and our ability to flex our cost base and deliver improved profitability, margins and cash generation in a rapidly evolving environment demonstrates the strength and resilience of our business. The outlook for the rest of the year and into 2021 remains uncertain and is dependent on an improving health situation across our markets.” Though the group provided no full-year guidance for 2020, it said, “The longer-term prospects for CRH remain positive, benefiting from significant financial strength and resilience together with a portfolio of high-quality assets in attractive markets.”


Uruguay: Cement producers sold 166,000t of cement in the second quarter of 2020, down by 3.9% year-on-year from 173,000t in the second quarter of 2019. The country exported 5600t of this (3%), up by 3.9% from 5380t. Domestic sales fell by 4.1% to 160,000t from 153,000t, corresponding to 84% of a domestic consumption of 190,000t, down by 4.2% from 200,000t. Imports rose by 8.8% to 30,000t from 27,400t.


Mozambique: China-based International Cement Group has confined builders working on the construction of its integrated Salamanga cement plant in Maputo Province to the site of the upcoming plant since March 2020. BBC news has reported that 60 Mozambicans have been living in temporary accommodation without being able to leave the site “in order to prevent possible transmission of coronavirus from workers,” according to the company. The group agreed to permit workers to leave from 23 August 2020 following action by a local lawyer.