Global Cement Newsletter

Issue: GCW622 / 23 August 2023

Headlines


The Hungarian government recently enacted Emergency Decree 320/2023, taxing all CO2 emissions from the country’s 40 or so largest industrial enterprises. The government used emergency powers to set up a new taxation scheme, which undercuts existing free allowances under the EU emissions trading scheme (ETS). The scheme additionally penalises the trade in ETS credits. Cement producers announced that the new regulations will make it impossible for them to keep operating.1

With regard to Hungary’s six active cement plants, the scheme comprises:

1 – A Euro20/t tax on CO2 emissions, effective retroactively from 1 January 2023, payable by any large enterprise that uses EU Emissions Trading Scheme (ETS) free allowances to cover the majority of its CO2 emissions. Plants that decrease their production, or that carry on non-CO2-emitting activities at over 10% of their operations, will pay a higher rate of Euro40/t of CO2.

2 – A 10% transaction fee for the sale of free allocations under the EU ETS, payable to the Hungarian Climate Protection Authority.

Less than three years ahead of full implementation of the EU carbon border adjustment mechanism (CBAM), the Hungarian government has seemingly moved unilaterally against cement production – this in a country surrounded by seven other cement-producing countries. Multiple foreign cement producers connected to the major market of Budapest by rail, river and road will be watching developments with interest. These include CRH, which, besides two smaller plants inside Hungary, operates the 800,000t/yr Cementáreň Turňa nad Bodvou plant, immediately over the border in Slovakia.

This comes at a time when the domestic cement industry is facing historically high costs and low demand, with a 30% year-on-year decline in construction activity in July 2023, following double-digit inflation throughout 2022 and the first half of 2023.

Catastrophising may be a common symptom of environmental regulation in industry associations, but one can understand on this occasion. The Hungarian cement and lime industry association, CeMBeton, backed its members’ gloomy announcement about their future with an estimate for extra annual taxes of ‘several billion forints’ (1bn forint = US$2.84m), in a statement following the decree. Assuming annual CO2 emissions of 565kg/t across its 5.4Mt/yr cement capacity, the sector might expect to pay US$61m/yr in CO2 rates alone.2, 3 According to analyst ClearBlue, the government will raise additional tax revenues worth US$278m/yr across all of the 40 aforementioned heavy emitters in Hungary.4

It may seem surprising that CeMBeton did not even draw up a projected tax bill during consultations over the new tax scheme – but, in fact, no such consultations took place. In its most recent statement, the association said “We do not know the government’s intentions.” Outside of official releases, Hungary’s cement producers have not always been so reserved about the government’s perceived aim.

Global Cement reported in April 2023 that the Hungarian government was allegedly interfering in the cement sector to make producers sell up – as per accusations by an anonymous industry executive.5 There is arguably a course of action on the government’s part which, more or less, appears consistent with this aim:

October 2020 – The Hungarian Competition Authority (GVH) starts competition supervision proceedings against CRH, Duna-Dráva Cement and Lafarge Cement Magyarország.

July 2021 – Emergency Decree 2021/404 imposes a 90% tax on producers’ ‘excess’ profits, based on threshold cement sales revenues of Euro56/t. Additionally, producers must report their exports.

September 2021 – GVH finds insufficient evidence to support the initiation of competition supervisory proceedings in the cement industry.

January 2023 – (Retroactive) entry into force of CO2 emissions tax.

May 2023 – The government of Hungary reportedly initiates negotiations to acquire Duna Dráva Cement and Holcim Magyarország, according to the Hungarian builders’ association, National Professional Association of Construction Contractors (ÉVOSZ). Duna Dráva Cement owners Heidelberg Materials and Schwenk Zement state that they have entered into no such negotiations, while Holcim declines to comment.

July 2023 – The Act on Hungarian Architecture lets the government dictate producers' volumes and prices and require them to supply cement to National Building Materials Stores (a proposed state-owned construction materials retail monopoly).6 Additionally, the government gains a right of first refusal over the divestment of any asset by the cement industry’s foreign owners.

20 July 2023 – The government enacts Emergency Decree 320/2023. ETS transaction fees enter into force.

The government can now expect a legal challenge to its latest move. CeMBeton’s first ally may be the font of all emissions legislation – the EU itself. Within the EU ETS framework, tax rates are down to member states to determine. However, the introduction of a transaction fee may constitute an illegal restriction to free allowances, OPIS News has reported. The association has also indicated its readiness to mount a constitutional challenge, specifically with regard to the legislative retrofit involved in the CO2 emissions tax. The Fundamental Law of Hungary does not generally permit legislation to apply retroactively, though how courts will balance this consideration against the rights of the government is untested.

The government amended the constitution to provide for new emergency powers, and subsequently adopted them in May 2022, in response to the ‘state of danger’ created by Russia’s war in Ukraine – though its actions on the international stage suggest careful neutrality, if not ambivalence. At home, the war has brought a consolidation of the government’s control over various areas of life, including the economy, according to Human Rights Watch.7

Climate protestors around the world might be glad to see governments wield emergency powers against their own heavy industries. In Hungary, however, the wider sustainability goals are not yet clear with regard to a policy that seems, at least partly, politically motivated.

References

1. CeMBeton, Sajtónyilatkozat, 21 August 2023, https://www.cembeton.hu/hirlevel/2023-08-21/202308-mozgalmas-osz-ele-nezunk/116/sajtonyilatkozat/668

2. Heidelberg Materials, ‘Energy and climate protection,’ 2022, https://www.heidelbergmaterials.com/en/energy-and-climate-protection

3. Global Cement, Global Cement Directory 2023, https://www.globalcement.com/directory

4. OPIS News, ‘Hungary's New Carbon Tax Unlikely to Set EU Precedent, Say Analysts,’ 16 August 2023

5. Global Cement, 'Update on Hungary,' April 2023, https://www.globalcement.com/news/item/15572-update-on-hungary-april-2023#:~:text=Heidelberg%20Materials'%20subsidiary%20Duna%2DDr%C3%A1va,the%20country's%20active%20national%20capacity.

6. Daily News Hungary, ‘Hungarian government’s new nationalising plan could violate EU law,’ 27 February 2023, https://dailynewshungary.com/hungarian-govts-new-nationalizing-plan-could-violate-eu-law/

7. Human Rights Watch, ‘Hungary’s New 'State of Danger',’ 8 June 2022, https://www.hrw.org/news/2022/06/08/hungarys-new-state-danger


Austria: Christine Gröll has taken over the role of head of material flow management and process control at Alpacem Zement Austria. The producer created the new role for Gröll, who will lead a dedicated team of eight people to achieve net zero CO2 cement production at the company’s Wietersdorf cement plant by 2035. The team will focus on alternative raw materials and alternative fuel (AF) substitution.

Gröll is an Ulm University-trained chemist with over four years’ experience working within Alpacem Zement Austria. Prior to that, she worked as a research associate for Schwenk Zement in Germany, on the development of its Celitement hydraulic binder.

Alpacem Zement Austria’s technical director Florian Salzer said "It fills us with particular pride that we were able to fill the new department with talented employees from our own company. This clearly underlines the potential that exists in our team and emphasises the extensive expertise that we have built up. We are also pleased that the department management is in the competent hands of Christine Gröll, who brings an incomparable mix of research drive and practical experience.”


US: James Hardie Industries, the world's largest producer and marketer of high-performance fibre cement and fibre gypsum building solutions, has announced the appointment of Rachel Wilson as its Chief Financial Officer (CFO), effective 16 August 2023. She was appointed after Jason Miele stepped down as CFO. He will remain at James Hardie for three months as an advisor to the CEO for special projects, and will subsequently leave the organisation.

Wilson has joined James Hardie following a successful career of over 25 years in the global technology, business services and consumer products industries. Most recently, she served as Executive Vice President, CFO and Treasurer at R1 RCM. Previously, she held leadership positions at global companies such as Iron Mountain, Jarden Corporation and Avon Products. She earlier served in corporate finance and merger and acquisition investment banking roles at Citigroup and Morgan Stanley.

Commenting on the appointment, James Hardie Industries CEO Aaron Erter said "Rachel has deep experience in corporate finance, capital markets and leading and developing high performing teams, along with a demonstrated focus on driving profitable growth. Rachel is clearly a valuable addition to the leadership team and will help us as we pursue our strategic growth plans."

Wilson said "It's an honour to join James Hardie, a leader in the building products industry with an outstanding culture of business and product innovation. I look forward to working with Aaron and being part of this high-performing team. It is an exciting time to leverage our capabilities and to continue to drive our global growth."


India: Ambuja Cements’ open offer to acquire an additional 26% stake in Sanghi Industries will run from 29 September 2023 to 13 October 2023. Press Trust of India News has reported the value of shares under the offer as up to US$767m. Ambuja Cements concluded a deal to acquire a 57% stake in Sanghi Industries, for the smaller sum of US$603m, on 3 August 2023.


China: Jiangxi Wannianqing Cement recorded a profit of US$36.6m during the first half of 2023, Reuters has reported. This corresponds to a year-on-year decline of 46%.


Saudi Arabia: Hail Cement recorded sales of US$32.4m during the first half of 2023, down by 26% year-on-year. Mubasher News has reported that the producer recorded a net profit of US$6.53m over the six-month period, compared to a first-half loss of US$3.66m one year previously.


Pakistan: Cement producers in Northern Pakistan have reported a 13% drop in the price of coal to US$126/t. The Pakistan Today newspaper has reported that this is due to the Afghan government lowering taxes on exports of coal from Afghanistan. The Taliban reduced its royalties on coal exports by 12% to US$30/t. Meanwhile, it reduced customs duties on coal exports by 33%, also to US$30/t.

Northern Pakistan is comprised of Azad Jammu and Kashmir, Khyber Pakhtunkhwa and Punjab. In 2022, regional cement plants were over 70% reliant on Afghan coal. That year, they paid coal prices of US$170 – 200/t.


Germany: Menzel Elektromotoren has completed internal construction of its upcoming Hennigsdorf motor plant and will now commence relocation of equipment from its existing Berlin facility. Commissioning is scheduled for early 2024. The 24,000m2 Hennigsdorf site will also double as company headquarters.

Menzel Elektromotoren assured customers that “The production and shipping of industrial motors in the high output range will continue without interruption.”


Uzbekistan: Anhui Conch Cement inaugurated its new 2.3Mt/yr Tashkent cement plant at Kiziloy on 21 August 2023. The plant cost US$320m and will produce 30% of its cement for export. UzReport News has reported that the plant will directly employ 300 people.


China: West China Cement recorded sales of US$605m during the first quarter of 2023, up by 5.6% year-on-year from US$573m in the first half of 2022, Reuters has reported. Nonetheless, its net profit dropped by 19% to US$72.9m from US$90.6m.


Tanzania: The Tanzania Fair Competition Tribunal (FCT) has ruled that Heidelberg Materials subsidiary Scancem International cannot acquire Tanga Cement from AfriSam at present. The Fair Competition Committee had previously approved the acquisition to proceed in February 2023. In its latest ruling, the FCT found that the commission had not been within its powers to set aside a previous court ruling of the FCT, dated September 2022. The FCT acknowledged that the market situation may have changed since its first ruling, but underlined the need for legal procedure.

Judge Salma Maghimbi said “The act or conduct of the two respondents did not send a good message to the public, nor to potential investors who would have been interested in coming to invest in our country.”


Gambia: Heidelberg Materials has sold its business in the Gambia to iron and steel products company B5 Plus. The business consists of the Banjul cement terminal. Heidelberg Materials says that it will continue to supply West African customers through its operations in Benin, Burkina Faso, Ghana, Liberia and Togo. The company sold its subsidiary in Sierra Leone in 2021.


China: Gansu Qilianshan Cement followed the general downward trend in Chinese cement producers’ results in the first half of 2023. Reuters has reported that the company recorded a net profit of US$32.6m, down by 53% year-on-year from first half of 2022.


China: Anhui Conch Cement is seeking coal suppliers for two of its subsidiaries. The producer has tendered for bids for contracts to supply 410,000t of bituminous coal, high-sulphur coal and lignite to Naiman Banner Hongji Cement and 10,000t of lignite to Chifeng Conch. Online bidding will open on 25 August 2023 and close on 27 August 2023.


China: China Resources Cement’s turnover was US$1.69bn during the first half of 2023, down by 27% from US$2.23bn during the first half of 2022. Reuters has reported that China Resources Cement recorded a net profit of US$86m, down by 66% year-on-year from US$250m.


China: China Tianrui Group recorded sales of US$554m during the first half of 2023, down by 25% year-on-year from US$737m in the first half of 2022. Reuters has reported that the producer’s net profit dropped by 67%, to US$20.9m from US$63.2m.


New Zealand: Fletcher Building says that its subsidiary Golden Bay cement is waiting to embark on a US$119 – 178m course of capital expenditure (CAPEX) investment. However, the group said that it will first require ‘clarity from the government’ on any upcoming changes to industrial CO2 emissions allocations or border adjustments.

CEO Ross Taylor said “Until we get certainty there, we really can’t pull the cord.” He added “There’s a good pipeline of existing stuff which will really start maturing in two or three years, but there’s another really sizeable pipeline beyond that.”

Fletcher Building invested a total of US$182m across its businesses during the 2023 financial year, which ended in June 2023. The Bay of Plenty Times newspaper has reported that the investments are part of the group’s growth strategy for the four-year period up to the end of the 2027 financial year. Planned areas for investments include adding value to the group’s wood products by developing its alternative fuel (AF) capacity. The growth strategy has a budget of US$474m.


Pakistan: Pakistani cement producers have achieved 100% coverage of their cement despatches under the country’s track and trace scheme. Pakistan Today News has reported that the scheme collects despatch data for automatic submission to the Federal Board of Revenue. It uses licensed technology from US-based Authentix.


US: Block-Lite plans to install a system to cure concrete blocks using direct air capture (DAC)-sourced CO2 at its Flagstaff, Arizona, concrete block plant. The upgrade will implement CarbonBuilt’s low-CO2 concrete production technology and AirCapture’s modular DAC technology, across five or six capture units. Direct air capture will thus remove 500 – 600t/yr of CO2 from the atmosphere, while process changes will reduce CO2 emissions from the Flagstaff plant by over 2000t/yr. The project has attracted fundraising from the 4 Corners Carbon Coalition (4CCC), with a goal of US$50,000. The Arizon Daily Sun newspaper has reported that Block-Lite plans to supply its first shipment of low-CO2 blocks to a 50-home development by Habitat for Humanity in Flagstaff.


Europe: The EU has enacted the implementing regulation for the carbon border adjustment mechanism (CBAM) under its emissions trading scheme (ETS). Under the CBAM, importers of cement to the EU will eventually pay taxes for its embedded CO2 emissions, equivalent to those levied against EU-based producers. Importers must begin to collect emissions data from 1 October 2023, and submit a report for the fourth quarter of 2023 to EU authorities by 31 January 2024. No financial adjustment will yet be payable during the transition period to full CBAM implementation from the start of 2026.

The Asset newspaper has reported that dedicated IT tools and training materials for importers affected by the CBAM are currently in development, according to the European Commission.


Mexico: Cemex has updated its sustainability-linked financing framework in line with its latest emissions reduction targets of 475kg/t of CO2 per tonne of cementitious material. Under the new framework, Cemex will issue up to US$350m-worth of sustainability-linked bonds on the Mexican Stock Exchange. The group plans to use the funds to refinance debt, as well as for ‘general corporate purposes.’ It aims to acheive 85% sustainability-linked financing by 2030.

Cemex said "The proceeds will be used exclusively for eligible green projects in pollution prevention and control, renewable energy, energy efficiency, clean transportation, sustainable water and wastewater management, production technologies and processes adapted to the circular economy and/or eco-efficient products.”


US: Heat Battery developer Rondo Energy has concluded a financing round with US$60m raised in investments, Renewables Now News has reported. Investors included Siam Cement Group and Titan Cement Group, as well as Breakthrough Energy Ventures, Energy Impact Partners, the Climate Innovation Fund, Rio Tinto, SABIC, Aramco Ventures, SDCL Energy Efficiency Income Trust and John Doerr. Rondo Energy’s Heat Battery is a means of connecting cement plants and other industrial facilities to a constant supply of electricity ultimately derived from renewable energy sources.

CEO John O'Donnell said “Our Strategic Investor Advisory Board will help Rondo focus on the simplest, fastest ways to power their operations with low-cost clean energy and shape our priorities for ongoing research and development.”


US: The Occupational Safety and Health Administration (OSHA) of the US Department of Labor has found that Buzzi Unicem USA failed in its duty to implement safe practices, after a 50-year-old employee died at work in February 2023. The victim was working on a Mississippi River barge belonging to Buzzi Unicem USA subsidiary River Cement Sales when he fell overboard, leading to his death. OSHA concluded that Buzzi Unicem USA had committed multiple serious safety violations. Those connected to the tragedy in February 2023 included failures to ensure that workers wore personal floatation devices and to install guardrails. The administration said that the failures ‘cost a worker his life.’ Safety inspectors proposed a fine of US$62,500 for the breaches.


US: Heidelberg Materials North America has reached an agreement with the administration of Santa Clara County to decommission its quarry in the county, near Cupertino. Silicon Valley News has reported that the quarry historically supplied limestone for cement production at Permanente cement plant, which came offline in April 2020. The county administration says that the deal signals that it has achieved its aim to ensure final closure of the Permanente plant.

Heidelberg Materials North America spokesperson Jeff Sieg said that the company is ‘pleased to formalise our agreement not to restart the kiln at our Permanente cement plant.’ He continued "We remain focused on working collaboratively with the community and other stakeholders on the development of a long-term strategy for the property, so that it can continue to provide value in the future.”


Philippines: Taiheiyo Cement Philippines plans to install a second production line at its 0.8Mt/yr San Fernando cement plant in Cebu. The Philippines Department of Trade and industry says that the new line will more than double the plant’s capacity to 3Mt/yr. It will also entail an upgrade to reduce its total energy-related CO2 emissions by 10%. The Philippine Daily Enquirer newspaper has reported that the producer will additionally build a 700,000t/yr terminal at Calaca in Batangas. The facility will cost US$68.4m. Altogether, the company expects its growth plans to generate 2000 new jobs in the Philippines. The Philippines government has committed 6% of gross domestic product (GDP) to infrastructure investments annually.

Taiheiyo Cement Philippines previously indicated in August 2022 that the San Fernando cement plant might eventually expand to a capacity of 5Mt/yr. At that time, it expected to commission the new Line 2 in May 2024.

Special trade representative to the Philippine Trade and Investment Centre in Tokyo, Dita Angara-Mathay, said "The company's latest announcement materialises its plans to expand to Luzon from its long-time base in the Visayan region."


Ireland: 26 hedge funds have bought or expanded stakes in CRH since 30 June 2023. Bloomberg has reported that existing shareholders that expanded their holdings included US-based Baupost Group and Soros Fund Management.

CRH is due to complete its transition into a primarily US-listed company in late September 2023.


Colombia: Cemento País expects to commission its upcoming Aguas Prietas grinding plant in Turbaco, Bolívar, soon. The plant will have a capacity of 0.48t/yr, and cost US$20m in total. ESEuro News has reported that investors in Cemento País include engineering and construction firm AGM Desarrollos. The owners expect to corner a 15% share in Colombia’s Atlantic Coast cement market. The Aguas Prietas grinding plant will also produce 300,000m3/yr of ready-mix concrete.


Malaysia: Police reported the death of a man at a cement plant in Kinta District on 16 August 2023. The 26-year-old contractor had been cleaning hardened cement from a silo through its manhole, when he fell in and was submerged by cement. Medical staff pronounced him dead after his arrival at hospital. Perak State Occupational Safety and Health Department has issued a stop-work notice to the contractor.

Cement plants in Kinta District include Aalborg Portland Malaysia’s Aalborg Perak plant, Malayan Cement’s Kanthan plant and Tasek Cement’s Tasek cement plant.


Uzbekistan: Uzbek six-month cement production was 5.7Mt during the first half of 2023, the Agency for Statistics of Uzbekistan has reported. The figure corresponds to growth of 10% year-on-year.


Zimbabwe: Sino-Zimbabwe Cement reported a burglary at its Gweru cement plant on the night of 12 – 13 August 2023. The Chronicle newspaper has reported that eight robbers attacked security guards with sticks, before stealing blasting equipment from the plant’s quarry. The gang was reportedly also armed with machetes. Police investigations continue.