Global Cement News

Morocco’s Directorate of Financial Studies and Forecasting has reported that cement sales rose by 8.4% year-on-year in October 2016. It's good news for a local cement industry that saw its sales fall from 16.1Mt in 2011 to a low of 14.1Mt in 2014. Sales picked up slightly in 2015 and it looks like the same is going to happen again in 2016. Data from the Moroccan Cement Association (APC) support this with consumption of cement very slightly higher for the first nine month for 2016. Good sales figures in October can only help.

Graph 1: Cement consumption for the first nine months of the year, 2013 – 2016. Source: L’Association Professionnelle des Cimentiers du Maroc.

2016 has also been an interesting time for the Moroccan cement industry due to consequences of the merger and acquisition activity by the multinational producers that operate there. In March 2016, amidst a slew of divestments, LafargeHolcim made a point of announcing that it was holding on to its cement businesses under Lafarge Maroc and Holcim Maroc and enlarging them with its local partner SNI to form LaafrgeHolcim Maroc. The deconsolidation of Holcim Maroc picked up a net gain before taxes of Euro219m for a total consideration of Euro463m, which should considerably add to the group’s cash proceeds.

It managed to avoid being forced to sell off assets by the local competition body when it merged in 2014 due to its relatively low stakes in its companies. Today it has a production capacity of 13.2Mt/yr from seven integrated cement plants or over half the country’s production capacity. In its annual report for 2015 LafargeHolcim said that its cement business saw its results improve, mitigating problems in its aggregate and ready-mix concrete markets. This was followed by good results in the first half of 2016. New projects in the pipeline include plans to build a cement plant in Agadir and a grinding plant in Laâyoune in Western Sahara.

2016 has also seen the acquisition of Morocco’s second largest cement producer, Ciments du Maroc, by HeidelbergCement as part of its purchase of Italcementi. It’s too soon for HeidelbergCement to have reported upon the territory in its first integrated quarterly financial report following the takeover but it did describe Morocco as a having a ‘high growth potential.’ How these assets fit into the wide portfolio of HeidelbergCement’s new production base will be interesting. Ciments de l’Atlas’ (CIMAT), the country’s third largest and local producer, saw its sales fall slightly to Euro124m in the first half of 2016. However, its net profit rose by 13% year-on-year to Euro30m.

The other story of note in recent months in Morocco has been the public outcry against a shipment of refuse-derived fuel (RDF) from Italy in June 2016 destined for a cement plant in Casablanca. The subsequent protests saw waste imports to be suspended, leading Hakima al-Haiti, the government minister at the heart of the affair, to describe the furore as causing damage to the country’s economy in the aftermath. However her opponents rallied under the phrase “Nous ne sommes pas une poubelle” or ‘We are not a trash can.’ Despite this setback for the secondary fuels market, LafargeHolcim highlighted the work its Ecoval waste processing subsidiary has been conducting producing RDF at its Oum Azza site ahead of the Climate Change Conference of the Parties held in Marrakech in mid-November 2016. Although the key difference here is that Ecoval is generating RDF from local waste streams not importing them.

Perhaps as a sign of the growth potential Morocco may hold, this week, a non-cement producer was revealed to be planning to build a cement plant at Tarfaya. Previously the company, Global Oil Shale, had intended to develop shale oil resources at the site but it has switched its plan to constructing a 1.6Mt/yr cement plant instead and hired Luis Verde, a former technical director at Cemex who has also worked for Dangote. Together with the Lafarge project in Laâyoune and the Ciement Sud (CIMSUD) plant also in Western Sahara due to open in mid-2017 it suggest that the investors smell opportunity.

Canada: McInnis Cement has appointed Hervé Mallet as its president and chief executive officer. Other new appointments include the assignment of Gaétan Vézina as Vice-President, Cement and Sustainable Development and Alexandre Rail as Vice-President, Operations – Port-Daniel–Gascons.

Previously Mallet was the Executive Vice-President – North America for Dynacast. He is a graduate of the University of Wolverhampton and Brunel University in the UK.

Holcim Indonesia inaugurated a new cement terminal in Lampung last week. Unfortunately, the spectre of industry overcapacity haunts the country at present and the subsidiary of LafargeHolcim may be late to the party. The Indonesian Cement Association (ASI) has been publicly warning the government of overcapacity since the end of the summer. Its first line of action has been to lobby for restrictions on producer permits to slow the growth of new plants.

ASI figures show that cement sales in September 2016 fell by 3.3% to 5.64Mt compared to August 2016 due to lower residential sector demand. Domestic cement sales rose by 2.95% year-on-year to 44.7Mt in the first nine months of 2016 and the ASI expects sales growth of 3 – 4% for 2016 overall. Yet, the risk of overcapacity is stark. Cement production capacity has nearly doubled from 59.3Mt/yr in 2012 to 92.7Mt/yr in 2016 but demand is projected to only reach 65Mt in 2016, leaving a production oversupply of 27.7Mt. Regional consumption has fallen in Jakarta, Banten and West Java, particularly in the first two. Elsewhere, it has grown, particularly in Central Java, as well as Yogyakarta and East Java to a lesser extent.

Initial Global Cement Directory 2017 research places active production capacity at 66.3Mt/yr suggesting that the ASI may be exaggerating the risk of overcapacity. The additional c30Mt/yr capacity arises from plants that have been proposed, that are actually under construction or that have been mothballed. However, the ASI data should be more accurate as it represents the local producers. Either way, capacity is growing faster than consumption as can be seen in graph 1.

Graph 1: Cement consumption and production capacity in Indonesia, 2012 – 2016. Source: Indonesian Cement Association, Global Cement Directory 2012 – 2017.

Semen Indonesia, the country’s largest producer, reported that its revenue fell very slightly to US$1.4bn in the first nine months of 2016 and its net profit fell by 8.4% to US$215m. It blamed this on a fall in sales volumes and prices due to rising competition. The other large producers have said similar in the past. Indocement, the country’s second largest producer after Semen Indonesia, saw its revenue fall by 11.9% to US$837m in the first nine months of 2016 and its profit fell by 2.2% to US$231m. LafargeHolcim described the market as affected by overcapacity and ‘a difficult competitive environment.’

Back in May 2016 a feature on the predicament facing the Indonesian cement industry in the Jakarta Post suggested that producers were building new capacity despite the risks of overcapacity to win market share. Cement producers are about to find out whether this will work or not. Meanwhile it seems unlikely that the measures the ASI is suggesting will do much to alleviate the looming crisis. Still, on the positive side, it’s looking like a good time to buy cement as a consumer.

For more information about the cement industry in Indonesia view the first part of the Association of South East Asian Nations (ASEAN) feature in the October 2016 issue of Global Cement Magazine

Brazil: Otmar Hubscher has been appointed as the new chief executive officer of Secil. He replaces Gonçalo Salazar Leite, according to the Negócios newspaper. Hubscher, a Swiss national, was previously the head of LafargeHolcim's Brazilian operations.

The other shock news from the US last week was LafargeHolcim’s poor cement sales volumes in North America so far in 2016. HeidelbergCement’s third quarter financial results followed and they give us an opportunity to compare the fortunes of the world’s two largest cement producers either side of a high profile merger.

Graph 1 - Changes in cement sales volumes for LafargeHolcim, HeidelbergCement and selected European multinational producers in the first three quarters of 2016 compared to the same period in 2015 (%). Data labels are the volumes reported in 2016. Source: Company reports.

Graph 1 shows the effect of HeidelbergCement’s completion of its acquisition of Italcementi in mid-October 2016. Now that the purchase is complete its sales volumes have taken a whopping 20% boost to 73Mt. LafargeHolcim by comparison is struggling to hold sales. Although do note the difference in sales volumes between the two largest cement producers in the world. LafargeHolcim has sold nearly 2.5 times the amount of cement as HeidelbergCement so far in 2016.

Graph 2 - Changes in sales revenue for LafargeHolcim, HeidelbergCement and selected European multinational producers in the first three quarters of 2016 compared to the same period in 2015 (%). Data labels are the sales reported in 2016. Source: Company reports.

The point to take away from Graph 2 is the huge difference turbulent currency exchange rates are having on the financial returns of these companies. Like-for-like reporting of sales revenue hasn’t helped LafargeHolcim to grow but it is making a big difference to the sales of Cemex and Vicat.

Focusing on LafargeHolcim, the group has had a tough time of it so far in 2016 with falling cement sales volumes and falling sales revenue year-on-year on both a straight comparison basis and like-for-like one. Like many European cement producers negative currency effects have plagued its financial reporting. However, unlike many of its European-based competitors its like-for-like sales figures have also declined.

Particular problems have been noted in Nigeria as well as Brazil, Indonesia and Malaysia. It has managed to keep its profit indicators such as earnings before interest, taxation, depreciation and amortisation (EBITDA) mostly rising through the first three quarters of 2016 on a like-for-like basis. Yet, to give an idea of the effect fuel supply problems had in Nigeria in the third quarter of 2016 on the group’s entire bottom line, excluding Nigeria from its results would have seen its adjusted operating EBITDA rise significantly. With regard to the rest of the world, cement sales volumes have fallen in every one of the group’s territories so far in 2016 including, worryingly, its North America region. Here, falling cement sales volumes have been blamed on delays to infrastructure projects and bad weather.

By contrast, HeidelbergCement has reported rising sales revenue and profit indicators such as earnings before interest and taxation (EBIT) although its profit has fallen. Most of the good financial cheer has been derived from the new Italcementi assets although most of its territorial cement sales revenues have grown even when the effects of the new purchase have been excluded. The exception has been Africa where the group mentioned problems in Ghana due to local competition and imports.

The comparison between the world’s largest European-based cement producers is stark. LafargeHolcim made a big show of announcing the merger between Lafarge and Holcim in mid-2015. Today it is battening down the hatches as its tries to claw profit from asset sales and synergy savings. HeidelbergCement almost casually announced that it had finalised its acquisition of Italcementi in October 2016 and it has proceeded to rack up the profits at its first subsequent financial report. However, HeidelbergCement may be waiting for the regulators to finish approving parts of the deal before it makes a final announcement. For example, the Federal Trade Commission only approved the sale of various US assets on 15 November 2016. Meanwhile, the credits ratings agencies passed their own judgement when Standard & Poor upgraded its rating of HeidelbergCement earlier this week.

LafargeHolcim remains a much larger company than HeidelbergCement despite the problems it is facing so provided it can keep the investors happy it should be fine as its whittles itself down to a more sustainable shape. To this end the Swiss press has been speculating whether chief executive officer Eric Olsen will announce job cuts and plant closures at an investors meeting on 18 November 2016.