Global Cement News

In early 2014 the top of the global cement producer charts looked very different to how it does today. The big four multinationals, Lafarge, Holcim, HeidelbergCement and Cemex, were clearly out in front and ahead of the rest of the global top 10. While there was discrepancy in their sizes, the largest, Lafarge (224Mt/yr) had just over twice the cement capacity of fourth-placed Cemex (95Mt/yr), with Holcim (218Mt/yr) and HeidelbergCement (122Mt/yr) between these extremes.¹ With an impressive 659Mt/yr of capacity between them, these four accounted for just shy of half of global cement capacity outside of China.

However, as those with even a passing interest in the cement sector will know, this is no longer the case. The merger between Lafarge and Holcim and the subsequent acquisition of Italcementi by HeidelbergCement has stretched out the range of the top producers significantly. Today LafargeHolcim has around 340Mt/yr of installed capacity and HeidelbergCement 200Mt/yr. Meanwhile Cemex is still 'stuck in the 90s,' with a capacity of around 92Mt/yr following the sale of its Croatian cement assets last week. The Mexican 'giant' is now almost a quarter of the size of LafargeHolcim. What does this mean for the world's number three (excluding Chinese producers) and what might the future hold?

Well... the old adage goes that you have to move forward to stand still. However, Cemex has not moved forward over the past two years, meaning that is hasn't kept up the pace with its immediate rivals. It hasn't been able to, hemmed in by the debt that it took on from its poorly-timed acquisition of Rinker in 2007. Indeed, Cemex is looking to contract further, with aims to shed a further Euro600 - 1100m of non-core assets in 2015.² Against improved positions at LafargeHolcim and HeidelbergCement, Cemex increasingly looks like an 'Americas specialist' rather than a full-blown multinational. A stake in Cemex LatAm Holdings is up for sale, but the sale of more cement plants may also be on the way. This is all being done to improve Cemex's investment grade rating from B-plus, four grades below investment grade.

If Cemex does have to shed further physical assets on the ground, it is very unlikely that it would chose to do so in the Americas, where it is a very major player. It is number one in Mexico, third in the US and well-postitioned in numerous growth markets in Central America. If push comes to shove, it is far more likely that it would sell assets that are further from home. These are in Europe, the Middle East and the Far East.

Cemex has 43% of its production capacity outside the Americas. Certain assets, such as those in Thailand, Bangladesh and the Philippines, may be appealing to CRH, which is already set to acquire LafargeHolcim divestments there and is known to be considering other purchases in the region.³ Cemex also owns several cement plants in better-performing EU economies like Germany and the UK. In Germany, the company has already completed a small downsizing exercise by selling its Kollenbach plant to Holcim (LafargeHolcim). Meanwhile, Cemex UK is a major player in the UK, where the Competition Commission has recently been very keen to increase the number of producers. Elsewhere, Cemex's share in Assuit Cement in Egypt could provide much needed revenue, as could its small stake in the Emirati markets.

Thinking more radically, and in keeping with the current trend of mega-mergers and large-scale acquisitions, could Cemex find itself the target of the next global cement mega-merger / acquisition? Certainly, its strength in Central and South America completely complements HeidelbergCement's lack of coverage here, making a future 'HeidelbergCemex' a potential winner.

The other option, if/when Cemex regains its investment rating, would be for Cemex to acquire or merge with a company further down the list of global cement produers. Africa is an obvious target, with rapid growth and a lack of Cemex assets at present. A foreigner buying up Dangote is probably out of the question, but PPC would be an interesting target, as would increasingly isolated Brazilian producers that could help shore up Cemex's South American position.

If the past 18 months in the global cement industry have shown anything, it is that we should expect the unexpected. It will be very interesting to see how all players, both large and small, will react to the recent goings on in the rest of 2015 and beyond.

1. 1. Saunders A.; 'Top 75 Cement Producers,' in Global Cement Magazine – December 2013. Epsom, UK, December 2013.

1. 2. Reuters website, 'Mexico's Cemex could sell part of business to pay down debt: CEO,' 10 February 2015. http://www.reuters.com/article/2015/02/11/us-mexico-cemex-idUSKBN0LF05320150211.

1. 3. Global Cement website, 'CRH investment spend set to pass Euro7bn with South Korea cement deal,' 12 June 2015, http://www.globalcement.com/news/item/3721-crh-investment-spend-set-to-pass-euro7bn-with-south-korea-cement-deal.

India: Prism Cement Limited has appointed Vivek Krishan Agnihotri as a director following the resignation of the previous director. The Board has also appointed Agnihotri as the executive director of cement, effective from 17 August 2015.

Take a moment to spy on the Citeureup cement plant in Indonesia. It's gargantuan! The Indocement site is one of the largest cement factories on the world. It has nine production lines with a cement production capacity of 11.9Mt/yr.

The news this week that Indocement intends to stop production at three cement production lines at its Citeureup plant strikes an uncertain tone. The decision underpins the impression of a readjusting Indonesian cement market despite the HeidelbergCement subsidiary saying that the capacity will be replaced by a new 4.4Mt/yr line at the site at the end of 2015. Temporarily reducing production capacity by 35% may not seem much on a industrial site that can produce more cement than many countries! However, a single factory this massive is likely to be particularly vulnerable to market changes.

Zooming out to the national picture, Indocement reported that its revenue dropped by 6.6% year-on-year for the first half of 2015. Domestic sales volumes of cement fell by 8.1% as domestic cement consumption in the country generally fell by 4.2%. The cement producer blamed the falls on economic stagnation and delayed government spending on infrastructure projects.

In its outlook Indocement lamented the loss of subsidies on electricity and fuels in Indonesia. Back in 2014 the government raised electric prices via a tariff under the previous administration before lowering them slightly. Then the new government raised fuel prices in November 2014 by removing subsidies with the intention of siphoning the savings to infrastructure spending. At the time a Semen Indonesia representative told the Jarkata Post that he expected cement sales to rise by 6% in 2015. This estimate had already followed a downward adjustment of predicted sales in 2014 due to familiar sounding delays in infrastructure projects (due to an election year) and a slowing economy.

In addition to this the government also imposed price cuts on cement on state-run producers in January 2015. Semen Indonesia then saw its domestic sales volumes fall by 5.3% in January – May 2015 to 9.91Mt. Subsequently Semen Indonesia saw its net profit drop by 21% year-on-year to US$163m for the first half of 2015. Around a month before its mid-year results it reported to local media that it was concentrating on exports in 2015. Reported exports have risen by over 700% to 0.18Mt in January – May 2015. Other producers such as LafargeHolcim have also reported 'challenging' market conditions. Nationally, cement demand dropped by 3.8% year-on-year to 22.9Mt for the first five months of 2015 according to Indonesian Cement Association data. This was the biggest fall since 2009.

All in all it sounds like the good times may be gone for the Indonesian cement industry, at least for now. The local economy as a whole is in a recession following two consecutive quarters of declining growth in gross domestic product (GDP). Yet cement producers are still forlornly hoping for infrastructure spending to kick in. Throw in worries about the effects of a US interest rate rise on Indonesian borrowing and the situation is looking dicey. Indocement's Citeureup complex may seem even more outsized in a year's time.

UPDATE:  A reader has pointed out that we linked the aerial photo at the start of this article to the smaller of the two cement plants in the area. This has now been changed. Note the trucks queuing to enter the plant.

India: Mangalam Cement Limited has announced that Anil Kumar Mandot has resigned from the post of CFO. The board of directors has appointed Yaswant Mishra as CFO with effect from 7 August 2015. This is in addition to his present designation of president (corporate).

A member of the Global Cement LinkedIn group recently posed a question about the relative sizes of LafargeHolcim and Nigeria's Dangote Cement in the African cement market. The correspondent wanted to get a handle on their relative sizes and how the situation would change as a result of the merger. Would Dangote lose its position as Africa's number one producer? If so, would its aggressive expansion allow it to regain its position at the number one spot?

As both one of the most rapidly-growing markets in the world for cement and the one with the most potential for future gains, Africa has been discussed in this column on many previous occasions. However, we have previously considered Africa's different regional markets, be it Dangote-dominated West Africa, North Africa, rapidly-growing East Africa or the far south, where PPC is looking to counter Dangote's growing strength.

However, the formation of LafargeHolcim and the news that HeidelbergCement will acquire Italcementi (starting with an immediate 45% stake), has massively consolidated the African market. In conjunction with Dangote's rapid development, these deals have transformed the African cement sector from one with a large number of small national and regional markets into a far more homogeneous entity. A number of key players, namely LafargeHolcim, Dangote Cement, HeidelbergCement and PPC, are present in numerous important markets all over the continent.

In answer to the aforementioned LinkedIn group member, the Global Cement Lafarge-Holcim Merger Report, states that LafargeHolcim controls 47.1Mt/yr of capacity in Africa. The new group is present in markets as diverse as Egypt, Morocco, Nigeria, South Africa and Zimbabwe. It is currently Africa's largest cement producer.

The second-largest producer at the moment is Dangote Cement, the only African-based large multinational cement producer. According to its website, it has 31.2Mt/yr of capacity currently active in Africa. The group is rapidly expanding. "We hope to commission four other cement plants in Senegal, South Africa, Cameroon and Tanzania before the end of 2015," said Aiko Dangote, Dangote Group President this week.

The new Dangote capacity that we can identify adds 4Mt/yr. This takes Dangote's total to 35.2Mt/yr. This is close to the 37.1Mt/yr of African capacity that LafargeHolcim actually owns, but Dangote is always planning its next move. Indeed this week it was rumoured to have been looking at purchasing Italcementi itself, hence HeidelbergCement's rapid movement.

In its press-release, HeidelbergCement suggests that the purchase of Italcementi will give it a position as strong as Dangote in the African market at around 30Mt/yr. It will add strong positions in Morocco and Egypt to its existing strengths on the West African coast. For its part, South Africa-based PPC currently has around 8Mt/yr of capacity in South Africa (4Mt/yr), Botswana, Zimbabwe and Ethiopia. It is currently installing capacity in the Democratic Republic of Congo and as far afield as Algeria, where it is involved in a joint venture with a local group.

Between them, these 'Big Four' share approximately 116Mt/yr of capacity in Africa. According to the Global Cement Directory 2015, this is just over half of Africa's 225Mt/yr of cement production capacity. This proportion will only increase as Dangote and PPC enlarge their presences.

The multinational players will likely not expand as rapidly, even in Africa. At the launch of LafargeHolcim, Group CEO Eric Olsen was pretty clear that the company does not plan any 'capital-intensive' expansions in the coming years. HeidelbergCement's future actions are less predictable, especially as we are yet to hear about any divestments that may be required from HeidelbergCement and Italcementi in order to satisfy competition authorities around the world.

Whatever happens in the future, it is clear that the African cement industry has undergone a significant transformation in the past few weeks. With per-capita cement consumption far lower than on other continents, there will be plenty of room for growth as well as for more acquisitions, divestments, mergers and expansion projects from the 'Big Four' and others in the coming years.