Global Cement News

'Below expectations' was the headline message from Holcim's half-year results this week. Canada, Mexico and Morocco were all singled out as problem areas for Holcim but surely India represents the biggest headache for the debt-reducing multinational.

How badly its bottom line was hit by India in particular, Holcim declined to say. Overall its entire Asia Pacific region saw sales volumes of cement fall by 3.7% to 37.8Mt to 36.4Mt for the first six months of 2013. In 2012, India represented over half of the group's Asia Pacific installed cement production capacity. This suggests that the actual drop in sales in India was probably at least 6%, more if the other countries in the territory did better than in 2012. Overall profits for the Asia Pacific region fell by 14% to US$650m. What we do know is that Holcim announced major restructuring to its businesses in India in late July 2013 to cut costs.

The other major cement producers in India have fared similarly badly. UltraTech's first quarter profit, for the period ending on 30 June 2013, fell by 13.5% to US$111m. Its revenue fell by 2% to US$820m. Jaiprakash Associates also reported a 2% dip in its cement sector revenue to US$247m in the quarter ending on 30 June 2013. Profits fell by 24% to US$27m. India Cements' sales revenue rose by 3% to US$196m. Yet its operating profit fell too, by 41% to US$19.8m.

Both Holcim and India Cements blamed falling cement prices in the south of India. India Cements directly mentioned overcapacity. The only explanation UltraTech offered for its poor performance was rising input and logistics costs.

Problems in India are not unexpected. Overcapacity has loomed over the Indian cement industry for some time as the race for growth far overtook the increase in demand. In the wider economy, India hit its lowest gross domestic product increase in a decade, 'just 5%', for the financial year ending on 31 March 2013. Meanwhile the Indian Rupee fell to a record low of 61 against the US Dollar in late June 2013. Not good news at all for any cement producers looking to offset energy or raw materials costs from abroad.

As predicted in our overview of the Indian cement industry back in February 2013, the smaller cement producers are now likely to get picked off by the larger firms as capacity utilisation falls and fuel costs rise. It is interesting to compare this free-market led cement industry consolidation to the state-directed one happening in China.

The Indian media are certainly wise to this with reports and speculation on endless takeover rumours. One example of this is the Irish building materials conglomerate Cement Roadstone Holdings's (CRH) decision to purchase Sree Jayajothi Cements that was announced in early August 2013. However with CRH itself having just reported that it made a loss in the first half of 2013 it may be regretting that it finally has a presence in the south of India.

Saudi Arabia: The management board of Najran Cement has approved the appointment of Mohammed bin Mani bin Sultan Aba al-Ala as board chairman and managing director, with a three-year term. The company also named Daifullah al-Ghamidi as deputy board chairman.

In the January 2013 issue of Global Cement Magazine, we featured a review of the Ethiopian cement industry. At the time we were hopeful with respect to the country's future cement demand, buoyed along by Ethiopia's own bold targets for development of the sector. It seemed only a matter of time before international and regional producers went to Ethiopia and cashed in on a cement plant-building bonanza.

Ethiopia's government is keen to further develop Ethiopia's cities and infrastructure and wants to increase its per-capita cement consumption from 35kg/yr at present to ~300kg/yr in the period to 2017. To do this, it is encouraging the cement sector to swell from its current capacity (7.4Mt/yr integrated capacity with additional grinding capability) to over 27Mt/yr by the same year. At the same time, the country has banned cement imports, a bold statement of intent designed to protect its own growing industry.

This week, we have learned that the country is hitting its bold production targets, largely without assistance from outside players. However, it seems that Ethiopia is incapable of consuming the volumes of cement that have been produced. As of 12 August 2013, the Ministry of Industry announced that Ethiopia made 12Mt of cement in the year to 7 July 2013, more than double the 5.4Mt/yr that it demanded over the same period. This revelation casts the government's future predictions for rapid cement demand growth in serious doubt.

While it takes effort to picture Ethiopia producing 27Mt/yr of cement by 2017, such rapid development is happening in west Africa, where Nigeria's Dangote Cement is achieving 'regional-giant' status.

However, it would take a very great leap of imagination to believe that Ethiopia could consume 27Mt/yr in 2017, five times what it does today, even with the development of major projects like the Millennium Renaissance Dam (a US$4.2bn hydroelectric project), major city and road-building projects and a rapidly growing population. Its cement capacity would have to grow by 4.9Mt/yr, representing average year-on-year cement demand growth of 52.5%/yr. Even with a cement industry the size of Ethiopia's, this represents almost impossible growth. To support this increase in demand, GDP/capita, which is often closely correlated to cement demand, would probably also have to raise fivefold, from US$374 to US$1870. This difference would take it from the bottom 20% of African nations well into the top third by this measure.

If this over-production trend continues, it does not bode well for Ethiopia's domestic cement industry. While exports may appear attractive, options are limited. Kenya to the south has a larger and more well-established cement industry, Somalia has major economic and security drawbacks and Ethiopia's relationships with Eritrea and Djibouti, both of which declared independence from Ethiopia, are tense. With no coast of its own, maritime exports will be difficult, especially with low-cost cement flowing from India, Pakistan and Iran. South Sudan, with its lack of cement production facilities, plentiful oil and major trade/border dispute with Sudan, could offer a small market for Ethiopian exports, but not enough to satisfy a ~20Mt/yr overcapacity.

Read Global Cement's January 2013 review of the Ethiopian cement industry here.

Vietnam: Hoang Mai Cement has announced that Dang Tang Cuong retired as deputy general director from 1 August 2013.

Germany: Dr Michael Mutz has been appointed the head of cement sales at Aumund Fördertechnik. In his new role Mutz will oversee sales of both new equipment and retrofits. The new position will be in addition to Mutz's exisiting job as head of the Mineral Processing division (previously Mining & Minerals), which he assumed in April 2012. Aumund specialises in conveying and storage for the cement industry