Global Cement News

Cement industry results from China have all told an alarming story this week: profits for the first half of 2012 look set to fall by more than 50% year-on-year.

China Resources Cement Holdings warned that its first-half earnings were down sharply. China National Materials Co. Ltd. (Sinoma), the cement equipment and engineering services provider, and Gansu Qilianshan Cement, a small Shanghai-listed cement producer, have both forecast similar drops. Sinoma blamed its drop in profit partly on an overseas project but 'interestingly' no further information was released detailing which project.

Previous to this in June 2012 Anhui Conch Cement warned that its net profit would fall by more than 50% due to weak demand and falling product prices. In May 2012 China National Building Material Co Ltd (CNBM) reported that its net profit for the first quarter of 2012 was down by 45% year-on-year. In April 2012 Jidong Cement reported an increase in its net loss for the first quarter and a year-on-year revenue drop of 14%.

Each of the Chinese big players in the cement industry have issued profit warnings of a similar scale suggesting that the Chinese market faces a uniform downturn or that a slowdown is being centrally managed. Official signs that the Chinese industry faced a slowdown emerged in March 2012 when the national growth target was lowered, analysts' predictions were released forecasting weakened profits for the nation's main producers and government officials admitted that overcapacity loomed within five years.

According to OneStone Research data on the Chinese market in 2010 CNBM, Anhui Conch, Jidong and Sinoma represented over 20% of Chinese capacity. To give these figures some perspective, in 2011 CNBM's profit was US$1.7bn. Holcim's operating profit for the same period was US$2bn and Lafarge's operating income was US$2.74bn. Even halved, CNBM's profit is a massive figure for a company with less of an international presence than the European multinationals.

Germany: Tomasz Czop, former Purchase Director of Ożarów Cement Poland (CRH Group) is now leading business development at MVW Lechtenberg & Partner, the German consulting firm for the implementation of alternative fuels from biomass and useable wastes in the cement industry.

As a former member of the management board of the Polish subsidiaries of Ireland's CRH he was directly responsible for the whole procurement of all business units in Poland and Ukraine. Within MVW Lechtenberg he will lead the business unit of alternative fuels and raw materials trade which is currently focused on the supply of refuse derived fuels for the cement and power generating industry in northern and eastern Europe.

Europe: Koen Coppenholle took over as the new Chief Executive of Cembureau on 1 July 2012. He follows Dr Jean-Marie Chandelle, who retired at the end of June 2012.

Following a distinguished legal career, Koen Coppenholle has been Head of European Affairs for ArcelorMittal in Brussels since November 2007. Between September 2000 and November 2007, he was Senior Counsel European Affairs with General Electric Europe in Brussels. Coppenholle joined the Cembureau team on 2 April 2012 to help to ensure a smooth transition.

Jean-Marie Chandelle has held the position of Chief Executive of Cembureau since 1996. A qualified lawyer, with a Master of Law and a PhD, Chandelle has held numerous positions in his native Belgium and abroad.

India: The announcement last week that 11 Indian cement producers face a combined US$1.1bn penalty for a price-fixing cartel will cast a long shadow over the country's increasingly vulnerable-looking cement industry.

For years the Indian cement industry has been beset by suspicions of over-capacity despite a constant stream of new capacity. Now the Competition Commission of India (CCI) thinks that it has got to the heart of the paradox by accusing manufacturers of limiting production amid high demand and colluding to artificially raise prices.

The amount that the CCI has fined the companies, 50% of their net profits for the two fiscal years to 31 March 2011, is quite astonishing. If enforced in its entirety the fine effectively negates a large portion of the sector's profits for an entire fiscal year. This is clearly not a slap-on-the-wrist from the CCI.

In the 1990s and early 2000s a similar cartel case involving European (and specifically German) cement producers led to fines in the order of hundreds of thousands of US Dollars. The industry has since cleaned up its act considerably as a result. Indian producers would be foolish not to follow suit. What are the likely effects in the Indian case?

Removing the cartel that the CCI purports to have found would reduce prices, which are inflated by an oft-quoted 25% median in a cartel. This is clearly good news for consumers and potentially the development of the Indian economy in general. The obvious losers in this situation would be the producers, which would see a reduction in profitability. Some of the smaller producers would find such a situation very challenging, with the risk of going bust or being absorbed into larger companies.

Another possibility is that the accusations will spread along the value chain. Shortly after the announcement of the fine, the Builders' Association of India (BAI), announced that it wants the fine increased to accommodate compensation claims from contractors and consumers that it feels are out-of-pocket as a result of the cartel. Many will feel aggrieved now that they 'know' the cement companies were profiteering - sorting out claims from affected parties could be a long and costly exercise.

The effects of the fine could also extend to outside of India. Indian cement producers, very good customers of the Chinese and European cement plant manufacturers in recent years, will have to deal with lower revenues. This will clearly dampen their enthusiasm to contract further capacity and may cause knock-on-effects for Sinoma, KHD, Polysuis and other major suppliers. The cement industries of neighbouring countries, like Pakistan, may also be affected.

Whatever happens in the Indian cement industry as a result of the CCI's fine, the authority, only formed in 2009, has shown that it is serious about taking on corruption in India. In the long run that can only help develop the potential of the country.

"The first thing for any new competition regulator is to go out and find the cement cartel. My experience of this subject is, it is always there, somewhere," wrote Richard Whish, a Professor of Law at King's College London in 2001. "The only countries in which I had been unable to find the cement cartel is where there is a national state-owned monopoly for cement."

Germany: Dipl.-Ing. Otto Jung will retire from Gebr. Pfeiffer SE on 30 June 2012 after nearly 40 years with the company. Dr.-Ing. Robert Schnatz will take over Jung's technical responsibilities on the executive board.

Jung started his career as a development and project engineer. In 1988, he became head of the projects and sales department processing and then in 1996 he was appointed to the Executive Board of Gebr. Pfeiffer SE, a position he held for 16 years. During this time a number of innovateive new projects were launched for the cement industry.