Global Cement News

India’s Economic Times (ET) has run a story today that really illustrates the heart of the current oversupply issues surrounding the cement sector in India. It reports that Binani Cement, one of the country’s many medium-sized domestic players, is circling the drain ahead of full bankruptcy proceedings. According to ‘senior officials,’ who spoke on the condition of anonymity, the company has already attracted interest from LafargeHolcim, HeidelbergCement and CRH, as well as a plethora of domestic players. There are a total of 15 interested parties so far: the three multinationals, nine domestic cement producers and three investment firms.

With 11.3Mt/yr of capacity, Binani Cement is not a small player by international standards. Unusually for an Indian producer, it even has capacity elsewhere, in China and Dubai. It is part of the larger BRAJ Binani Group, which is involved in glass fibre, energy, IT and more. The fact that the cement company is now up for sale really underscores the extent to which India doesn’t need the 100Mt/yr of extra capacity that was highlighted by the Cement Manufacturers Association in September 2017. India could lose 10 Binani Cements overnight and still have enough capacity to meet domestic demand!

Binani’s issues are, at least in part, geographic. It has assets exclusively in the north of India, which has seen weakened homebuilding and infrastructure activities since the implementation of the government’s demonetisation policy, as well as the highest impacts from rising imported fossil fuel prices. The implementation of India’s new Goods and Services Tax (GST), which has increased cement prices, has not helped. The bulk of Binani’s operations are in Rajasthan and Uttar Pradesh, both states far from the coast. When even UltraTech Cement’s profit is down, the squeeze for some smaller producers is becoming too much. On its own Binani cannot handle the heat, but its assets would certainly make a nice addition for a larger player.

In this way, the consolidating Indian cement sector represents a microcosm of the global situation. Binani’s troubles highlight how much better large companies are at spreading the risks of operating in different markets. As discussed in our forthcoming December 2017 issue, the advantages of being a multinational player with a large number of geographical markets appears to be gradually returning once again, with smaller regional players once again suffering from geographical disadvantages.

Of course, in an environment ripe for consolidation it is very interesting to note that CRH is among the international players linked to Binani. It clearly wants the benefits of being a fully-fledged multinational and is going full-steam ahead to get there. It has spent Euro1.34bn on 27 acquisitions of various sizes in 2017, most notably the on-going purchase of Ash Grove Cement in the US. It is making a strong case to purchase PPC in Africa and a larger Indian base makes sense for the company in the longer term. It lost out on Lafarge India’s assets to Nirma in 2016.

We can be sure that the pace of mergers and acquisitions will continue to grow in the rest of 2017 and into 2018 in India and elsewhere. Would you bet against CRH pulling off an Ash Grove, PPC and Binani ‘triple?’ With the group finance director Senan Murphy stating that there was additional room for expansion in 2018, its intent certainly can’t be faulted.

US: Bud Biggs, the long-term plant manager of the Mitsubishi Cement plant in Lucerne Valley, California, died at the age of 77 on 18 November 2017. It is thought that he suffered a heart attack. Biggs, who only retired in February 2017, had been manager of the plant since 1986.

Bud Biggs began his career at Kaiser Cement in Cupertino, California in 1962, first working in quality control and in concrete research. He obtained a bachelor’s degree in chemistry in 1980 while working for the company. After a period working in Texas, he returned to California in 1986 to work at Kaiser Cement’s Lucerne Valley plant. Initially working as production manager, he was promoted to plant manager shortly afterwards, retaining his role when Mitsubishi Cement acquired Kaiser Cement.

Over the years Biggs made great contributions to the local community. In 2005 he and Mitsubishi Cement’s Senior Vice President Mike Jasberg formed the Mitsubishi Cement Corporation Educational Foundation (MCCEF), which provides additional funding for local schools and scholarships for students. Biggs was also on the boards of several other local educational and professional institutes.

Forget the news stories about poor markets in Colombia and Brazil. Argentina is riding a construction boom right now. Local producer Loma Negra recently ran an initial public offering and it picked a good time to do it. It aimed to generate up to US$800m from the flotation and in the end it raised over US$1bn. Good news for its Brazilian owner InterCement no doubt, which was last reported as aiming to sell a 32% stake in the company in order to cover its debts. More cheer must have followed from Loma Negra’s third quarter results this week. Its cement sales volumes rose by 9% in the latest quarter to 1.72Mt due to expanding local construction activity.

Graph 1: Cement production and consumption in Argentina Q1 – 3, 2008 – 2017. Source: Asociación de Fabricantes de Cemento Portland (AFCP).

As Graph 1 shows its experience mirrors the wider industry. Cement production rose by almost the same rate for the industry as whole, by 10% year-on-year to 3.19Mt for the quarter, according to Asociación de Fabricantes de Cemento Portland (AFCP) data. For the nine months as a whole production has also risen by 9% to 8.7Mt. This figure is the third highest in the last decade since 2008. Production peaked in 2015 before dropping a major 10Mt following a subdued construction industry in the wake of devaluation of the Argentinean Peso in late 2015 and early 2016. At the time LafargeHolcim, the operator of Holcim Argentina, also blamed the negative influence of neighbouring Brazil’s own financial woes. The economy has bounced back giving the country’s its highest nine month cement consumption figure, 8.8Mt, in the last decade.

Earlier in the year LafargeHolcim said it was importing 0.25Mt of cement into Argentina between May 2017 and April 2018 because it couldn’t meet local demand from its own plants. Given the over-abundance of clinker in the world one might be forgiven for being sceptical about this claim. Bolivia’s Itacamba announced it was also exporting cement to Argentina this week. However, the other point to note from the graph is that consumption has been about 90,500t higher than production so far in 2017. This is an envious position for local producers to be in. One more striking feature that sticks out from the graph above is the undulating curve than both production and consumption has. The Argentinean economy has been through the ringer in recent years and this shows in the ups and downs of the figures.

From the perspective of the three major domestic producers, Loma Negra’s sales revenue rose by 53.9% year-on-year to US$620m in the first nine months of 2017. Its adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) rose by a whopping 73% to US$157m. Cementos Avellaneda, owned by Spain Cementos Mollins and Brazil’s Votorantim, reported similar good news with its overall results boosted by the Argentine market. Its sales revenue in the country rose by 28.3% to Euro130m and its EBITDA rose by 59.5% to Euro32.4m. Although Mollins did make the point that inflation had been particular problem in Argentina, although its impact had been ‘greatly’ outweighed by price rises. LafargeHolcim has had its problems globally so far in 2017 but Argentina hasn’t been one of them. Its operations in the country have been propping up the group’s Latin American results each quarter so far in 2017. Despite being one of its smaller regions by sales revenues, its sales and earnings delivered some of the group’s highest growth in the third quarter of 2017.

In this kind of environment new production capacity can’t be far away. Sure enough Cementos Avellaneda plans to increases the capacity of its San Luís cement grinding plant by 0.7Mt to 1Mt/yr by the second quarter of 2019. US$200m has been earmarked for the project.

So, great news for Argentina and proof that poor markets can turn around. The Brazilian cement association SNIC reckoned in October 2017 that the rate decline of cement sales was slowing, suggesting that the bottom of the downturn was in sight. On the evidence of the current situation in Argentina once the market does revive, South America will be the place to watch.

US: Refractory manufacturer HarbisonWalker International (HWI) has announced two new members of its senior leadership team. Ross Wilkin has joined as chief financial officer (CFO) and corporate treasurer, and Michael Werner has joined as senior vice president, Commercial and corporate officer.

Wilkin joins HWI from Universal Stainless & Alloy Products, where he served as CFO. Before his role at Universal Stainless, he was CFO at Dynamics. Much of Wilkin’s career has been spent with HJ Heinz Company where he eventually became the became the vice president and CFO for the company’s Australia and New Zealand organisation. He began his finance career at KPMG, serving both in Toronto, Canada and in Cleveland, Ohio. A graduate of Carlton University with a Bachelor of Commerce degree in Accounting and Finance, Wilkin is a certified public accountant in both Canada and the US.

Werner previously led global commercial operations for Loparex. Prior to this he spent 20 years at GE Plastics and Sabic in numerous domestic and global roles, where he progressed to become Product General Manager. He began his career at Monsanto as an engineer in Technical Development and as a manager of Business Development in the thermoplastic elastomer business. Werner holds a Bachelor of Science degree in Polymer Science from the Pennsylvania State University.

The third quarter financial results for HeidelbergCement are out today. They aren’t perfect but the company is hanging in there following its acquisition of Italcementi in late 2016. As one would expect both cement sales volumes and sales revenue are up on a double-digit basis. After all, HeidelbergCement has absorbed a major competitor, including assets, staff, cement plants and all. Its volumes and revenue have improved, more importantly though, on a like-for-like basis, even if it is modest. With the US and Europe driving sales the cement producer has time to make its promised synergies following the Italian acquisition and hopefully wait out recovery in places like Indonesia and Egypt.

Graph 1: Cement sales volumes for selected multinational cement producers during the first nine months of 2017. Source: Company financial reports.

That growth on a like-for-like basis is crucial compared to HeidelbergCement’s big rival, the world’s biggest cement producer, LafargeHolcim. As Graph 1 shows sales volumes data for the major multinational cement producers shows quite a varied picture. LafargeHolcim’s sales volumes have fallen by 12% year-on-year to 156Mt but the company has also been reducing its production capacity. Despite this, a rough calculation of its production utilisation rate suggests that it is selling less cement proportionally, although the company’s like-for-like figures disagree, positing a rise of 1.8%. Cemex’s sales volumes declined slightly to 51.3Mt. The larger regional companies show interesting trends. UltraTech Cement has managed to increase its sales volumes by 5% to 40.4Mt overcoming a poor third quarter in 2016. What to watch here will be whether this will be enough to overcome the effects of demonetisation that rocked India’s economy in late 2016.

Graph 2: Sales revenue for selected multinational cement producers during the first nine months of 2017. Source: Company financial reports.

The stronger regional positions of those last two companies really hits home when sales revenue is examined. As can be seen in Graph 2 both UltraTech Cement and Dangote Cement are growing their sales revenue, the latter despite dropping sales volumes. UltraTech Cement is suffering from falling profits due to rising fuel costs and it may yet suffer from ‘corporate indigestion’ as it digests its acquisition of 21.2Mt/yr cement production capacity from Jaiprakash Associates that took place in June 2017. Dangote Cement seems to have increased its earnings and profits despite problems at home in Nigeria by improving its fuel mix. Yet, flirtations with South Africa’s PPC aside, its expansion plans remain in a holding position. Dangote Cement presents another fascinating situation. Its overall sales volumes have fallen but this reflects a failing market at home in Nigeria and doesn’t show the company’s booming sales in the rest of Sub-Saharan Africa.

Results from CRH and the Brazilian companies Votorantim and InterCement will further flesh out the situation when they are released. Yet, the difference between worldwide producers and regional producers seems to be clear. The likes of LafargeHolcim and Cemex with a global presence are generally battling stagnation in the cement markets overall with a couple of key markets holding them back. Meanwhile, larger regional producers in the right locations are growing. However, the absence of the Brazilian producers is critical here as their experience of the floundering market in Brazil is very different to that of, say, UltraTech Cement’s in India. Looking ahead, the next quarter will be particularly interesting to see how demonetisation skewed UltraTech Cement’s performance, to start to see the first results from HeidelbergCement a year after its purchase of Italcementi and how well LafargeHolcim’s new chief is doing.