Global Cement News

Germany: Eliza Suk Ching Yuen has decided to step down from the position of Supervisory Board Member of KHD Humboldt Wedag International (KHD). The resignation will take effect from the end of the next Annual General Meeting on 23 May 2017. Yuen was elected to the board in 2012.

Mexico: Martha Soledad Rodríguez Rico, the chief financial officer of Grupo Cementos de Chihuahua (GCC) has died. The company is conducting a succession process that will appoint a replacement in due course.

Data from the Peruvian cement association (ASOCEM) presents a potential bounce in the fortunes of the local industry in March 2017. Cement production rose slightly year-on-year to 0.79Mt. This is the first monthly rise since July 2016. The first quarter of 2017 as a whole is down by 4.5% year-on-year to 2.35Mt but any fillip is surely welcome.

Graph 1: Cement production in Peru, 2012 – 2016. Source: ASOCEM.

Graph 1 shows that production peaked in 2014. Although it has fallen since then it is still above the level in 2012. Cementos Pacasmayo blamed the overall fall in 2016 on a strong end to 2015 associated with El Niño prevention investments although, given that its production volumes also fell in 2015, albeit slightly, it may be being optimistic in its analysis. It also blamed the widening fallout from the Brazilian Petrobras corruption scandal for delaying investment by the Peruvian government on an infrastructure drive.

Graph 2: Cement and clinker imports to Peru, 2014 – 2016. Source: ASOCEM/SUNAT.

Another point to examine in ASOCEM’s latest release is the import figures as can be seen in Graph 2. Overall cement and clinker import volumes have hovered around 10 – 15% of local production but the ratios have changed since 2014, with a focus on ground cement. Cementos Pacasmayo provided one possible reason in its fourth quarter report for 2016 with the news that it had started replacing imported clinker with its own clinker as it increased production at its new Piura plant. Most of this cement has been coming from Vietnam through 2015 and 2016. Coincidentally, Vietnam’s General Department of Vietnam Customs has reported this week that local exports of cement and clinker are up by 11% to 4.82Mt for the first quarter of 2017 and that Peru is one of the top destinations. Also of note in February 2017 was a significant cement import of 30,800t from China following no imports from that country in 2016 and most of 2015.

Recent production and import trends aside, the Peruvian cement industry’s industry base hasn’t changed much since last time this column coved it (GCW183, January 2015). The country has three main producers – UNACEM, Cementos Pacasmayo and Grupo Gloria – who operate 49%, 43% and 8% respectively of the local 11.4Mt/yr production capacity. They each operate production units in north-south geographical bands in the country with Pacasmayo in the north, UNACEM in the central coastal region near to Lima and Gloria’s subsidiaries in the south.

As mentioned above, Cementos Pacasmayo has been increasing production at its newer Piura plant since mid-2015. Gloria Group purchased Cementos Otorongo, a project to build a cement plant in the south, from Votorantim in mid-2016 and Cemex was reported as having gained government approval for a grinding plant project in Lima in early 2016. On the financial side, UNACEM’s income fell by 4% to US$573m in 2016. Cementos Pacasmayo’s sales fell slightly to US$381m and its earnings before interest, taxation, depreciation and amortisation (EBITDA) for its cement operations fell by 4.6% to US$118m.

Like lots of African countries the outlook for the construction industry in Peru is good in the medium term with plenty of scope for development and a growing economy despite a contraction of 6% in the construction industry in 2016. The Gross Domestic Product (GDP) growth rate hit a low of 2.4% in 2014 but it has since started to pick up again. Once or if the Kuczynski administration starts spending on infrastructure then all the signs should point to growth in the cement industry. Given the amount of clinker sloshing around the world if any producers actually start opening terminals or grinding plants this would suggest they are confident of a return on investment.

UK: Bunting Magnetics Europe has appointed Tom Higginbottom and Gordon Kerr to its sales team. Higginbottom joins Bunting’s external sales team and has an engineering background, with particular knowledge of hydraulics. Kerr will be responsible for business development in a new internal role. He previously held a sales and marketing position at Anglian Home Improvements before becoming a project manager at Ceramica & Stone.

Bunting Magnetics supplies magnetic separators and metal detectors. The European manufacturing headquarters are based in Berkhamsted, Hertfordshire. In January 2017, the company acquired Master Magnets.

Unsurprisingly the European Commission blocked Duna-Dráva Cement’s (DDC) attempted purchase of Cemex Croatia this week. Merging the country’s biggest cement producer with its largest importer was going to be a challenge for the commission. Whereas in previous transactions the various parties offered business disposals to ease the commission’s concerns, here all they were got was access to a cement terminal in Metković in southern Croatia. And this facility on the Neretva river is currently being leased by Cemex! Clearly this didn’t give the impression of being a long term solution.

Compare this with the merger between Lafarge and Holcim in 2015 where multiple sales were proposed to make sure the deal went through. Or look at the acquisition of Italcementi by HeidelbergCement in 2016 where the parties sold Italcementi’s Belgian subsidiary Compagnie des Ciments Belges to Cementir to make the deal happen. In comparison to these deals the attempt by HeidelbergCement and Schwenk, through their subsidiary DDC, comes across as a calculated gamble designed to test the resolve of the commission. If the commission had somehow passed the proposed acquisition then the companies would have cornered the market. If it turned it down, as it has, then nothing would be lost other than putting together the bid. HeidelbergCement had its mind on bigger things as it bought and then integrated Italcementi.

Commissioner Margrethe Vestager summed up the mood of the commission: “For mergers between direct competitors, we generally have a preference for a clean, structural solution, such as selling a production plant. HeidelbergCement and Schwenk decided not to offer that. Instead they proposed to give a competitor access to a cement terminal in southern Croatia. Essentially, this amounted to giving a competitor access to a storage facility – without existing customers or established access to cement, without brands and without sales or managerial staff.”

Elsewhere, the other big story in the industry news this week was Votorantim’s decision to focus on the lime business in Brazil by adding lime units to some of its existing cement plants. Given the dire state of the local cement and construction industry, initiatives to break the deadlock have been expected. The alternative is plant closures and divestures, such as the ongoing talks by Camargo Corrêa to sell the other big local producer, InterCement. Votorantim plans to build lime units attached to the cement plants at Nobres in Mato Grosso, Xambioa in Tocantins, Primavera in Pará and Idealiza in Goiás. Unfortunately the agricultural areas of the country and ones with cement plants don’t overlay neatly. Cement production is mainly focused in the south-eastern states and Votorantim are targeting the Cerrado, in the centre of the country, for the lime business.

The scale of the project, at US$50m, the scale of the lime business generally and the addition of lime units at cement plants suggest that the pivot to lime can only be a sideline to cement and construction. Given the similarity of the cement and lime production processes the announcement would be much more significant were Votorantim set to convert clinker kilns into lime ones. A notable example of this was at Cement Australia’s Gladstone plant in Queensland, Australia. Here a mothballed FCB-Ciment clinker kiln was converted into a lime kiln in the early 2000s. At the time the cost of the conversion project was valued at just under US$20m. If Votorantim was seriously thinking of doing this at a few of their underperforming cement plants then one would expect the bill to be higher than US$50m. However, it’s early days yet.