Global Cement News

India: Parth Jindal has been appointed as Managing Director of JSW Cement. He will assume the position in July 2016 and will be assisted by Anil Kumar Pillai as CEO, according the Business Line.

Jindal is the son of Sjjan Jindal, the chairman of JSW Group. The 25-year old has worked previous as an Economic Analyst for JSW Steel amongst other positions in the group. He is also the chief executive of the group's sport company, which owns Bangalore Football Club.

When a small cement market sits just off the coast of one of the world’s biggest producers, it’s not a recipe for a lot of column inches. Sri Lanka’s cement market, is particularly small, ranked 128th out of 141 clinker producing nations according to the Global Cement Top 100 Report 2015, and is dwarfed by a very dominant neighbour in India. Therefore, when two stories about plant projects and divestments came in from Sri Lanka this week, our interest was suitably piqued.

The first story came from global giant LafargeHolcim, which announced the planned divestment of its 0.6Mt/yr integrated Holcim Lanka plant at Puttalam, its 1.0Mt/yr grinding plant in Galle and associated packing facilities. The second story came from South Korea’s AFKO Group GMEX (AFKO), which has expressed strong intentions to reopen the Kankesanthurai plant in the north of the country.

LafargeHolcim stated that its move was part of its wider divestment strategy following the 2015 merger of Lafarge and Holcim. Considering that the company currently controls 1.6Mt/yr of Sri Lanka’s 3.6Mt/yr cement capacity (around 44%) the potential ramifications are big - A huge position is up for grabs.

Local newspaper The Nation stated that three locally-owned groups were already circling the assets as of Saturday 4 June 2016, but it’s still early days. A major player could easily step in to grab some high-quality assets in this rapidly-growing market, which grew by 4.5% in 2014 and is investing strongly in infrastructure. With its recent history or major purchases, CRH could certainly be interested. Larger Indian and Pakistani players, stifled by continued overcapacity at home, could also be in line to snap up the assets.

Up in the north, the AFKO project sounds massive. It could also have large implications for the shape of the Sri Lankan cement sector but there is a lot of work to be done. The Kankesanthurai plant produced its last cement in 1991 as the civil war raged in the north of Sri Lanka. It had a capacity of just 0.12Mt/yr at that time. However, AFKO chairman Keun Young Lee stated that the company was, “Ready to enter with US$450m as a start.” This is far more than the amount needed to re-start a small, presumably wet process cement plant. The amount strongly suggests an entire new, state-of-the-art facility, but no capacity has been announced.

AFKO sounds very serious but other projects have previously run into trouble on the island. A restart at Kankesanthurai has previously been mooted twice, once by a domestic player and once by a company from the UAE. Meanwhile Thatta Cement has suspended construction of a US$15m, 0.1Mt/yr grinding plant at Rajapaksa, Hambantota. It will be very interesting to see how the AFKO project develops over the coming months – It will also be seeing how the eventual price-tag for the project compares with the revenue that LafargeHolcim raises from its own divestment.

While Sri Lanka remains a small player, its cement sector is very similar to that of India when we take populations into account. Both have room for expansion. India has 310Mt/yr (according to the Global Cement Directory 2016) but, with a population of over 1.25 billion, it has a per-capita capacity of around 250kg/capita. Sri Lanka, with 3.6Mt/yr of capacity and 20.2 million inhabitants, comes in at just under 200kg/capita. There is clearly room for growth in both of these figures and further projects could yet be on the horizon for Sri Lanka. If they play their cards right, AFKO and the successful bidder for the LafargeHolcim assets could be in a great position to benefit from the island’s strong continued growth.

India: Sarat Kumar Jain, vice chairman of Jaiprakash Associates, has resigned from the group with immediate effect. Jain had been associated with the Jaypee Group for over 50 years. The firm said in a statement that the 78 year old had cited health reasons as his reason to resign.

Eurocement owner Filaret Galchev has been surprisingly candid on Russian television this week commenting on why his company offloaded shares in LafargeHolcim in February 2016. He described the move as ‘unexpected’ and a reaction to the shares losing nearly half their value in six months.

Eurocement ran a repurchase deal for the stake with Sberbank in late January 2016 before the bank sold it in early February 2016. Galchev’s wallet wasn’t the only casualty of LafargeHolcim’s falling share price. Board chairman Wolfgang Reitzle announced his plans to resign from the company at about the same time. LafargeHolcim’s share price has since rallied somewhat although it remains well below the level it commanded in the summer of 2015 following the merger.

Back on Russia, Galchev also continued Eurocement’s theme of predicting doom and gloom for the domestic cement industry. He forecast a further drop of up to 10% in local demand for cement. This is in line with previous comments Eurocement has made since at least about mid-2015. Although on the plus side the steepness of the fall in demand may be softening at least.

Graph 1 – Cement production in Russia, 2011 – 2015.

As the data above from the Russian Federal State Statistics Service (ROSSTAT) shows, cement production in Russia fell by 9% year-on-year to 62.1Mt in 2015 from 68.5Mt. This follows years of growth. Data for the first four months of 2016 seemed to show an acceleration of this trend with an 18% drop in production to 8.9Mt for the first three months of the year. However, the latest released figures, for April 2016, show that production may be picking up somewhat. We won’t get a better idea until the middle of the year. On the supply side, ROSSTAT doesn’t release any figures on cement consumption but the Russian railways were have reported that their cement volumes to consumers were down by 9.2% to 4.8Mt in the first quarter of 2016. This is a percentage drop close to what Filaret Galchev has been suggesting for 2016 as a whole.

The news from the multinationals supports this picture. LafargeHolcim reported weak construction markets in the first quarter of 2016 following sharp declines in 2015. HeidelbergCement recorded ‘slight’ decreases in its sales volumes in the period. It also noted a knock-on effect in Sweden due to lowering export deliveries to Russia.

All in all it’s a similar picture to fellow BRIC country Brazil, which we covered last week, with falling commodity prices hammering the economy and the local industry battening down the hatches. However, international oil prices are slowly creeping up and the International Monetary Fund (IMF) has predicted lower decreases in its economic output in 2016. Perhaps Filaret Galchev will have some good news to talk about on Russian television sooner than he thinks.

US: Summit Materials has appointed Joseph S Cantie as a new director, also serving on the Audit Committee. With the appointment of Cantie, Summit’s board now comprises eight members.

Cantie is the former Executive Vice President and Chief Financial Officer of ZF TRW, a division of ZF Friedrichshafen, a global automotive supplier, a position he held from May 2015 until January 2016. He served in similar roles at TRW Automotive Holdings Corp., which was acquired by ZF Industries in May 2015, since 2003. Prior to that time, Cantie held other executive positions at TRW, which he joined in 1999. From 1996 to 1999, Cantie served in several executive positions with LucasVarity, including serving as Vice President and Controller. Prior to joining LucasVarity, Cantie spent 10 years with KPMG. He is currently a director for TopBuild Corp. where he serves on the Audit, Compensation and Governance Committees, and for Delphi Automotive PLC where he serves on the Audit and Finance Committees.

Cantie is a certified public accountant and holds a Bachelor of Science degree from the State University of New York at Buffalo.