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Government reveals more detail on plan to sell non-operational units of Cement Corporation of India 17 March 2017
India: Babul Supriyo, the Minister of State for Heavy Industries and Public Enterprises, has revealed that the government is planning to sell five plants in the first phase of its divestment of non-operational units of the Cement Corporation of India (CCI). In a letter to the Indian parliament he said that plants at Mandhar, Kurkunta, Bhatinda, Nayagaon and Charkhi Dadri would be sold first, according to the Press Trust of India. However, legal issues at Delhi Grinding Unit (DGU), Adilabad and Akaltaraneed need to be resolved before these plants can be sold. No value for the sale has been set yet as the plants have not been valued.
Cemex retains 9.5% stake in Grupo Cementos de Chihuahua 17 March 2017
Mexico: Cemex has retained a 9.5% stake in Grupo Cementos de Chihuahua (GCC) following a sale of some of shares in the Mexican cement producer. Cemex said that the underwriters did not exercise their over-allotment option to acquire shares in GCC. Originally Cemex said in late 2016 that it intended to sell its full 23% minority stake in GCC.
European Emissions Trading System: Integrating industrial, trade and climate policies
Written by Bruno Vanderborght, Lesscoo GmbH
15 March 2017
The Global Cement Weekly column of 22 February 2017 entitled ‘European Union (very) slowly tightens the screws on its Emissions Trading Scheme,’1 bears witness to the misconception that we must choose between protecting the cement industry OR the climate. Quite the opposite is true: the objective is the cohesion between economic prosperity, meeting cement market demand AND lowering CO2 emissions.
It is undisputed that, if climate protection is aspired to, there needs to be an adequate regulatory incentive that supports, perhaps even strengthens, industry’s profitability when companies act to lower their CO2 emission. Some companies have tried selling low CO2-cement at a price premium, marketing their lower embedded carbon. In a commodity market of a grey powder where low prices are a decisive purchasing point, this obviously doesn’t fly.
The only sustainable business incentive is to pass on the full cost of CO2 not only in production but also in consumption of products. This would effectively result in higher cement sales prices for high-CO2 cement and lower prices but higher margins for low-CO2 cement, without losing competitiveness to producers that do not face regulatory CO2 constraints. Hence, a win-win-win situation for low carbon cement producers, consumers and the environment. This is after all the purpose of the sectoral ETS mechanism with inclusion of importers and no free allowance allocation.
The studies undertaken by Boston Consulting Group (BCG) for CEMBUREAU simulated the potential gross margin for the domestic cement industry in case of different leakage prevention mechanisms. While this may sound shocking for some, there is nothing wrong with aiming at maximisation of gross margin. Quite the opposite, gross margin maximisation is absolutely necessary for the cohesion between economic prosperity and climate protection and the effectiveness of an ETS.
The BCG studies led to the conclusion that in case of a tightening CO2 allowance cap and under certain market conditions the importers’ inclusion mechanism can yield the best margin for the industry. Since however, as the Global Cement Weekly column mentions, the EU only very slowly tightens the screws on the supply of emission allowances, there will be sufficient free allocation for industry and there remains little need to lower emissions and thus little need for an importers’ inclusion mechanism.
CEMBUREAU called into doubt the representativeness of the technology penetration reported by the Cement Sustainability Initiative’s Getting the Numbers Right database. It is a well-established fact that the penetration of modern preheater precalciner kilns in most emerging countries is higher than in Europe, because the industry is younger outside of Europe and hence most installations have been built with more recent, more energy-efficient technology. Besides the CSI database, cement CO2 inventories exist for about 10 emerging countries. They all confirm the same.
Beyond the comparison with other regions however, an emissions trading system that after 12 years still enables one fifth of production being made using the most energy-intensive technologies objectively misses its purpose.
Despite consuming up to 50% more energy than the Best Available Technology, such installations can survive thanks to free allocation and the revenues from waste derived fuels. The industry legitimately highlights the environmental benefits of using waste as a fuel. However, it is questionable whether keeping energy-intensive installations alive thanks to cheap energy from waste is consistent with this environmental narrative.
The proposed changes to the EU ETS will not improve its effectiveness for the cement industry. Quite the opposite, it will make it even less effective because the introduction of a dynamic allocation based on a clinker benchmark completely nullifies the need for the industry to lower the clinker content in cement.
CEMBUREAU indeed has the right to protect the industry it represents, but is probably short sighted and ill informed when it does so to the detriment of society’s necessity to mitigate climate change. The rejection of the importers’ inclusion mechanism is a missed opportunity for the European Union to make the ETS effective and for the cement industry to maintain its competitiveness in a carbon constrained world.
Eric Olsen, CEO of LafargeHolcim, the largest global cement company, and chairman of the Cement Sustainability Initiative, has called for a meaningful and increasing carbon price that can be passed through the whole product value chain and for trade policy to be included in the ETS.2
Lakshmi Mittal, Chairman of ArcelorMittal, the largest global steel company, has also called for a border adjustment measure and inclusion of consumption in climate policies.3 High quality research by leading economists exists on this topic.4 Now that the reform of the EU ETS enters the trilogue negotiation between European Council, Commission and Parliament, these industry leaders should step forward with a concrete and workable solution to combine industrial, trade and climate policies by 2020.
1. http://www.globalcement.com/news/item/5836-european-union-very-slowly-tightens-the-screws-on-its-emissions-trading-scheme
2. WEF, Davos: https://www.youtube.com/watch?v=O_mhqcNR0uA
3. Financial Times: https://www.ft.com/content/8341b644-ef95-11e6-ba01-119a44939bb6
4. Climate Strategies, UK: http://climatestrategies.org/?s=consumption
Updates from PPC 15 March 2017
South Africa: PPC has said that adverse weather negatively affected cement and concrete sales in South Africa in January and February 2017. Rainfall in excess of 200mm was experienced in many parts of South Africa over the two months.
The company also said that it has reduced its net debt further to US$334m as at 31 December 2016 due to the conclusion of a component of its first empowerment transaction. PPC concluded a Strategic Black Partners and Community Service Groups components of its 2008 broad-based black economic empowerment transaction, resulting in a cash inflow of US$77m in December 2016. It said that the improved balance sheet would mitigate the adverse impact of the cyclical nature of its business and that business continued to generate superior cash earnings despite capital expenditure requirements.
Elsewhere, it has been estimated that PPC would be liable for an estimated US$7m in carbon taxes, should South Africa’s proposed carbon tax bill be enacted. However, Darryl Castle, the chief executive of PPC, said the company was looking at a number of initiatives to reduce the forecast amount, including the replacement of coal with carbon-neutral energy sources and further reduction of the clinker factor.
Castle added that the carbon tax regime did not apply to imports into South Africa and had not been meaningfully implemented elsewhere. He noted that a similar scheme was scrapped in Australia because of the impact on the industry. "PPC is ready for the implementation of the carbon tax regime in January 2018. However, we will continue to engage the government on this matter," he said in a presentation at the Merrill Lynch investor conference in Sun City.
Saudi Arabian sales take a slump 15 March 2017
Saudi Arabia: Mubasher has reported that cement-making companies in Saudi Arabia witnessed a near 35% decrease in sales in February 2017. The cement companies sold 4.1Mt of cement in February 2017, down from 5.4Mt for the year-ago period. The companies' production also decreased by 26% in February 2017 to 4.0Mt, compared to 5.5Mt in the same month of 2016.
The country's cement inventory increased to 1.07Mt in February 2017, up by 18.2% year-on-year from 906,000t. Yanbu Cement topped cement sales in February 2017, as it registered sales of 474,000t, with a drop of 21.26% year-on-year from 602,000t.