Global Cement News

This week Donal O'Riain, the Irish chief executive of Ecocem, cried out for an 80% tax on cement producers in Ireland. His reason? In his words, Irish producers are making profits from an over-allocation in the European Union (EU) Emissions Trading Scheme (ETS) despite demand dropping in the Irish industry. The tax was his suggestion to address this 'anomaly' and give the Irish Exchequer a boost.

The timing of his comments are interesting given that the EU ETS entered its third phase at the start of 2013. Towards the end of 2012 environmental campaign group Sandbag questioned in a report whether the scheme was actually helping the environment or not. As Sandbag pointed out generally, not just for the cement industry, carbon prices in the scheme had remained low due to an excess supply in the market. Due to the oversupply, prices were so low that the EU ETS has ceased to function.

The European Commission conceded this failing of the EU ETS in November 2012 by announcing that it was taking steps to address the supply-demand imbalance of emission allowances in the scheme. Firstly 'back-loading' action volumes, revising the auction time profile and delay of the auctioning of 900 million allowances, came into effect from 1 January 2013. Secondly the Commission launched a debate on broad structural measures with a report on the carbon market.

Any emissions trading scheme can distort the market in unexpected ways. With regards to the cement industry, if O'Riain is correct, then parts of the Irish cement industry are making profit on carbon credits despite demand falling. Or, to put it as O'Riain did, the EU ETS may be subsidising environmentally-unfriendly plants at the expensive of more environmentally sensitive ones. Such as Ecocem we must presume. What would be really interesting here is to find out whether other European cement producing countries are also benefitting from over-allocation as demand falls, specifically in Portugal, Spain, Italy and Greece.

Another distortion is that in the EU ETS, offsets generated from developing countries can be surrendered by companies in competing sectors in the EU, giving, in effect, a subsidy to competitors outside the EU. For example, as ETS schemes spread then staying outside of such regulation could prove profitable for cement exporters.

Koen Coppenholle the chief executive of CEMBUREAU, the European Cement Association, tackled this in his response to the European Commission's report, "It is essential that any further reduction of CO₂ emissions above the targets agreed should remain conditional upon the conclusion of an international agreement between all major greenhouse gas emitting countries. This should be undertaken with a view to establish a global crediting scheme, characterised by a comparable methodology to measure greenhouse gas emission reductions and equivalent monitoring and reduction efforts." Hence the interest in regional Chinese ETS schemes such as the emissions trading schemes that were launched in Beijing, Shanghai and Guangdong in 2012. China currently plans to introduce its own national scheme in 2015.

Despite the bureaucrats' efforts to improve emissions trading schemes, Petroleum Review summed up their effect in June 2012, "Carbon trading appears to have pulled off the noteworthy achievement of uniting oil and gas producers and environmentalists in their appraisal of its shortcomings." We could add cement producers to that list.

Australia: Ross Harper has been appointed the Executive General Manager of the Cement division of Boral following a restructuring initiative. The new role includes his previous responsibilities as Operations Manager because Boral's cement business is set to decrease in size following the divestments of Boral's Asian Construction Materials businesses along with the planned closure of clinker manufacturing at the Waurn Ponds cement plant. Harper replaces Divisional Managing Director Mike Beardsell who will leave the organisation by the end of January 2013.

Previously National Operations Manager, Boral Cement, Harper joined Boral in January 2006. He has over 30 years experience with industrial process industries including the energy, pulp and paper and building material sectors. He held the role of General Manager, Golden Bay Cement with Fletcher Building before joining Boral as General Manager NSW, Blue Circle Southern Cement. Ross holds a Doctorate in Chemistry from Victoria University of Wellington, New Zealand.

Ukraine: The supervisory board of HeidelbergCement Ukraine (Dnipropetrovsk region) has dismissed acting board chairman David von Lingen and appointed Silvio Tide as the company's board chairman. Tide was elected to chair the board for three years until 2016. Previously he was a HeidelbergCement manager in Northern Russia.

Von Lingen took up the office of acting board chairman on 1 January 2013 in a position to last until 28 February 2013. Previously he had been a board member and the chief financial officer at the company.

HeidelbergCement began operations on the Ukrainian market in 2001. The company produces cement at two plants, one in Kryvyi Rih, Dnipropetrovsk region south-west of Kieve region and the other in Amvrosiyivka, Donetsk region in eastern Ukraine.

Spain: The board of directors at Spanish construction group FCC will propose in the following days the appointment of Juan Bejar CEO to replace Baldomero Falcones who occupied the position for five years, according to Spanish business newspaper Expansion.

At present Bejar is a chairman at FCC's subsidiary Cementos Portland Valderrivas and Globalvia, in which FCC is a partner of Bankia. He was also a chairman at Citigroup Infrastructure Management and CEO at Ferrovial Infraestructuras and Cintra.

The new CEO will take his position in a moment when FCC is focused on a restructuring process, aimed at meeting the fall of the traditional business, the difficulties of the cement subsidiary and Austrian unit Alpine as well as the need to repay Euro1.6bn debt.

Nigeria's Minister of Trade and Investment, Olusegun Aganga brought together warring parties from Dangote and Ibeto Cement this week to discuss their very public spat about the state of the country's cement industry.

Claims that Nigeria is facing a 'glut' of cement have been building since the Cement Manufacturing Association of Nigeria (CMAN) declared that Nigeria was 'self-sufficient' in cement in late 2012. So when leading cement importer Ibeto Cement questioned this narrative, leading cement producers Dangote and Lafarge hit back. Aganga then announced a review of the country's industry.

Despite Nigeria's potential to consume cement, something is stopping it. Yet, as Ibeto Cement rightly asked, if Nigeria is producing too much cement why isn't the price falling?

Hard facts about the Nigerian cement industry are elusive. This is what we know. Nigeria's population is apparently 170m. Its cement industry has the capacity to produce 28Mt/yr (Global Cement Directory 2013). Its production level was 18.5Mt/yr in 2012 according to CMAN. However figures compiled by the United States Geological Survey placed production much lower at 11.6Mt in 2011. Consumption is believed to be 17-20Mt/yr. In 2011 it was 17Mt. Ibete Cement, the sole importer into the country, is allowed to import up to 1.5Mt/yr.

Nigeria's main producers include Dangote (19Mt/yr capacity, 70% of the market), Lafarge WAPCO (4.6Mt/yr, 17%), Unicem (2.5Mt/yr, 9%) and Ashaka Cement (2Mt/yr, 7%).

Hype about Nigeria's potential as a cement-producing nation hinges upon its low per capita consumption (110kg) compared to some of its African neighbours and indicators of expected growth such as a housing deficit of 16 million homes.

CMAN boss Joseph Makoju addressed this head-on, blaming the high cost of haulage and energy. He said that the energy cost accounts for over 35% of the production cost and that the price of low pour fuel oil (LPFO) had risen by over 300% from US$0.16/l in 2009 to US$0.69/l in November 2012. It should be pointed out that Makoju is also the special adviser to the president of Dangote Group, Aliko Dangote. Unsurprisingly he has advised the Federal Government to impose higher taxes on imported cement to discourage imports.

The production boom of recent years has been threatened by a weakening increase in demand. The gap between production and lower consumption estimates is around 1.5Mt. Dangote and Lafarge WAPCO's combined unsold stock at the end of 2012 was also just below 1.5Mt. Both figures are suspiciously close to the amount Ibeto is allowed to import annually. As usual, the easiest target is the cement importer. Dangote's political clout as a key Nigerian company, large-scale employer and all round African success-story will doubtless help its argument.

Yet if imports are really more competitive than Nigeria's domestic product how can the country possibly hope to export cement? Also this week Liberia announced it has relaxed its tariffs on cement. As luck would have it Dangote is building a new cement plant in the country. Sounds ideal for tricky import negotiations.