Global Cement News

Cement cartels (or at least cases of cartel-like behaviour) have reared their ugly heads this week... again. In two different markets, Australia and Brazil, competition authorities are at various stages of taking major action against large proportions of their respective cement industries. In another, Europe, it is the cement producers that are taking on the authorities.

This week, the Australian Federal Court has found five producers guilty of agreeing anti-competitive contracts with regard to fly-ash supply contracts from power stations in the state of Victoria. Only Cement Australia Holdings was not accused. Penalties are to be determined at a later date – watch this space.

As drastic as the Australian situation may be, it is Brazil's anti-trust authority Cade that looks set to make the biggest 'splash' in a cement industry in 2014. On 13 March 2014 it was reported that a US$1.32bn fine, split over six cement producers, has been put on hold after the producers disputed a ruling that would see them lose an average 24% of their cement assets each. So big is this fine that it actually eclipses the US$1.1bn fine seen in India in 2012. In light of the amount of influence that they look set to lose, it now looks extremely likely that the producers will appeal. This sets the scene for indeterminably long waits for legal proceedings and more evidence to be collected. Whatever happens in Brazil, there will be major implications for its increasingly-concentrated cement market.

Elsewhere, in a strange inversion of the normal situation, in Europe it is the cement producers that are taking action. This week the European Court has rejected an appeal from eight major cement producers including Holcim, HeidelbergCement and Cemex subsidiaries with respect to the European Commission's handling of an anti-cartel investigation that began in 2008. That case saw anti-trust investigations start in 2010. Proceedings continue.

As stated previously in this column, cartel-like behaviour is not necessarily indicative of a formal cartel. There are innumerable factors that make every case different and, in each, proving actual collusion is very hard indeed. In the cement industry however, it appears that 'convictions' in cartel cases are easier to spot than in other sectors.

"The first thing for any new competition regulator is to go out and find the cement cartel. My experience of this subject is, it is always there, somewhere," wrote Richard Whish, a Professor of Law at King's College London in 2001. "The only countries in which I had been unable to find the cement cartel is where there is a national state-owned monopoly for cement."

The authorities will keep looking and producers, guilty or not, will continue to wait for their call.

Dangote Cement let everybody know this week that it is now producing 52.5MPa grade cement in Nigeria. The move was a response to building pressure from professional and civil groups in the country which have reacted in recent months to the high incidence of building collapses in the country. With the 42.5MPa grade looking likely to become the new legal standard, Dangote's adoption of an even higher standard looks like canny marketing.

The background to this tussle lies in the spate of building collapses that have plagued Nigeria in recent years. A widely cited paper in the Global Journal of Researches in Engineering from 2010 reported at least 26 incidents in Nigeria between 1975 to 1995 with 226 fatalities. Later figures from 2004 to 2006 reported at least 10 incidents with 243 fatalities, a significantly higher prevalence than in the earlier period. The paper recommended adopting standards for building materials such as cement among other measures. Since the publication of this paper news reports have been hard to collate. Commentators placed the toll at 15 collapses with 30 fatalities for the first eight months of 2013 alone.

The Standards Organisation of Nigeria (SON) reacted to the latest outcry over building collapses by saying that they were caused by poor application, such as a using the wrong quality of cement for a particular task, not poor standards. According to the SON, 32.5MPa grade cement is recommended for activities such as plastering, flooring, block moulding, culvert making and building simple domestic houses. 42.5MPa grade is designed for the construction of tall buildings, bridges and load bearing columns.

Adopting a national standard of 42.5MPa grade is intended to stop misuse of lower grade cement being used for the wrong applications. One example commentators have mentioned is how to help illiterate builders select the right kind of cement for a given task. Choosing an overall higher standard is one solution to this problem. Education is another.

One fact that has emerged from the debate is that, according to Dangote Chief Executive Officer DVG Edwin, the SON imposed 42.5MPa grade as the minimum for imports before most imports were stopped in late 2012. Edwin used this as an argument for the SON enforcing the same standard for domestic cement production. Anything that can cut the number of building collapses can only be a good thing.

Denmark: FLSmidth has appointed Lars Vestergaard as its new Chief Financial Officer and member of Group Executive Management. Vestergaard succeeds Ben Guren who has decided to leave the company due to personal reasons. Vestergaard will take up the position as CFO on 1 April 2014. Brian Iversen, Vice President Corporate Finance, FLSmidth will be acting CFO until Vestergaard starts.

Vestergaard, aged 39 and a Danish citizen, holds a Master of Science in Business Management and brings with him international experience in the role as CFO as well as international experience in change management, IT management and treasury from his various management positions in Carlsberg (2004 - 2014) and the global facility service provider ISS (2000 - 2004).

France: The Vicat board of directors has appointed Guy Sidos as the new chairman, in addition to his current position as chief executive officer. The board also appointed Jacques Merceron-Vicat as honourary chairman.

Sidos, aged 51, is the son-in-law of outgoing chairman and former CEO Jacques Merceron-Vicat. His appointment is intended to continue Vicat's independent outlook. Sidos is a graduate engineer of France's Navy School. After joining the Vicat Group in 1999 he held a number of operational positions, particularly in the US, before being appointed COO in 2004, then CEO in 2008. He will henceforth hold this position alongside that of chairman after the annual general meeting on 6 May 2014.

Algeria has been steadily building up cement industry interest over the past few months. In late 2013 Lafarge opened its fourth world research laboratory in Algiers. Then this week South African producer PPC confirmed its intention to enter the local market with a new plant and German construction firm ThyssenKrupp announced an order to build a cement plant for Groupe Industriel des Ciments d'Algérie.

According to United States Geological Survey (USGS) data, Algeria saw its cement production more than double from 9Mt/yr in 2002 to 20Mt/yr in 2011. At present Global Cement Directory 2014 figures places the country's cement production capacity from 21Mt/yr with 30Mt/yr a reasonable estimate for 2017. Throw in similarly rising gross domestic product per capita, US$7500 in 2013, with infrastructure investments of US$286bn planned and Algeria appears to be a promising investment for the cement market.

Lafarge, which holds minority stakes in two cement plants in the country, reported that market demand was high in 2012. Its cement sales rose by 9% year-on-year in 2013. The other major foreign player, ASEC Cement, reported in its 2012 financial report that Algeria consumed 21Mt of cement in 2012 but that it had to import 3Mt that year. ASEC was planning to build a 3.16Mt/yr plant at Djelfa to plug that market gap. Yet news reports in early 2013 reveal that the project was paused due to financial issues at ASEC with the suggestion of a possible downgrade to a 1.5Mt/yr production capacity instead.

The decision by PPC to build in Algeria is the first big project by one of Africa's international sub-Saharan cement producers north of the Sahara. It steps away from PPC's expansion strategy so far of building projects out from South Africa. Hodna in Algeria is a long way from Johannesburg! It will also cause tension between PPC and whoever is supplying imported cement to Algeria, most likely indebted southern European producers. Both PPC and its Nigerian competitor Dangote are used to fighting foreign imports to their core markets. Data from the Algerian customs office show that the value of cement imports to Algeria in 2013 rose by 26% year-on-year to US$395m. That's a market worth fighting for.