Global Cement News

Step forward UltraTech Cement into the vertical rumour mill! The Indian cement producer is the latest company reported as wanting to buy Jaypee Group's cement business in Gujarat. It follows Italcementi, Aditya Birla and CRH, who announced in October 2012 that negotiations had been 'terminated' as the parties had been unable to agree terms.

This time the asking price has risen, with Ultratech allegedly offering US$160-165/t and Jaypee holding out for US$180-185/t. Whilst UltraTech hasn't publicly confirmed the move, it pointedly hasn't denied it either. The Aditya Birla Group subsidiary only commented to the Bombay Stock Exchange that it had not issued any press releases on the subject. Aditya Birla Group itself was reported in October 2012 as pursing interest at US$130/t for Jaypee's 9.8Mt/yr operations in Gujarat and Andhra Pradesh.

Given the number of rumours and cash-rich CRH's very public failure to strike a deal it seems likely that Jaypee has a specific price in mind and it's sticking to it. Prasad Baji of Edelweiss Securities stated in a television interview with CNBC-TV18 that he thought that the cement industry cycle was starting to look up. Crucially he predicted that India's capacity utilisation was set to rise from its current level of 78% to 82% despite price declines in the current quarter.

This is in sharp contrast with Fitch Ratings which rated the Indian cement industry with a negative outlook at the start of 2012 and reports in late May 2012 that capacity ultilisation had actually fallen from 76% to 71%. Since then ICRA Research reported in late September 2012 that it expected Indian capacity ultilisation to stick to 76% for 2012 with prices showing 'resistance' in some regions to cost increases due to rising input costs.

With all this in mind it seems likely that UltraTech will join the growing list of Jaypee's spurned buyers when it fails to reach terms or when the rumours simply fizzle out. However if UltraTech does strike a deal the Indian industry will be the one to watch in 2013. According to data in the Global Cement Directory 2013, an acquisition of nearly 10Mt/yr production capacity would boost UltraTech's capacity to 62Mt/yr making it the 12th largest cement company in the world.

Denmark: Danish cement plant manufacturer FLSmidth has announced that Jørgen Huno Rasmussen, aged 60, group chief executive officer (CEO) of FLSmidth since 2003 has decided to retire in the middle of 2013 after 10 years of service. Thomas Schulz will be appointed new group CEO of and is expected to take up his new position no later than 1 June 2013.

Schulz, aged 47, is a German citizen and has since 1998 been part of Sandvik (Svedala Industries), currently as President of Sandvik's Construction business area and member of Sandvik's Executive Management Group, based in Sweden. From 2005 to 2011 Schulz was based in Germany, Sweden and Singapore as president of Construction and senior vice president of Mining and Construction. Schulz holds a MSc and PhD in Engineering from the Technical University of Aachen, Germany with a dissertation in Mineral Mining and Quarrying.

"On behalf of the Board, I wish to express my sincere gratitude to Jørgen Huno Rasmussen for his decisive contribution to the successful turnaround and development of the FLSmidth Group and for his dedicated leadership over 10 years. I am sure Thomas Schulz will prove to be a worthy successor and look forward to welcoming him to FLSmidth", commented chairman of the board of FLSmidth, Vagn Ove Sørensen.

The outgoing chief executive of PPC (Portland Pretoria Cement) officer, Paul Stuiver, summed up the dilemma facing cement producers on the east coast of Africa. Building near the coast leaves you vulnerable to imports.

In a recent interview with the South African business weekly, 'Financial Mail', Stuiver said that imports are not a threat to African expansion, provided that a facility is not built within 200km of a port. Exactly the same issue was raised by Yves De Moor in his column in the November 2012 issue of Global Cement Magazine.

Countries along Africa's east coast receive imports, but Stuiver said that Africa's high logistics costs mean the prices increase steeply as the cement is transported inland. He commented that the markets in Mozambique and KwaZulu Natal in South Africa were especially vulnerable and that most imports to South Africa come through Durban. Unsurprisingly both of PPC's big recent investments have been in landlocked countries, Zimbabwe and Ethiopia respectively. In July 2012 it also tried to invest in CINAT, the Democratic Republic of Congo's state-owned cement producer.

The import issue to South Africa reignited last week when the South African National Regulator for Compulsory Specifications (NRCS) confirmed that it had confiscated 'sub-standard' cement imported from Vietnam. As we covered in August 2012 in this column this follows a row in July 2012 about whether cement from Pakistan's Lucky Cement was complying with South African standards.

Although standards still lead the argument, more honesty has emerged with the use of the word 'dumping' in the complaints. Stuiver explained that "...the price of cement from Pakistan, India and Vietnam is low because electricity, fuel and transport rates are subsidised." Whilst PPC can report that its revenue has risen by 9% to US$837m for the first nine months of 2012, complaints against foreign imports seem overly protective. In 2009 PPC confirmed the existence of a cartel in the country. PPC has even gone to the Advertising Standards Authority to stop imports with elephants on their bags!

With reports that Nigerian producer Dangote is building a new US$389m plant in South Africa, thoughts turn to what will happen once South Africa becomes 'self-sufficient' in cement, like Nigeria which has proudly announced this recently. Giant infrastructure projects are one way to use all that excess cement and this is what Lafarge WAPCO has been asking the Nigerian government to do recently, in a road building drive. Better transport links in South Africa would wreck Stuiver's maxim about not building near a port.

Two solutions from this week's news might appeal to the industry on the south and east coasts of Africa. The first is to use inventive export barriers just like the Bureau of Indian Standards have imposed to slow down exports from Pakistan. The second is to persuade importers to do what a North Korean ship reportedly did with its consignment of cement this week off the coast of Somalia: dump it in the sea.

UK: Lafarge and Anglo American have appointed the chairman, chief executive office (CEO) and CFO of their joint-venture in the UK. Jamie Pike is appointed as non-executive Chairman, Cyrille Ragoucy as CEO and Guy Young as CFO of the joint-venture. The appointments are subject to the completion of the joint-venture and final clearance from the UK Competition Commission. It is anticipated that the joint-venture will commence operations in early 2013.

Jamie Pike, aged 57, is the non-executive chairman of Lupus Capital, a leading international supplier of building products to the door and window industry, RPC Group, a leading international supplier of rigid plastic packaging and MBA Polymers, a private US plastics recycling business. He was chief executive of Foseco, an international business serving the foundry and steel-making industries, until its acquisition by Cookson Group in April 2008. He led the buy-out of Foseco from Burmah Castrol in 2001, which culminated in flotation on the main market in 2005.

His early career was as a consultant with Bain and Co and A T Kearney before joining Burmah Castrol in 1991. He rose to chief executive of Burmah Castrol Chemicals before leading the Foseco buy-out. Pike was educated at the University of Oxford, holds an MBA from INSEAD and is a member of the Institute of Mechanical Engineers.

Cyrille Ragoucy, aged 56, is currently senior vice president for Health and Safety at Lafarge. From 2005 to 2009 he was CEO and regional president for Lafarge's cement operations in China (Lafarge Shui On Cement) where he was responsible for 25 plants and 10,000 people. Between 1999 and 2005 he was regional president for Aggregates, Concrete, Asphalt and Paving for Lafarge in Eastern Canada. Ragoucy joined the Lafarge group in 1998 as vice president Cement Strategy for Lafarge North America.

Guy Young, aged 43, has been CFO of Tarmac since 2010 with responsibility for Tarmac's financial, IT and legal operations as well as the pre-integration planning for the joint venture. Guy has been with Anglo American for 15 years in a variety of roles, including CFO of Scaw Metals, Group Procurement and within the CEO's Office. Guy was educated at the University of Cape Town and qualified as a chartered accountant after doing articles at Deloitte.

Back in May 2012 we asked who would buy Lafarge's Hope cement plant in Derbyshire. The answer was, of course, a company with an Indian background: Mittal Investments.

The sale was a condition of the UK Competition Commission in response to the proposed joint venture between Lafarge and Tarmac. It also included 172 ready mix concrete plants, five aggregates quarries, two asphalt plants, one marine aggregates wharf, one rail-linked aggregates depot and the sale of Tarmac's 50% ownership interest in Midland Quarry Products. Mittal has paid Euro339m for the assets, including up to Euro37m dependent on the performance of the assets over the next three years.

At the time we predicted that it might be a company from a fast growth area, with excess cash and a desire for technical knowledge, perhaps from China or the Middle East. Far more fitting for the UK, however, was a company with Indian roots, especially considering the cultural links between the two countries dating back to the colonial era.

Originally from India but based in London, owner Lakshmi Mittal runs steel multinational ArcelorMittal and he frequently tops UK rich lists. The Mittal family even own shares in Premier League football team Queens Park Rangers. The sale follows acquisitions of well-known British brands such as car manufacturers Jaguar Land Rover and British Steel/Corus to the Tata Group.

The sale to Mittal leaves the UK cement market with four companies. Mittal's new plant in the UK joins Lafarge's four plants, Cemex's two plants, Hanson Cement's three plants and Tarmac Buxton, Lime & Cement's single plant, which is soon to join with Lafarge's plants in the joint-venture. Geographically the sale to Mittal breaks up a concentration of three Lafarge and Tarmac plants in Derbyshire in the southern Pennines. Presumably this was the aim of the Competition Commission in the first place.

Selling the Hope plant makes sense for Lafarge and Tarmac. The sale leaves Lafarge's generous spread of plants across the UK in key locations except the south of England. The combined cement production capacity of Lafarge and Tarmac will fall from 4.35Mt/yr to 3.85Mt/yr. The reduction may actually help Lafarge, given its 9% fall in cement sales volumes so far in 2012 and the pessimistic outlook for the UK cement sector in 2013. The reduction in capacity manages this decline closely at 11%.

The UK cement industry has likely become more competitive with the range between the production capacities of the four companies reduced. However the price Lafarge and Tarmac have paid the Competition Commission for their joint venture was almost certainly worth it. Lafarge-Tarmac retains Lafarge's dominant position in a streamlined shape now matching the market reality.

Update: This article was corrected on 27 November 2012. The UK temporarily has five cement producers until the Lafarge-Tarmac joint venture gains approval from the UK Competition Commission. Then it will return to four.