Global Cement News

Vietnam: Only four cement producers have built waste heat recovery (WHR) systems by the end of 2015 despite a request by the Prime Minister Nguyen Tan Dung. Holcim, Chinfon, Ha Tien and Cong Thanh are the only companies to have built the upgrades. The delay has been blamed on the high cost of implementing WHR systems and the market’s poor sales.

According to Nguyen Hoang Cau, secretary general of the Vietnam Cement Association, there are more than 40 cement production lines in the country subject to the requirement. These also include foreign cement producers such as Taiwanese-backed Phuc Son Cement, Hong Kong’s Luks Cement Vietnam Limited, and Japanese-funded Nghi Son Cement. Cement producers have complained to local press about their inability to build WHR systems without financial help.

India: Ajay Piramal, the Indian businessman and chairman of Piramal, has started talks with Lafarge India to buy its assets, according to sources quoted by the Economic Times. Speculation has followed Piramal since he sold his pharmaceuticals business for US$3.8bn in 2010. If completed, the move would mark a diversification from Piramal’s healthcare, financial services and information management businesses.

Piramal and Lafarge India separately declined to comment on the issue. Lafarge India is selling all of its assets in India including a cement production capacity of 11Mt/yr.

Ireland: CRH’s operating profit has grown by 39% year-on-year to Euro1.28bn in 2015 from Euro917m in 2014. Its sales revenue grew by 25% to Euro23.3bn from Euro18.9bn. Favourable weather, encouraging markets and currency benefits were all attributed to the positive result.

“As a result of good performance from our heritage businesses and contributions from acquisitions, 2015 was a year of significant profit growth for CRH. Strong cash generation resulted in our year-end debt metrics being ahead of target, and we are well on track to restoring these metrics to normalised levels during 2016. Recently there has been some uncertainty about the pace of global growth. Our focus remains on consolidating and building upon the gains made in 2015. Against this backdrop, we believe 2016 will be a year of continued growth for the Group,” said Albert Manifold, chief executive of CRH.

The group’s Europe Heavyside division, which includes cement production, reported a fall of 8% year-on-year to Euro3.61bn in 2015 from Euro3.93bn in 2014. Operating profit fell by 11% to Euro135m from Euro151m. Challenging business conditions were noted in Switzerland, France, Germany and Finland.

For CRH’s acquisitions from Lafarge and Holcim, the group reported that trading results were above expectations. Good performances were noted in the UK, Europe and the Philippines. However, market challenges were encountered in France, Germany and Brazil. CRH completed its purchase of Lafarge and Holcim’s European and American assets on 31 July 2015. It then completed its purchased of assets in the Philippines on 15 September 2015.

In 2016 CRH expects continued growth in the US, growth in Asia, buoyed by the Philippines and growth in parts of Europe including the UK, Ireland and the Netherlands. More difficult market conditions are anticipated in Switzerland, Belgium, Germany and France.

Small print can cause large consequences. Billion US Dollar consequences. Take the 2015 amendment to India’s Mines and Minerals (Development and Regulation) (MMDR) Act from 1957. Ambiguous wording in the legislation may have held up two prominent cement industry acquisitions in 2015. It also hangs over the recently announced purchase by UltraTech Cement of Jaiprakash Associates’ cement plants.

The MMDR was amended in January 2015. As the Times of India explained in mid-2015, a clause in the amendment said, “The transfer of mineral concessions shall be allowed only for concessions which are granted through auction.” However, it was unclear whether this meant historically allocated mines given via nominations or only newly allocated ones. Given the reliance of clinker plants on reliable mineral reserves this caused havoc. Cue confusion and large legal budgets.

LafargeHolcim’s divestment of two cement plants to Birla Corporation was one casualty. As a condition of the merger between Lafarge and Holcim the Competition Commission of India (CCI) required that the Jojobera and Sonadih cement plants in Eastern India be sold in 2015. Together the plants have a combined cement production capacity of 5.1Mt/yr. However the ambiguity over the 2015 MMDR Act clause on transfer of mining rights held the deal up. By February 2016 Birla Corporation had endured enough. It publicly complained about Lafarge India’s ‘inability’ to complete the deal and threatened legal action. LafargeHolcim retorted by asking the CCI if it could sell all of Lafarge India instead. It received the revised clearance and a new buyer is yet to be announced.

Another victim was UltraTech Cement in a previous attempt to buy Jaiprakash Associates’ cement assets. That time it was down to buy two integrated cement plants in Madhya Pradesh with a combined clinker production capacity of 5.2Mt/yr with associated mineral rights. The deal was agreed in December 2014 and then reported delayed in mid-2015. Finally, on 28 February 2016 the Bombay High Court rejected the deal, citing the MMDR Act as the prime cause.

Luckily for UltraTech Cement the story has a happy ending (so far) as it then announced that it was purchasing the majority of Jaiprakash Associates’ 22.4Mt/yr cement portfolio instead for US$2.4bn. It is hoped that the deal will be finalised by June 2017 but this partly depends on the MMDR Act being amended. Although UltraTech Cement have said they are looking at alternative routes to the deal in case the act isn’t amended.

Poor legal wording kiboshed at least two cement industry deals for over 10Mt/yr production capacity. Roughly, at the price UltraTech Cement is paying for its latest deal, that’s over US$1bn worth of Indian cement assets. Given the hard time the Indian cement industry had in 2015 the question should be asked regarding how much damage the MMDR Act amendment has done. One option for the beleaguered industry is to consolidate and cut its costs. This was massively delayed in 2015.

The proposed 2016 amendment to the MMDR Act reads as follows:

“Provided that where a mining lease has been granted otherwise than through auction and where mineral from such mining lease is being used for captive purpose, such mining lease will be permitted to be transferred subject to compliance with the terms and conditions as prescribed by the Central Government in this behalf.”

Let’s hope it does the trick this time.

China: The Ministry of Industry and Information Technology (MIIT) and related departments are considering draft guidelines on eliminating outdated production capacity in cement, ship-making, electrolytic aluminium and glass industries, according to Xinhua. At least 500Mt of ‘low-grade’ cement production capacity will be phased out.

The central government decided to promote supply-side reform at the end of 2015. Eliminating outdated capacity is a top priority. Methods to do this include phasing out outdated capacity, removing ‘zombie’ enterprises and promoting industrial reorganisation.

Kong Xiangzhong, vice president of China Cement Association, has advised the central government to provide certain compensation for the industry and establish a special fund so as to appropriately deal with the re-employment of redundant personnel and enterprise debts. Several provinces have specified their targets. Guangdong Province plans to cut clinker production capacity to 110Mt by the end of 2018.