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Did LafargeHolcim overprice its sale to CRH?
Written by David Perilli, Global Cement
25 February 2015
One of the compelling issues to emerge from the Global CemFuels conference last week in Dubai was how alternative fuel (AF) use by cement producers might change while oil prices are low. Dirk Lechtenberg, of MVW Lechtenberg hinged his overview talk on both low energy prices and the on-going Lafarge-Holcim merger. The unspoken implication was that Holcim and Lafarge are offloading cement plants that use increasingly unprofitable AF. Cement plants are increasingly being out-bid for AF by energy-from-waste plants and 'gate fees' are dwindling accordingly.
Here's how it works. CRH is buying nine plants from Lafarge and Holcim in western Europe and five in eastern Europe. These are plants with high AF substitution rates. For example, Holcim's plants in France and Belgium have a substitution rate of 50% using around 250,000t/yr of waste fuels. Similarly, the Lafarge Zement Wössingen cement plant has permits for a 60% AF rate.
Globally, Lafarge and Holcim had substitution rates of 17.2% and 12.8% in 2013. CRH had a substitution rate of 21.2% in the same year. Post merger LafargeHolcim is estimated to have a substitution rate of below 10% in 2015. Meanwhile CRH is estimated to have a rate over 30%. After establishing this, Lechtenberg demonstrated how a thermal substitution model might be affected by fluctuating coal prices whilst using a refuse-derived fuels (RDF) rate of 35%. Put the price of coal below US$55/t and the savings of using RDF vanish.
Other delegates at the conference pointed out various limitations in Lechtenberg's methodology and figures. External legislation such as a carbon tax can disrupt this model for example. However, once coal becomes cheap and abundant enough it will displace most AF on economic grounds due to its high calorific value. Very few waste fuels can beat it.
At the time of writing the Brent crude oil price is just below US$60/barrel following a steep decline since mid-2014. The Australian coal price, the world's biggest export hub, has seen a steady fall since 2011 hitting just over US$60/t in January 2015. However, how interconnected are the oil and coal price?
This is difficult to link because bulk energy consumers switch supply according to price and other variables such as which fuels they can actually use. That last point is important in this discussion because preparing a cement plant to use AF requires an investment cost. Meanwhile, energy producers vary production depending on how much profit they want to make. Throw in new energy sources such as waste fuels and fracking and the overall picture becomes messy as all of these factors and others (OPEC policy, legislation etc) interact. Low oil prices do not necessarily mean low coal prices. For example, one analyst looking at BP's Statistical Review of World Energy in 2014 concluded that oil and coal consumption hold an inverse relationship to each other. When the proportion used of one rises, the proportion used of the other falls, and vice versa.
With all of this in mind there is ambiguity over whether CRH has been handed a time bomb in terms of its new cement plants' energy policies. Given that widely assumed production costs for the major oil producing nations are mostly above the current cost of crude oil, if the producers are controlling the price, then it seems likely that the price can't stay this low on a sustained basis. However, the cost of coal is on a five year low also. Is this the new normal or a market blip?
Cement plants using AF have a capital expenditure cushion against changing their fuels mix in the short to medium term but it can only last so long. The longer fossil fuel energy prices remain low the longer CRH will make less money from the fuel strategy it will inherit at its new plants.
Uzbekistan to launch two new cement plants in 2016 25 February 2015
Uzbekistan: Uzbekistan is planning to commission two new cement plants in 2016, according to Islom Arslonov, department head at Uzstroymateriali (Uzbek Construction Materials). A 0.4Mt/yr plant is being built by Karakalpak Cement in Karakalpakstan for launch in 2016. A 2.2Mt/yr plant being built by Surkhoncementinvest in Jarkurgan district of Surkhandarya.
Arslonov noted other cement projects that have been built in Uzbekistan recently including a 0.75Mt/yr plant commissioned in Jizzakh in 2014, the Ferghana Cement 0.15Mt/yr plant in Ferghana, the SingLida 0.12Mt/yr plant in Andijan and the Keer 20,000t/yr plants also in Andijan.
Accoridng to Arslonov, eight cement plants are operating in Uzbekistan with a total production capacity of 8.8Mt/yr.
South Africa Competition Commission refers Natal Portland Cement to competition tribunal 25 February 2015
South Africa: The Competition Commission of South Africa has referred Natal Portland Cement (NPC) to the Competition Tribunal. The referral follows the Commission's investigation, between 2008 and 2012, of collusive conduct in the cement cartel against the four main cement producers, NPC, Pretoria Portland Cement Company Limited (PPC), Lafarge Industries South Africa (Lafarge) and AfriSam Consortium (Pty) Ltd (AfriSam).
PPC was granted conditional leniency in terms of the corporate leniency policy of the Commission. AfriSam settled with the Commission and agreed to pay an administrative penalty of US$11.2m representing 3% of its annual turnover in 2010. Lafarge also settled with the Commission and agreed to pay an administrative penalty of US$13m representing 6% of its annual turnover in 2010.
The investigation found that the four cement producers agreed to collude and to divide the cement market by allocating market shares and indirectly fixing the price of cement during a legal cartel in South Africa that ended in 1996. The Competition Commission allege that they subsequently reinforced these collusive arrangements through a series of other agreements, which NPC's representatives were party to, including an agreement to progressively exchange competitively sensitive sales data through the Concrete and Cement Institute of South Africa.
The Commission is pursuing a maximum penalty of 10% of NPC's annual turnover and a Tribunal order that NPC contravened the Competition Act.
Mangalam Cement director Shri K K Mudgil dies
Written by Global Cement staff
25 February 2015
India: Mangalam Cement has reported that Shri K K Mudgil, a non-executive independent director of the Company died on 20 February 2015 in New Delhi.
Persio Morassutti appointed as director of Shree Digvijay Cement
Written by Global Cement staff
25 February 2015
India: Shree Digvijay Cement Company has reported that Persio Morassutti has been appointed as a director. He will replaces Osvaldo Ayres Filho following his resignation.