CemWeek Magazine, Issue 2

CemWeek CemWee MAGAZINE

GLOBAL CEMENT INDUSTRY. KNOWLEDGE.

MARCH / APRIL 2011

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News

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Analysis

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Market Coverage

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Interviews

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People Moves

EDITOR’S NOTE Letter from the publisher and editor

It’s a big world… really After the successful launch – and very positive industry feedback – this second issue of the CemWeek Magazine follows our global research roots as a theme. Though not a “new” topic, we continued the trajectory and looked across some of the interesting growth markets globally to reflect and inform on some fundamental changes that are occurring.

The story is not just about emerging market growth, but how they have in fact emerged to become global forces in their own right.

The world is undergoing transformational changes, in many ways unprecedented. We have largely continued to see resilient cement markets in the developing countries that broadly showed encouraging trading conditions in 2010. Though it remains to be seen if these economies can continue to grow without a recovery in the developed world (we elaborate on this topic in our viewpoint “Who’s Driving the World Economic Train” in this issue), it is clear that structurally the cement sector is changing in fundamental ways in markets that were long big cement importers with underdeveloped domestic production capacity.

The CW Group research unit and analysts around the world share their views on topics such as rising African cement production capacity and key markets such as Brazil, Russia, and others. It is not that we mistakenly left India out of this issue, but it will rather be the focus of a separate publication. We take a look at Eastern Europe through a conversation with industry veteran Mr. Mihai Rohan, Chairman of HeidelbergCement Romania, finding out about how the engineering-oriented sector in the country has evolved. And we visit Mongolia, a cement market that’s showing signs of joining the category of emerging.

While we cover a broad range of subjects, the insights provided in this issue about the different areas are not only intended for those that directly work in or with those regions. The different stories and briefs can help inform readers anywhere by stimulating comparative reflection and thinking on competitive advantages and the linkages between markets. While cement is a “local business”, ultimately it is increasingly one big world.

As executives and managers, our readers are responsible for determining their companies’ future actions and capital investments. This critical process requires the best available information and, as our article on page 12 points out, the best analytical and risk assessment skills.

As always, we welcome your comments and suggestions for topics you’d like to read about in future issues.

The CemWeek Magazine is published by the CW Group (CemWeek LLC) 848 N. Rainbow Blvd., Box #1658 Las Vegas, NV 89107, USA T: +1-702-430-1748 F: +1-928-832-4762 www.cwgrp.com www.cemweek.com

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CemWeek Magazine

Robert Madeira

cemweek publisher head of cw group research

Arthur Norwalk editor

Paolo Dela Rosa art director

Anthony Fitzgerald advertising

Diana Heeb Bivona John Thompson pat ryan Claudia Pelcz

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contributing writers researchers

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Robert Madeira

Arthur Norwalk

publisher and head of research

editor

CW Group

CONTENTS FEATURES 4 COUPLED OR DECOUPLED?

A CW Group analysis of the driving forces in today’s world economy

12 THE VALUE AND LIMITATIONS OF MANAGEMENT INFORMATION

Today’s sophisticated management information systems give executives much, but not all, of what they need for strong decision-making

46 A CDM SUCCESS STORY FROM KENYA

Lay of the land Regional demand and trade flows (’000 tons)

Navigating technical and regulatory hurdles requires care and skill

44

BUILDING MATERIALS UPDATE

SENEGAL: 2400’

MAURITANIA

MALI

SENEGAL

GUINEA-BISSAU

30’

BF: 900’

600’

THE GAMBIA

200’

RUSSIA

220’

BURKINA FASO

200’

150’

GUINEA

SIERRA LEONE

BENIN

IC: 1500’

GHANA: 3400’

COTE D’IVOIRE

GHANA

BENIN: 1350’

NIGERIA

24

TOGO

170’

WEST AFRICA

WELL, WE KNEW THAT

LIBERIA

REAL GDP GROWTH IN PERCENT

10%

32 NIGER

MALI: 1000’

TOGO: 700’

CAMEROON

8% 6%

6

INTEGRATED PLANT GRINDER TERMINAL

2%

MAIN FLOW (1000 TPY)

0%

MIHAI ROHAN

2

4%

EQUATORIAL GUINEA

NUMBERS IN BRIEF

-2%

GABON

DEPARTMENTS Numbers in Brief

2 To forecast the industry, track the economy

Leaders Comment

6 HeidelbergCement Romania Chairman Mihai Rohan reveals how his country’s proud history in the cement industry has prepared it for the future 16 KHD Humboldt Wedag CEO Jouni Salo shares his thoughts on the industry and projects the benefits of his company’s venture with China’s AVIC

Country Snapshots

10 AFRICA - New research report shows

Emerging and Developing Economies

continent’s capacity exceed 200 million tons 20 BRAZIL - Latin America’s leader pulls farther ahead 22 MONGOLIA - A new market seeks to emerge 24 WEST AFRICA - Growing consumption attracts investment in new capacity 30 DEMOCRATIC REPUBLIC OF CONGO Wild price fluctuations resist government efforts 32 RUSSIA - Costs, Capacity, Speculation – Nothing is simple in this giant country

Regional Reports 36 Americas

Advanced Economies

2009

World

38 Europe, Middle East & Africa 40 South Asia 42 Asia Pacific

From Our Industry Partner 44 Building materials update

Projects & People 49 People on the move 48 Notable projects

Data Share Performance

50 Overview of stock performance for cement companies

2010

2008

2007

2006

2005

2004

2003

2002

2000

2001

1999

1998

1997

1996

1994

1995

1993

1992

1990

1991

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

-4%

CONNECTING PEOPLE, MARKETS & TECHNOLOGY

A TEC CONSULTING _ WE KNOW HOW

We understand your requirements and will work with you as your partner to jointly implement new cement plants. A TEC is your independent consulting partner for the construction and modernisation of cement plants. We’ll advise you throughout the entire planning and construction process, during commissioning and staff training. How? With our extensive process engineering skills, our expertise in the construction of plants and machinery, our branch offices worldwide and our experience.

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NUMBERS

IN BRIEF

To Forecast the Industry,

Watch the

Economy

Economic growth yesterday and tomorrow

The correlation between real GDP and cement demand is no mystery. And while not a perfect predictor since demand is dependent on multiple factors and may have a stronger correlation to construction activity, fixed capital formation and others, a view of the cement sector’s future necessarily needs to be grounded in basic economics.

In 2010 the CW Group estimates that the global cement demand reached 3.28 billion tons. The volume was driven by divergent fortunes across regions. Looking at economic performance of advanced versus emerging economies over the past 30 years helps us see the trend more clearly and why certain cement markets are growing at the rate they are. It was not always the case that emerging markets performed better, but the last ten years have seen a dramatic acceleration in economic activity in the emerging markets.

Source: IMF, Worldbank and CW Group research

While past is no certain predictor of the future, the pattern is largely expected to hold steady for the next five years. Developing Asia and Sub-Sahara are expected to see among the strongest growth as regions, reaching an average annual growth of 10.2 percent and 6.5 percent, respectively.

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You want to reduce production cost, lower maintenance spending, improve environmental impact and decrease energy consumption.

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VIEWPOINT Are Emerging and Developed Markets Coupled or Decoupled?

Who’s Driving the World Economic Train?

By Robert Madeira and Diana Heeb Bivona

hat cement markets in many emerging countries around the world have demonstrated strong growth over the past few years, while markets in the developed countries have languished, is no secret.

Faced with long-term falling profit margins in more developed markets, global cement manufacturers such as Lafarge, Holcim, and HeidelbergCement, have for some time allocated resources increasingly in favor of emerging markets such as Africa, the Middle East and Russia. These strategic objectives have helped global providers to insulate their operations against the recent economic weaknesses noted in U.S. and European markets.

However it was not always true that emerging markets were able to grow as economies in the western consumer nations fell in economic cycles. And today the cement sector must ask whether emerging markets can continue to prosper irrespective of what happens to the developed economies. old paradigm:

“The US sneezes and the world catches a cold�

The resilience of the economies and cement markets in countries such as China, Brazil, 4

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and India may have been surprising to some who had expected the emerging markets to slide downward coupled to the economies of the developing nations. For others, the divergence of the markets supported the belief that the developing markets had finally decoupled.

buyer-markets. Hence, the paradigm of market coupling. new paradigm:

Economic decoupling However, the last economic downturn showed that many emerging markets such as Brazil, India, and China had proven more resilient than U.S. and European markets.

Several emerging markets experienced strong growth of 5 to 7 percent, while developed markets showed little to no growth.

The debate over market coupling versus decoupling between emerging and developed periodically picks up steam as the developed markets respond differently to economic swings than the markets of developing nations. It has heated up once again as the economic recovery of the developed markets limps forward while Strong growth in these emerging countries emerging markets appear to be sprinting. in recent years is attributed to several factors.

Generally, household incomes, particularly The concept that emerging economies were among the middle class, are rising. Many heavily dependent on the health of the nations are more effectively utilizing their markets in developed nations may have been abundant natural resources, including true until recently. Historically, recessions larger, better-educated workforces. had more deeply affected emerging rather Governments are investing heavily in than advanced countries. Their often building infrastructure and developing commodity and export driven emerging their manufacturing and industry sectors, economies saw exports evaporate as western which has proven especially beneficial to consumer nations hit the economic skids, the cement sector. Finally, several countries with hard currency reserves dwindling and are moving away from the practice of the unable to service external debt denominated foreign financing of debt, choosing instead in US dollars. The nascent domestic markets to focus on boosting national balance were unable to materially support the sheets through the accumulation of foreign economies in the absence of the foreign exchange reserves.

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VIEWPOINT Emerging markets are also taking steps Same but different? to diversify their economies and expand trading. While in the past, emerging markets Emerging markets have gained more would have looked largely to establishing strength, and the gap in the rate of a relationship with a developed nation such as the U.S., Germany, France, or the United Kingdom, they are instead, forging extensive trading relationships with other emerging markets like China, India, Brazil, or Russia. This is evidenced by the increase in trade between developing nations, which has accounted for over 40 percent of exports and imports in recent years; more than double what it was just a decade ago.

These are definitely strong steps toward creating economic freedom, but does it suggest that emerging markets have truly decoupled from the developed world? newer paradigm:

Inevitable re-coupling?

There are several reasons to suggest that decoupling has not, and likely will not occur, for some time. Many emerging markets continue to struggle with a plethora of problems including political instability, corruption, poverty, exploding populations, rising inflation, and long-term sustainable economic growth. These significant obstacles imply that there are few, if any, emerging market contenders who have been able or willing at this time to completely decouple from developed nations.

The cement sector must ask whether emerging markets can continue to prosper irrespective of what happens to the developed economies

growth between developing and advanced countries has widened. Countries such as Brazil, China, and India are becoming the locomotives of the world economy, fueling greater investment and trade. While on the receiving end of higher levels of foreign investment, companies within these countries are also investing heavily outside Furthermore, and perhaps most important, of sovereign borders. For example: despite efforts to build a stronger base of domestic consumer consumption, ■■ Brazil’s Votorantim and Camargo Correa’s investment in Portugal’s Cimpor economies such as China, which remain ■ ■ Mexico’s Cemex’ global operations in six heavily dependent on foreign exports, have regions including the USA, Northern struggled to do so. In the absence of selfEurope and Asia sufficiency through consumption-driven ■ ■ China’s Sinoma becoming major exporters demand substitution, suggesting that of Greenfield cement projects and related decoupling has occurred may be premature. equipment, as well as technical assistance for cement manufacturers in emerging Decoupling also fails to take into account markets the move toward globalization and the ■ ■ Russia’s Eurocement expanding its multiple economic relationships that operations to the neighboring states of many countries have developed. Given the Ukraine and Uzbekistan that financial markets around the world ■ ■ India’s Wacem and Sanghi expanding are heavily entwined with each other, and cement operations into West Africa and that research and development, as well as Kenya as well as Binani’s foray in to the communication continues to flow beyond UAE defined borders, the idea of a decoupling is not so clear-cut.

emerging markets may be “coming into their own” in terms of development and growth. However, in the age of increasing globalization, the idea that economies can completely decouple and thrive – not just exist – is unrealistic in the near term in the absence of robust domestic consumption.

There is no question that emerging markets are becoming more influential in the world economy. They will continue to account for a larger share of global output, trade, and financial flows in the years to come, but to suggest they are ready to stand independently, in an economic sense, at this stage is premature.

“For cement manufacturers in emerging markets, it will in the longer run not be sufficient to look at the business case in a vacuum – you have to consider how global economies affect developing economies, their fixed capital formation, construction sector and cement sector as it is all interlinked in the end,“ underscored Robert Madeira, Managing Director and Head of Research at the CW Group. He added: “While we think of cement as a decidedly local business, there are shades of gray if you include time-dimensions. In the longrun the fortune of a cement sector in an emerging market may have a correlation to markets thousands of miles away.” BMWeek CemW BMWeek BMWeek

CemW CemW

About the authors Mr. Robert Madeira is the Head of Research at the CW Group Research and Publisher of the CemWeek Magazine, has an extensive background in international business, investment management and M&A. He is the founder of the CW Group and CemWeek and holds an MBA from the Harvard Business School and BAs from Brown University.

Ms. Diana Heeb Bivona is a business consultant and a contributing writer, specializing in emerging markets. She also teaches International Business at Benedictine University and holds an MBA from the New York Institute of Technology and a BA in International Relations from Drake University.

The U.S. market may no longer be the sole driver of world economic growth, and MARCH / APRIL 2011

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LEADERS

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COMMENT

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LEADERS COMMENT

Perspectives on Romania, Europe and the world cement industry through the experienced eyes of Mihai Rohan, chairman of HeidelbergCement Romania

Revolution + 22 Drawing on a strong engineering legacy and despite facing current challenges, the Romanian cement industry is well positioned to participate in future opportunities, largely thanks to the diligent efforts of the executives who drove a major modernization and reorganization in the years following the revolution of 1989. One of the visionary leaders, HeidelbergCement Romania chairman Mihai Rohan, reflects on the past, present and future in this exclusive conversation with the CemWeek Magazine.

CemWeek: You have had a long and Romcim, which included four cement successful career in the industry. Looking plants and a plaster plant. back on it, what are the events or decisions that stand out in your mind and why?

The third major decision was to leave Romcim Group after its privatization for Mihai Rohan. The first major decision in an independent consultant position and, 1989 was when, after 20 years of working subsequently, a manager position within in engineering, I accepted a management the Austrian company Lasselsberg that had position in the industrial holding company acquired the plant from Deva, in Romania. comprising all the Romanian cement plants This enabled me to run a wide process (former Centrala Cimentului). After the including technological modernizing, 1989 revolution, I succeeded in creating functional reorganization, efficiency, the first industrial holding under free gaining a new position and brand on the market conditions. That means market. that in 1990, only by reading the literature, I practically Last but not least, the fourth major decision created and organized was to accept the country manager position

in HeidelbergCement Romania and to coordinate the merger process of the three cement plants into one single organization – Carpatcement Holding.

CW: If you compare the cement industry at the beginning of your career to where it is now, what are the top things that have improved? What have we lost in modernizing throughout the years and should remember that was done better in the past?

MR: In 1989, the Romanian cement industry was one of the strongest in Eastern Europe, developing its own dry system production technology by means of its own Research-

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LEADERS COMMENT

Some time ago. Rohan addresses the media.

Design Institute (where I also worked for 20 years). Furthermore, the heavy machinery industry was able to manufacture the entire range of equipment specific to the cement industry (crushers, mills, clinker kilns with diameters up to 6 m and lengths of 100 m, filters and electrofilters, etc.). At that time, Romania was exporting not only cement (around 3.5 million tons/year), but also cement plants (to Yugoslavia, Korea, Vietnam, Syria, Egypt, China, Pakistan, Iraq, etc.). The industry had more than 100 years of experience in cement production, solid know-how, a renowned university and top-class specialists.

At the same time, however, the industry was characterized by simple automation and a lot of manual work; equipment was outdated and the technology far from appropriate to the industrial development period of the 1960s-1970s. This is the reason why the modernizing process focused on technological efficiency, replacing old and obsolete equipment with modern ones, replacing air-filtering systems with new

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Cement plants have been, in addition to an industrial landmark, a major employer and a social and cultural landmark ones, resetting the cement loading and dispatch systems, with a special focus on scaling and registration systems of what comes in and out of the plant, as well as measuring energy consumption. The SAP management system was introduced, along

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with a complete reorganization of the sales system and its adjustment to the market and to customers’ needs.

Last but not least, the managers at all levels were trained in order to change their mindset and management style according to the modern methods and market adjustment. The Romanian plants are now equipped at a similar level as in Germany, and Romanian management is equal to the developed countries.

CW: Will we see China at some point dominating the cement plant equipment business with much lower costs and improving product?

MR: Undoubtedly, the Chinese cement industry has developed significantly, ranking first in the world at the end of 2010 (CNBM – China National Building Material ranks first in the world with a production of 152.3 million tons, outrunning the major groups like Holcim, Lafarge, Heidelberg, Cemex).

In parallel, the Chinese have developed their

LEADERS COMMENT

More recent. Rohan speaks to the press. own equipment manufacturing industry, mostly under license, proving to be strong competitors on the market. If the equipment proves to be reliable in time, they will surely become a major supplier for European plants, as well as for the entire world. What they did well was to standardize the new plants, which leads to higher productivity.

I think they will easily gain access to the markets, provided they are able to keep control of the quality.

regarding the respect for the environment.

The industry practiced ‘Corporate Social Responsibility’ long before it had a name.

The Chinese have developed their own equipment manufacturing industry, mostly under license, proving to be strong competitors on the market

CW. If you could instantly change any CW. Do you think “alternative” or “green” aspect of your business, what would it be? cements pose a serious challenge to the existing clinker manufacturing base?

MR: In any management activity there is, of course, room for improvement. I think I MR: Of course, technology is permanently would improve the “change management,” evolving and that is absolutely natural. to enable it to operate more quickly.

There are “alternative” products, as well as “green cement” technologies which, for the CW: Is there any person in your career that moment, provide highly expensive solutions has been particularly pivotal in shaping compared to market purchasing power. I your decisions or professional trajectory? personally don’t think that classical cement will be replaced in construction over the MR: There are obviously mentors and next 50 years. role-models in everyone’s career. At the

CW: When and how did it become a necessity for the cement industry to emphasize Corporate Social Responsibility when other industries have not had the same emphasis? Has CSR in essence become a de facto tax for the cement industry?

CW: One role the CEO has is a “risk manager”. How have you approached risk?

MR: The cement industry used to be known as a visible polluter, particularly due to the MR: There is no risk-free business and, as dust emissions. The pollution issue has been such, risk must be known, assessed and researched for over 30 years and efficient controlled. The first thing I did was “risk methods have been found to mitigate it. assessment.” I took every specific activity The cement industry is largely connected (production, sales, purchasing, finances, with the local resources (limestone, clay) human resources, etc.) and, together with and, thus, with the local communities. Our my team, we tried to identify the specific and industry has always been involved in the life predictable risks, assess them and establish of the local communities where it recruited an “Action Plan” for each and every one. In its labor force, and has tried to understand this way, I allocated the control over a part and meet their needs. Cement plants have of the risk to each team member, who must been, in addition to an industrial landmark, monitor it, “sound the alarm” when the a major employer and a social and cultural slightest sign appears and take the measures landmark. The plants used to finance set out in the Action Plan. This Plan is meant kindergartens and schools, hospitals, sports to provide solutions that are to be adopted and cultural events, and were involved in various situations in order to mitigate or in education of the young generation cancel the effects of the particular crisis.

beginning, when I worked for the Cement Designing Institute, my mentor was a colleague who was ten years older and had broad practical experience (he had worked on construction sites, in plants, across the country and abroad), as well as rich life experience. He taught me how to do my job, but also how to have an orderly, honest lifestyle, be ready to help people and, particularly, how important it is to keep your word.

Later on, when I moved to Centrala Cimentului, my role-model was my boss, the General Manager at that time, a person of strong character, an excellent professional and manager. From him I learned the management style, as well as the need to be concerned with details, how to work with people, and how to deliver a speech. BMWeek

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AFRICA

COUNTRY SNAPSHOT

CW GROUP RESEARCH: .

Africa cement manufacturing capacity exceeds 200 million tons The CW Group recently released a research report – the Cement Facilities of Africa – the first comprehensive review of all types of cement plants on the African continent.

The analysis shows that the total nameplate cement capacity in Africa reached 207 million tons in 2010.

seen in West Africa, which have raised its share to almost 20 percent. New additions and expansion in 2011 will further change the regional mix in the next few years.

As the age and nature of the plant infrastructure varies significantly across Africa’s sub-regions, the average theoretical output capacity per cement production line also varies notably, ranging from 0.36 million tons per year per production line in Middle Africa to 1.10 million tons in West Africa.

Across the continent, there were over 190 qualified production units, about a quarter of which were grinding cement production units. The global cement majors, including Lafarge, Holcim, HeidelbergCement, and Italcementi, controlled about 45 percent of Lafarge has the largest number of operations the installed nameplate capacity. with presence in 14 countries and every North Africa remains dominant in terms region of Africa. Sixty percent, or about of production capacity, representing 55 25 million tons, of the company’s African percent of the total cement output potential. manufacturing capacity is located in Egypt, However, several new additions have been Algeria and Morocco. In contrast to Lafarge, 10

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Holcim and HeidelbergCement, Italcementi and recent regional major, Dangote maintain the majority of their operations in only one or two regions. BMWeek CemWeek CW Group BMWeek BMWeek

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This is the first single source research to detail all the integrated gray, integrated white, grinding stations and slag cement plants for all countries on the continent. It provides details on principal cement type produced, plant capacity, number of production lines, ownership structure, and affiliation with global groups.

The report and poster are available directly from CW Group, by contacting us at sales@cwgrp.com or by visiting our website at www.cwgrp.com/research

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We know the cement industry well. Let us guide you. For more information please contact us at inquiries@cwgrp.com or on +1-702-430-17 48 848 N. Rainbow Blvd., Box #1658, Las Vegas NV, 89107, USA

TOOLS

& ANALYSIS

Information Supports Decision-Making

Managers Make Decisions

As a management magazine for the cement industry, CemWeek not only looks at specific cement sector concerns, but also at issues facing top managers across all industries to help our readers consider issues in different and new lights. For example, the following discussion of the value - and limitations - of “management information.” he best managers in all industries – cement being no exception – know that their highest value to their organizations lies in making the tough decisions, and getting those decisions right more often than not.

These skilled managers rely on carefully structured systems to deliver as much accurate information as possible, but when the information does not point to a clear decision they must turn inward for the answers.

of the underlying information systems, is dependent on the experience and knowledge of senior staff. Major long term, high cost investment decisions, such as new cement plant construction or expansion programs, are always a risk and the best that can be demanded of formal information systems is that risk-taking is as informed as possible.

In effect this emphasizes the need for two main sources of management information.

One is focused on existing operations, cost flows, profits, variations in performance and so on. The other is based on interpreting the external environment in order to facilitate long term planning and anticipate major changes.

Some decisions are formal, often focused on internal operations. Some are structured analyses of market trends and competitor behavior. Others are more intuitive, based on information in the trade and business research, personal contacts and general Even when the focus is on internal operations, formal Management information sources.

Information Systems will only be delivering Major Decisions Always Involve Risk a portion of the information needed and In consequence, the process of integrating even at this there is the risk that critical these varied sources, no matter the quality information can be obscured.

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Is The Right Info Reaching The Top?

The information you receive should be professionally delivered, accurate and well aligned to the operational and strategic goals of the firm. However, at senior levels, management information is often presented in an aggregated form structured around a number of key metrics and performance indicators. This focus on adopted strategy and aggregation to ensure key information is clear can become a source of potential problems. In effect, how useful is your management information at picking up signals that a major change or new problem is emerging? The fact it is so well structured and so well focused may mean it misses key emerging problems, or fails to focus on outcomes rather than processes.

A contemporary problem from a different industry perhaps exemplifies this issue.

The recent BP oil well disaster in the northern Caribbean happened at an oil well which,

TOOLS & ANALYSIS

iNTERNAL FORMAL

STRENGthS

WEAKNESSES

EXTERNAL INFORMAL

WELL-ORDERED; STRUCTURED; FOCUSED; CONSISTENT

allows wider view; allows greater focus

aggregated; miss new trends; inflexible

prejudice; single view

according to subsequent investigation, was well known to be problematic. However, information on a problem that came close to bankrupting the firm and has done longterm damage to its corporate reputation was not effectively reaching senior management.

It was in effect, aggregated out of the figures being scrutinized, perhaps showing up as little more than a higher set of costs and a slower rate of exploitation.

Information on external trends and potential changes can also be usefully divided into two sub-categories. One part is the functional information needed when making major capital and investment decisions. Key in this is estimating future demand with a need to disentangle short-term increases in demand (say in connection with a major sporting event in a given country) from genuine fundamental changes driving sustained per capita materials usage. However, this is not all that is needed. There is a need to consider softer, more attitudinal information. Some can come from estimates of GDP but more fundamental is a judgment about stability and long term prospects.

FORMAL

inFORMAL

consistent; focused; relevant

qualitative; opinions; wide range

hard to gather; may focus on what can be measured not what should be measured

may be wrong; may reflect individual view; hard to evaluate

performance against that of competitors.

Finding comprehensive competitive and market data is a major difficulty, leading to a need to make assumptions and use the data that is available rather than the utopian data that ideally would be needed. Overall the cement industry is highly competitive, meaning that more frequently than not, basic data such as pricing, production volumes, and operational performance are guarded jealously.

Even more complex to gather and quantify is information on political trends, changes to government policies and emerging opportunities and problems. In part these may be captured as due diligence phase of investment decision-making, but for a capital intensive, relatively geographically immobile industry such as cement, long term trends and changes become very important.

with lasting implications for cement demand. A common refrain is that no one saw this coming. It’s worth asking if this assumption is true.

Practical Steps

Accepting all these weaknesses to any structured approach to management information, what, if any practical steps can be undertaken to reduce their impact?

One element is to acknowledge that formalized management information and planning systems are tools for solving relatively well-defined problems. In effect, where issues such as efficiency of production or matching capacity to expected demand need to be addressed they work very well.

Where they can fall short is in identifying unexpected or ill-structured problems and in situations where external factors are changing quickly. Equally they can be challenging when information is partial such as when benchmarking performance against competitors. When faced with a new situation, we all tend to look at new information in the light of our previous experiences and to fit that information into expected patterns.

We are all watching as North Africa and the Middle East go through a period of potentially profound change. At the moment, no one is sure how far-reaching this will be, nor whether political change will lead to changes in economic policy Accuracy And Completeness Must and attitude towards existing contracts.

Be Assessed A different use for formal external However, quite clearly, the potential exists Most of the time this is effective, however information is when trying to benchmark for major political and economic change sometimes it can lead to missing critical MARCH / APRIL 2011

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13

TOOLS & ANALYSIS

informal internal management information

structured internal management information

management making decision

informal external management information

structured external management information

new information. The solution is to combine structured information with all the other information sources available. This can range from personal knowledge gathered outside work (news, research, opinions, conversations) as well as opening up means by which alternative explanations can be raised and be heard.

There are several parts to this. One is ensure openness to new ideas and new concepts and not to close off different explanations that might indicate different reasons for an observed event. In this, the leadership style adopted by senior decision makers is important. When dealing with unstructured information, a degree of risk taking and some error is almost inevitable. This may lie in how people look to construct links between the emerging information and a possible solution or it may lie in testing out various solutions till one is found. A key constraint here, of course, is just how much risk-taking can be tolerated: sooner or later something will go wrong that will have serious consequences for the company’s performance, reputation or viability.

Some large companies have found that planning on a scenario basis with a question such as ‘what happens if environmental legislation increases the cost of concrete production by 20 percent at the same time as demand falls by 10 percent’ (or what happens if the government in a major market falls and the new regime refuses to honor existing contracts)? The idea is not that this needs to be particularly realistic, but that it is unusual enough to shake up existing methods of data gathering and interpretation. In turn this may ensure that a wider set of contextual information is drawn upon.

with an emphasis on ‘rational’ decision making there is a danger of overlooking the advantages of tacit knowledge and expertise.

We all gather information all the time from a wide range of sources and, especially in terms of understanding the external environment, this extra information can be critical.

Returning briefly to North Africa and the Middle East, the conventional wisdom from intelligence agencies and the business press is that the recent events were unexpected.

In truth, however, they were seeing the region through the prism of a concern with terrorism and an assumption the regional autocracies were stable. Other journalists were pointing to the problems of unemployment among a mostly young, often well-educated, population leading to demands that had nothing to do with the agendas of radical Islamists.

So when focusing on long-term demand estimation, it is necessary to use conventional macro-economic measures and known relationships between changes in GDP and likely demand for cement. It is also essential to focus on less tangible relationships. What else could affect that particular market and how? In addressing this, additional valuable In effect Management Information is an insights can be distilled. essential element for management decisionmaking. It will not, even at its best, ‘make’ A second partial solution is trust implicit the decision. The ability to interpret and judgments; “if something feels wrong it combine disparate information sources will Related to this is to consider how the probably often is wrong.” Taken to extremes, remain a major part of the skill set of senior company planning process is conducted. this can be a badly flawed approach, but decision makers. BMWeek CemWeek CW Group 14

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LEADERS

COMMENT

KHD Humboldt Wedag CEO Jouni Salo comments on new partnership and future prospects KHD and AVIC:

“The best of East and West” As CEO of KHD Humboldt Wedag, Jouni Salo played a pivotal role in one of the most significant corporate combinations seen in the cement industry in recent years. In this exclusive interview, Mr. Salo reveals his motivations in creating a partnership with China’s AVIC and, perhaps more importantly, his expectations for its effects and benefits in the years ahead.

What prompted KHD to seek an external Corporation of China, has aligned all their investment rather than try a ‘go-it-alone’ daughter companies with the AVIC name, approach? so the previous CATIC Beijing Co is now AVIC International Beijing Co Ltd., or KHD’s long time core competency has been AVIC for short. in process technology and environmentally friendly solutions with strong contract management, mainly with EP projects. We have been looking at several potential Organic growth of adding a construction partners for KHD over the past several division would have required KHD to years. Many but not all were Chinese acquire new talent and undergo time- companies. What interested us most consuming setup. We were looking for an about AVIC is that their corporate culture internationally established partner who includes strong export and international could complement KHD’s 150 years of business knowledge. Represented in over technology and bring a low cost sourcing 33 countries, AVIC brings a combination of model. The construction portion of any low cost sourcing and a strong background contract is the major cost of the project, so in cement plant construction. Being one it was natural for us to look for a low cost of the top 10 Chinese conglomerates, solution, and the natural place for us to look AVIC also opens up the Chinese market was China. to KHD, especially to our energy efficient and environmentally friendly products. The What was the rationale for deciding that combination of these facts made AVIC the CATIC was the right partner? perfect partner for KHD.

Per our agreement, AVIC will appoint 1/3 of the members of the KHD Supervisory Board. AVIC will also have one member on the KHD Management Board. This position is in charge of Global EPC projects in addition to Business Development in Asia Pacific. This assures that our EPC work receives the highest level of company focus. I am pleased to inform you that we appointed Mr. Yizhen “Mario” Zhu to this position on April 2nd, 2011.

What role in KHD will AVIC have going forward?

As noted above, AVIC is an active part of KHD and KHD with AVIC. The agreement provides that core KHD equipment will be used in all projects. With the investment in KHD, there is really no need for any technology transfer as we have defined scopes in the agreement. In addition to our commitment to EPC projects, we have established a joint procurement center in Let me say first that the name CATIC How is the partnership structured from a China for both our EPC and EP projects has been changed to AVIC. The mother governance perspective? worldwide. We have further plans to company AVIC – Aviation Industry invest together in design institutes and 16

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LEADERS COMMENT

MARCH / APRIL 2011

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17

LEADERS COMMENT

KHD-AVIC signing ceremony manufacturing centers and potentially other technologies. These investments will lead to joint development of technologies going forward.

As the world’s second largest cement market, do you think India will develop its own competitive cement plant equipment industry that can compete internationally?

We have heard from many cement companies that they value the European equipment quality, especially over the life cycle, vis-a-vis Asian low-cost manufacturers. How are you planning on keeping the “German quality” in the new configuration?

KHD is a very strong player in the Indian market. There are some Indian companies who we are already seeing in the marketplace outside of India. Our current agreement with AVIC does not include EPC in India.

This is exactly the basis of our agreement.

By combining the 150 years of proven KHD technology and “German quality” with AVIC’s low cost sourcing, we bring together the best of “East and West”. A main objective of KHD over the last several years has been to reduce costs while maintaining quality.

This partnership is just an extension of that focus.

What do you think the future looks like for European cement equipment manufacturing companies traditionally focusing on higher quality, but at a higher cost?

As mentioned before, we have been working hard on reducing costs but still maintaining quality. We are focused on what our customers want in terms of cost and quality and continually adjust our goals to meet those requirements. We have established an active Account Management program to make sure that we understand our customers’ focus and requirements. From this perspective, as long as we find new ways to reduce cost and maintain or even improve quality, we know that the European equipment manufacturers will continue to grow and prosper.

18

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We were looking for an internationally established partner who could complement KHD’s 150 years of technology and bring a low cost sourcing model

If you look five years into the future, what will the cement plant equipment industry segment look like?

We believe turnkey work will not be the rule all over the globe. Widely differing governmental laws and requirements will dictate many of the opportunities that can be done as true turnkey projects. Therefore there will still be an equal mix of EPC and That is not to say it couldn’t be included EP projects. Much of this will depend on the in the future if we saw the need. With that customers. said, we could see options with some of our Indian partners outside of India where it We have seen over the years the changes makes sense to KHD and AVIC. We have in requirements by customers which are seen new competition over the years from dictated by their risk/cost appetites and all areas of the globe. India will be no the state of the industry. With our AVIC different in the future. Fair competition is partnership we are well positioned to never a bad thing. It makes all of us better compete at any level with anyone from any country of the world. BMWeek CemWeek CW Group companies in the end.

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BRAZIL

COUNTRY SNAPSHOT

Mega-Events, A Surging Economy and Government Programs Add Up To Huge Growth In Brazil’s Cement Industry

The B in BRIC gets an A in growth But How Long Can the Beat Go On?

As economy and construction accelerate, the country’s cement industry is working at full steam to keep up the pace. But will all good things last and is Brazil really one market or several distinct ones? razil is the largest South American cement producer and the tenth largest producer worldwide. Not surprisingly, the cement industry in Brazil is on fire as the country’s cement companies rise to the challenge brought on by the 2014 World Cup and 2016 Olympic Games and react to the strong growth of the domestic economy and mega-government infrastructure programs. In 2009, the construction sector represented just over five percent of Brazil’s GDP, and estimates show an increase to ten percent for 2010.

Casa, Minha Vida (My House, My Life)” initiative attempts to fill the country’s 5.8 million housing unit deficit by building three million subsidized homes by 2014.

In addition, the PAC II initiative will pour R$959 billion into immediate infrastructure development and another R$632 billion beyond 2014.

These projects are in addition to construction and cement demand driven by the World Cup and Olympic Games buildups. A strong economy and rising wages have fueled private sector construction activities as well. All told, such projects contributed In recent years, the construction sector to an apparent cement demand of 60.2 has been the principal engine of Brazil’s million tons in 2010 and a five-year growth economy, fueled in part by government projection of 7.7 percent on average through programs. For example, the “Minha 2015.

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Coal Week Coal Week

That’s some demand you got there Cement demand in mm tons

100 80 60 40 20 0 2006

2010E

2015E

COUNTRY SNAPSHOT: BRAZIL The big leap

Cement manufacturing capacity in mm tons 120

60

0 2008

2009-2010 2011-2015

While demand has risen over 16 percent in the last two years, pricing has remained fairly stable between R$360 and R$385 per ton. However, prices vary greatly by region due to transportation costs and even the need to import in areas of low production capacity relative to demand. For example, the inland market of Rondôna reached R$530/ton last year.

Seventy percent of cement sales in Brazil are bagged and 30 percent in bulk, with distribution almost exclusively by road transport. The distribution radius varies from 300 km in some southern markets to nearly 1000 km in the North, a factor greatly influencing regional pricing.

The construction sector has been the principal engine of Brazil’s economy Important Regional Variations

Brazil is a large country with widely differing regional sub-markets, most notably the Southeast and Northeast, which have 32 and 17 cement factories respectively. Regional demand is dominated by the Southeast, where urban development

and infrastructure have exploded. Indeed, southeastern Brazil, which includes Rio de Janeiro, Sao Paulo and Minas Gerais, is the country’s economic engine and has led the construction industry for nearly a decade, representing over 50 percent of construction GDP. Largely due to a thriving housing sector, cement needs in the Southeast accounted for 47 percent of national consumption in 2009 at more than 24 million tons.

grown 44.4 percent in the last half-decade— but new capacity will drop utilization rates from 98 to 86 percent.

Although the cement sector surged 15 percent in 2010, the story of Brazil’s cement market is not just its current strength but its future importance, both domestic and global. It would be foolish to discount Brazil after the Olympic torch is extinguished. In Brazil, cement demand is being driven by population growth and economic activity, At present, 14 groups operate 73 cement which point to a sustainable growth plants throughout Brazil. The country’s trajectory. three largest players—Votorantim, Nassau and Camargo Correa—control 62 While current growth levels cannot percent of capacity. The country’s largest be indefinitely sustained, cement will producer, Votorantim, represents 41 continue to rise an average seven to percent of national cement production eight percent annually through 2015. As alone. Cimentos Nassau, owned by the mega-projects complete around 2014 or Joao Santos family and around which there 2015, forecasts must necessarily dim, but have been constant interest in buying out, Brazil’s infrastructure remains relatively operates ten plants, mostly in the northeast. underdeveloped, and investment in dams, Brazilian construction giant Camargo highways and ports can spur cement Correa operates eight. In addition to these consumption well beyond the World Cup large producers, new independent players and Olympic Games. Indeed, with 40 are emerging, including Supremo Cimento, million tons of new capacity announced Apodi and also steel-giant CSN. for the next five to six years, the Brazilian cement market is poised to ride this wave into the next decade. BMWeek CemWeek CW Group Intensifying Competition CemWeek CW Group BMWeek Competition in Brazil’s cement market will CemWeek BMWeek CW Group only intensify in the coming years as current lead players expand capacity and new More information about this and other entrants bring an additional 15 million tons CW Group research reports on cement to the table. In total, production capacity is markets can be found at www.cwgrp. set to grow from 67 to 102 million tons by com/research, or by contacting the CW 2015 due to this combination of expansion Group at inquiries@cwgrp.com. projects and new factories. As domestic demand rises, there has been little room in the market for exports—rather, imports have Dividing the spoils

Share of 2010 manufacturing capacity

42% Votorantim 39% Others 10% Cimento Nassau 9%

Camargo Correa Cimento

MARCH / APRIL 2011

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21

MONGOLIA

COUNTRY SNAPSHOT

The Mongolian Cement Industry:

Seeking A Path To Growth Despite Multiple Challenges The Mongolian cement market is still at a nascent stage. Compared to China, its development is about twenty years behind.

Cement production started in Mongolia with the Dharkan Cement plant in 1968.

Today, there are two major cement factories in Mongolia: a state owned company called Hutuul Cement and the Dharkan Cement plant. The Dharkan plant was initially owned by the state, but later on privatized. It is now owned by the Erel Cement Company.

Central Asian Cement started operating a grinding plant in 2004 and has aspirations to eventually add a clinker line.

The Dharkan plant was constructed under Czechoslovakian technical guidance. The Hutuul Cement plant was constructed with financial and technical assistance from the former Soviet Union. Both factories still use outdated wet process technology and cannot operate during the winter season.

State owned Hutuul Cement is planning to open another plant with Russian assistance in the near future. The Mongolian authorities are also considering privatization of Hutuul Cement – a plan that was to be addressed in the General Budget Prognosis of 2010. This may improve the much needed funding for upgrading technology in the plant.

In 2009, Yalguun International, a mineral processing company, signed a financing agreement with the US Trade and Development Agency (USTDA) for a feasibility study for a cement plant project 22

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Macro Overview 2008

2009

population (million)

2.63

2.67E

cement consumption

360kg

390kg

demand from Russia’s southern Siberian region is also significant for the country at 25 percent to 30 percent of domestic demand. Demand is expected to almost double by 2016.

in Mongolia. The US$500,000 study to be conducted by FLSmidth focused on the Mongolia is faced with unpredictable company’s limestone deposit located in production capacity and structural challenges. Traditionally, China has been Urgun soum in the Dornogobi province. the major supplier for Mongolia, and in 2008 With a population of 2.63 million, the Mongolia officially imported 643,000 tons country’s total consumption of cement is of cement, or 68 percent of total demand. about one million tons, up about 10 percent in 2008 and 40 percent since 2006, following Over the last three years the Chinese Yuan has appreciated against the dollar-linked a demand crash in the 1980s. togrog. Consequently, it has become DEMAND EXPECTED TO DOUBLE BY increasingly expensive to import cement from China. Also, in order to reduce 2016 pollution, China has been consolidating and a number of factories have been shut down Since 2001 consumption has been increasing which further reduced exports to Mongolia. and the country’s production capacity has Severe delays due to logistical issues at not able to meet the demand. Consumption the border with China affect product is expected to increase further with the transshipment. construction of gold mills, uranium mills and mining projects scheduled to come Furthermore, the cement factories have on-line in the next few years. Furthermore, to-date had to be shut down during the extremely harsh winter months in Mongolia cement companies and plants in mongolia and effectively operate only for five months.

As a result, actual cement production is MANUFACTURER PLANT DETAILS estimated at less than 35 percent of capacity.

Hutul Cement Hutuul Plant

CW Group CemWeek BMWeek CemWeek CW Group BMWeek BMWeek CW Group MARCHCemWeek / APRIL 2011

Erel Cement

Dharkan Cement Plant

Central Asian Cement

Grinding Unit

Industrial Corporation Mongolia

Dundgobi Province Plant

Live Energy Group

Mizu Cement Plant

Yalguun International

Urgun Soum of Dornogobi Province

Coal Week Coal Week Coal Week

Fueled by a booming mining sector and economic growth, the Mongolian cement industry is expected to witness an increase in infrastructure spend. As a result, the demand for cement is expected to see strong growth, albeit still at relatively limited volumes in absolute terms. BMWeek CemWeek BMWeek BMWeek

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| CemWeek 2010 Middle East & Africa Cement Sector Survey

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FEATURE FEATURE

Despite Ongoing Challenges, Continued Growth is Seen for

West Africa’s Cement Industry For an on-the-ground view of the current status and future prospects of the cement industry in West Africa, CemWeek turned to Finn Arnoldsen, who has been involved with the cement sector – as operator and investor - in Nigeria and West Africa more broadly, for over two decades

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FEATURE ement consumption in West Africa in 2010 was 33 million tons, representing 20 percent of the total consumption on the continent. Nigeria was by far the biggest market along the coast with 17 million tons in 2010.

Below is a chart showing the present and expected future production capacities of the main cement suppliers in West Africa. The 2015-capacities are based on known new projects, which may not all be completed as planned.

roughly 50 percent of the consumption (16 million tons). Despite quite aggressive plans for capacity expansions–in Nigeria in particular where Dangote will have 18-20 million tons capacity by 2012–West Africa as a whole will still remain a net importer of clinker. Cement is mainly imported into Nigeria. This volume will decline as new The West African cement markets vary integrated capacity is commissioned and significantly from country to country: built.

■■ Consumption per capita varies from 200 kg per person in Senegal to 20 kg per person in Niger due to national economies and purchasing power.

■■ Limestone deposits are generally not available along the coast from Guinea to Ghana.

■■ Only Senegal and Togo have clinker surplus for export.

The economies in the West African countries are based on a mix of agriculture and mineral extraction. The main drivers in the regions are Nigeria, Ghana and Senegal.

Over the last 7 years the average GDP growth has been close to 6 percent.

“We expect positive development to continue, to a large degree based on new discoveries of oil along the coast (Ghana, Nigeria, and Ivory Coast) and also development of solid mineral deposits (e.g. uranium and coal) in the land-locked countries.”

Due to lack of limestone in many West African countries, the region is a net importer of cement and clinker, representing

As noted above, Dangote is preparing a massive expansion in Nigeria: 13 million tons additional integrated production capacity over the next few years. In addition, West African cement consumption has been the company is in the process of investing growing quite steadily over the last decade in a new plant in Senegal. Lafarge is also and we expect the trend to continue. The expanding in Nigeria. growth rate will probably be higher in the oil economies like Ghana and Nigeria than The WACEM-Group is expanding its clinker capacity by investments in integrated in the smaller and land-locked countries. plants in Mali and northern Ghana, Niger In the future, when the new Wacem plant (together with us) and in addition, new in Mali is commissioned, it is assumed that grinding capacity in Togo. the volumes will decrease, particularly from Senegal and Ivory Coast. continued on next page Rising to the challenge Average annual GDP growth in percent 10 8 6 4 2 0

3.8%

01

2.7%

02

8.4%

03

5.6%

04

4.9%

05

5.7%

06

5.3%

07

5.0%

08

1.1%

09

MARCH / APRIL 2011

3.0%

5.0%

10e

11e

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25

FEATURE

2,2%

375,060

393,813

GDP per Capita (USD)

2,347

2,416

2,482

CEMENT MARKET Cement Cons. (1,000 t)

14,800

16,000

17,000

Cement Cons./Capita (kg)

97

103

107

Cement Price (USD/T)

Compared to other West African countries, Nigeria has a well developed and regulated stock exchange, which facilitates private investments and channeling of funds. The country also has a dynamic banking sector to support investment projects. Nigeria also has larger industrial groups with greater economic power than other countries in the region.

200

CEMENT PRODUCERS/CAPACITY Dangote - Integrated

7,100

7,100

7,100

Dangote - Import Term

4,000

4,000

4,000

Lafarge - Integrated

3,500

3,700

3,700

Lafarge - Import Term

700

700

700

CCNN

550

550

550

New infrastructure, particularly electrical generation and distribution, is required to Flour Mills - Import Term 1,600 1,600 1,600 promote further economic development.

Others - Import Term 1,500 1,500 1,500 Lack of power capacity forces many new How is Nigeria, especially northern industrial facilities to provide their own Nigeria, different from other countries in electricity, driving up capital and operating the region? costs.

Unicem

1,200

2,500

Nigeria is Africa’s most populous country. A new constitution was adopted in 1999, and a peaceful transition to civilian government was completed. The country is currently experiencing its longest period of civilian rule since independence.

Another limiting factor is port congestions in Lagos and Port Harcourt, which are both fully developed and have limited expansion possibilities.

Northern Nigeria is a pure agricultural area with few valuable natural resources (compared to the south). Consequently, there is very limited industrial activity and the area is fully dependent on financial support from federal & state governments to pursue sound economic development.

Nigeria is one of the world’s largest producers of oil, mainly from offshore wells in the southeast of the country. However, it is over-dependent on the oil sector, which provides 95 percent of foreign exchange earnings and about 80 percent of budgetary revenues. Attempts at diversifying the One large and many smaller Cement demand by country in million tons 15

35 30 25 20 15 10 5 0

2010

2,0%

357,200

2009

2,1%

GDP (USD bill.)

2008

Annual Growth

Steady as she grows Regional demand in million tons

2007

158,7

2006

155,2

2005

152,2

2004

Population (Mill.)

economy have to a large degree failed and the potential for agricultural and industrial development remains under-utilized.

However, the government is implementing policies to attract foreign investors with emphasis on local manufacturing to replace the import of commodities, as for instance cement.

2003

2011

2002

2010

2001

2009

2000

COUNTRY DATA

Logistical challenges include huge transport distances for any material needed The demand for cement has increased by an average of 10 percent in recent years (22 percent in 2008), but still the consumption per capita is below most other West African countries. With Nigeria’s oil-driven economy and potential development in the industrial and agricultural sectors, it is expected that the growth will continue at the 10 percentlevel. The domestic integrated capacity is rapidly expanding and the authorities have stated that import of cement will be banned when local capacity grows to satisfy market demand.

CCNN has an interesting corporate history. Tell us about how the company came to be what it is today and linkages to Niger and other markets.

12 9 6 3

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Ve rd e

ne

e Ca p

Si Coal Week Coal Week Coal Week

Le o

o To g

ea

in

Gu

er ra

ia rit an

au

Fa so

CW Group CemWeek BMWeek CemWeek CW Group BMWeek BMWeek CW Group MARCHCemWeek / APRIL 2011

M

in a

ni n

i

al

M

Bu rk

m

Ca

Be

n

oo er

st Co a

al

Ivo

ry

ne g

na

a Gh

Se

N

ig

er

ia

0

CCNN was incorporated in 1962 and a production line with 100,000 tons capacity was commissioned in 1967. With the assistance of Cementa AB/Orenstein & Koppel, production line 2 with a capacity of 500,000 tons was erected in 1985.

The company was listed on the Nigerian

FEATURE Lay of the land Regional demand and trade flows (’000 tons) SENEGAL: 2400’

MAURITANIA

MALI

SENEGAL

30’

BF: 900’

600’

THE GAMBIA GUINEA-BISSAU

NIGER

MALI: 1000’

200’

BURKINA FASO

150’

GUINEA

SIERRA LEONE

LIBERIA

220’ 200’

BENIN

IC: 1500’

GHANA: 3400’

COTE D’IVOIRE

GHANA

TOGO

BENIN: 1350’

NIGERIA

170’

TOGO: 700’

CAMEROON

INTEGRATED PLANT GRINDER

EQUATORIAL GUINEA

TERMINAL MAIN FLOW (1000 TPY) GABON

Stock Exchange in 1993; fully privatized in will continue exporting cement and clinker, 2000 with HeidelbergCement as the core provided there is surplus capacity in the investor. HeidelbergCement embarked on domestic market. a comprehensive rehabilitation program with the goal of achieving the nominal capacity of the plant. However, in 2008, HeidelbergCement decided to divest their Nigeria & Niger portfolio, including CCNN and a local investor; Damnaz Cement Company Ltd acquired their shares in the operations. Damnaz required expertise to operate their assets and engaged the individuals behind Africa Consulting Services (ACS) through a management contract.

Damnaz Cement Company Ltd divested their shares in the Niger operation (SNC) in 2010; and West African Cement, Togo (WACEM) together with us, acquired the shares.

BUA International (a large Nigerian conglomerate) acquired Damnaz Cement Company Ltd in 2010, and has also communicated future expansion plans both at CCNN and Edo Cement (in the south).

We expect positive development to continue

Large amounts of new capacity are coming online in West Africa. Are the fundamentals in place to sustain the output growth?

As we observed earlier in the article, a lot of new capacity will be commissioned CCNN, located close to the Niger border, in the next couple of years; particularly

integrated capacity in Nigeria and Senegal.

In addition, significant new grinding capacity will be erected in Ghana. Both Wacem & Ghacem have communicated plans to erect new grinding installations in the country. Together with Wacem, we are preparing for capacity increase in Niger as well as a grinding plant in Takoradi, Ghana.

The West Africa market is around 33 million tons, and with a minimum 3 million tons annual increase in the years to come, there’s no reason for concern about longterm surplus capacity in the region. Due to significant logistic challenges (ports, roads, etc.), the new capacities are not a major threat across the region as supplies are not readily or economically transportable.

In our opinion, the basic fundamentals are in place in most of the countries to sustain significant growth: new oil discovery in Nigeria, Ghana & Ivory coast as well as high mineral prices. Export of gold, iron ore, bauxite, phosphate and manganese will also contribute significantly. Nigeria, representing 50 percent of the population as well as 50 percent of the cement consumption, will certainly be the main growth driver in the region. continued on next page CW Group CemWeek BMWeek MARCH / APRIL 2011

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27

FEATURE

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FEATURE Nigeria has historically struggled with adequate fuel supplies. What have these issues meant to you and do they persist?

What will be the “next big issue” the industry will face in Nigeria?

CCNN, as along with many other industrial activities in Nigeria, is facing erratic supply of heavy fuel oil (LPFO).

Our main challenge to obtain sustainable production is actually the consistency in the fuel supply. The refineries in Kaduna, Warri & Port Harcourt are in general in bad condition and are frequently closing down for maintenance. The alterative is import through Lagos that certainly creates unpredictably high cost as well as massive logistical challenges. We have embarked on an alternative fuel project with the objective of utilizing coal or petroleum coke within the next two years. This will be a combination of import and supply of local coal.

the fuel is also sourced either from the refineries far away or through import and requires a proper logistic system in place.

We have established a highly professional purchasing section with skilled individuals to cope with the logistical challenges

the market and pursues a pretty advanced market strategy with customer focus as the main element.

Can West Africa afford to adhere to global sustainable manufacturing and alternative fuel standards?

What challenges are the current market conditions presenting your company and West Africa, as other developing regions, will gradually have to adhere to internationally your clients? agreed standards. However, there will Our main challenge in operating a relatively probably be some special concessions for limited size activity in northern Nigeria is regions like ours. We also believe that there clearly competition from the large cement is likely to be a certain measure of protection groups (Dangote & Lafarge) with state of the for the industry in developing countries art equipment and lower production cost. in order to make it possible to build up an All the operators in the south are utilizing industrial base. One important aspect is gas as the energy source and consequently that the implementation should not distort will have a competitive edge compared the competitiveness from one country to to operations as CCNN. Our advantage is another. the distance to competitors and a relatively fast growing home market. In addition, On the other hand, most of the integrated the company has an established brand in cement plants in the region are controlled by global operators or large independent groups who already have policies of Nigeria will face increasing competition adhering to the global manufacturing among local producers. Competitiveness standards (emissions, safety, etc.) will be the main issue, including relative advantages on logistics, particularly distance What are your corporate plans for the to markets and alternative suppliers. next few years and what do you hope to achieve?

Operating a plant in your location must have its logistical challenges and special The corporate plans in the years to come considerations – what are they and how are to complete the investment projects in have you overcome them?

Niger and Ghana as well as pursuing other investment opportunities in the region. We Logistical challenges include huge transport will not limit our focus to West Africa, but distances for any material needed (apart also assess opportunities in other regions from limestone): it’s 1400 km from ports where we see prospective growth potentials. where we receive the imported goods such as We will continue to offer both management equipment and spare parts. As mentioned, services as well as consultancy services to any cement company in Africa. With Boosting capacity our decades of experience in the cement Capacity additions (‘000 tons) industry in Sub Sahara Africa, we feel 2010 2015 that we could contribute and add value to PRODUCER CLINKER CEMENT CLINKER CEMENT existing companies as well as assist new Dangote - Cement Production 6,000 7,100 18,000 21,800 entities to enter a relatively complex market.

Our main challenge to obtain sustainable production is actually the consistency in the fuel supply

Dangote - Terminals

Lafarge - Cement Production

5,000

3,650

Lafarge Terminals (Nigeria) WACEM/Diamond Cement

6,050

1,000

4,950

8,150

3,100

3,550

6,200

3,840

1,000

5,290

1,000 1,800

HeidelbergCement Africa - Cement Production Sococim - Cement Production

2,500

3,000

2,500

3,000

Ciments de Sahel - Cement Production

1,000

1,300

1,600

1,800

Amida (Excl. SCO) - Cement Production

1,475

1,475

Holcim - Cement Production

1,400

1,400

The interview was performed with Finn Arnoldsen of Africa Consulting Services, Norway. You can reach them by telephone at +4791370595, or +4791832739, or their website at www.africonserv.com

MARCH / APRIL 2011

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FOCUS

Democratic Republic of the Congo

Democratic Republic of the Congo Struggles to Balance Prices and Production Unloading of bagged cement Cement prices in the Democratic Republic of the Congo (DRC) continue to fluctuate wildly, despite government efforts to control them. Nearing the end of the first quarter of 2011, prices had climbed to US$55 for a 50 kg bag of grey cement. The last time prices had hit the $50 threshold was at the end of 2008. Considering the government had capped prices in August 2010, the question is, what’s happening?

Like much of the country, the cement industry has struggled to rebuild after decades of war. Cement manufacturers have not been able to produce enough cement to meet the demand imposed by the push to rebuild the country’s largely destroyed infrastructure. Factories that survived the conflict have dealt with repeated interruptions in production. Reasons for the drop in production levels vary, ranging from repeated equipment failures like those experienced by Cimenterie de Lukala (CILU), to inadequate cash flow as seen at the state-owned Cimenterie Nationale (CINAT). Outdated equipment with limited capacity, rising raw material costs brought on by the deterioration of the Congonese franc against foreign currencies, transportation issues, and ongoing security concerns have threatened production levels.

The government finds itself once again at a crossroads, torn between importing even more to meet demand, and protecting and fostering its local industry

them, in large part by opening the market to imports. With only two DRC factories producing by the end of 2008, the need to import was great. Imports from China, Turkey, Spain, Egypt, and South Africa began arriving and by April of 2009, prices had stabilized at US$13. However, as the country’s other facilities began to produce After prices hit US$50 in December 2008, once again, the government took steps to the government took steps to stabilize promote local production by setting price 30

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caps. It set local cement prices at $14 a bag, and capped imported cement prices at $16.50 by late 2009. The government even went so far as to threaten heavy fines and the revocation of import licenses for those who failed to comply.

Yet once again, prices began to creep up. By June 2010, cement prices had increased 8.5 percent in just two weeks, climbing from US$13.20 to $14.30. Calls for the government to step in and stabilize prices before things got out of hand grew more urgent. The government once again intervened, capping prices at around $6.50 a bag in August 2010.

However, price speculation brought on by the country’s thriving black market drove trading prices to as high as $11.

The stronger level of black market activities appears to have also created shortages in local markets. Reports of traders hoarding cement to artificially inflate prices have surfaced, and despite repeated government warnings to traders about violating price ceilings, prices continued to escalate. By March 2011, they had reached US$55.

The government finds itself once again at a crossroads, torn between importing even more to meet demand, and protecting and fostering its local industry. The recent sale of interests in CILU and Interlacs to HeidelbergCement, and the government’s pending sale of CINAT to Lafarge seem to suggest a stronger focus on developing local production capacity. However, this will take time, and will likely require that the government take stronger, immediate steps that go beyond just capping prices. That particular strategy appears to have little impact when pitted against a thriving black market. BMWeek CemWeek CW Group Coal Week BMWeek BMWeek

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FEATURE

Russian Cement Industry Outlook: New and modernized capacity; higher costs Spanning eleven time zones with dozens of languages and cultures, Russia exerts tremendous influence on every aspect of life in Europe and Asia. The country’s cement industry is no exception, as Moscow-based consulting firm CMPRO explains.

The Russian cement market is going through a stage of fierce competition among producers, similar to what it faced between 1991 and 2005. The period from early 2005 to early 2008 can be characterized as the period of “managed cement deficit” and, in fact, were the best years for cement producers in the history of modern Russia.

The current stage started in mid-2008 after the decline in cement consumption caused by global financial crisis.

Due to the distinct seasonality of construction activity in Russia, the near future short-term local cement shortages will likely appear and lead to annual 32

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speculative price surges. However cement producers will be forced to share their margins with the owners of rail carriages since the shortage of carriages is an important aspect influencing final cement prices. Transportation by rail accounts for 65 percent of all cement shipments and the average shipment distance exceeds 700 km.

Today there are 49 cement plants in Russia, 45 of which have full-cycle production

process and three are grinding mills. Total capacity of these plants as of January 1, 2010 was 77.5 million tons. Output volume reached 50.4 million tons in 2010, which is 13.8 percent more than in 2009. The average price for one ton of cement was US$71 in 2010 and average operating margin in the industry was 10 percent. The three largest players account for 54 percent of the market.

Table 1. Average operating margins of cement plants in Russia

Years

2003

2004

2005

2006

2007

2008

2009E

2010E

Operating margin, %

12

14

11

44

82

61

28

10

* Estimate

CW Group CemWeek BMWeek CemWeek CW Group BMWeek BMWeek CW Group MARCHCemWeek / APRIL 2011

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FEATURE

Map Symbols Moscow Operating Cement Plants Operating Grinding Mills

The Government

assets in the cement industry. Currently inevitable, creating conditions favorable to a large government company is shaping a modernization of the industry and shifting to energy efficient technologies.

The Russian government has been heavily cement monopoly in Siberia. involved in the sector and supported the creation of the company which controls Additionally, the government is shaping On the other hand, infrastructure costs over 50 percent of the cement market in the industry through annual double digit for Greenfield projects can reach up to 30 the European part of Russia and about 40 price growth for gas, electricity and railway percent of the total project costs. Since there percent of the whole Russian market. The transportation. This trend will continue are no preferences, deferred payments or skyrocketing price for cement in 2005-2008 in the near future. Therefore, annual other government supportive measures is a direct consequence of consolidation of growth in cement cost by 10-15 percent is in Russia payback period of new cement MARCH / APRIL 2011

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33

FEATURE plants is more than ten years. With the cost technologies accounted for 81.2 percent, However the situation has now changed. of debt in Russia exceeding 10 percent, 16.5 percent and 2.3 percent of total cement Today, clinker and cement can be exported modernization is not that evident. capacities in Russia, respectively. at favorable prices to countries, such as Ukraine, where the price of gas for Infrastructure projects where Government Nonetheless, today Russia’s cement industry production is much higher than in Russia. acts as key investor coupled with government is going through a renaissance period. For support of housing construction form the the past two years six manufacturing lines Corporate management basis for shaping of demand for cement in with total capacities of 7.1 million tons have Russia. Construction of facilities for the been put into operation. By 2015 we expect High quality of corporate management Olympic Games in 2014, APEC Summit about ten more lines with total capacity of is maintained at Novoroscement, in 2012 and FIFA World Cup in 2018 up to 15 million tons of cement to be put Mordovcement, Sebryakovcement and contributes to the increase of cement into operation.

Sukholozhskcement. Top management consumption in the short term. of these companies is known for the In 2007, cement shortages developed in flexible reaction to changes on the market several local areas which allowed leading and permanent work on technological Technological inefficiency companies to increase prices dramatically improvement and modernization of their Comparatively low cost of energy sources (by 2 times and more). Average annual plants. Thanks to efficient management, and sharp decline in cement demand over cement price in 2007 was US$93.9 per ton. these plants maintain a significant and the past decade of the 20th century are the Many neighboring countries took advantage nearly constant share of the Russian cement main reasons for technological inefficiency of this situation by offering comparatively market. cheap cement (US$70-80 per ton on CIF of Russian cement plants. terms). Today some cement plants are planning to modernize by shifting from wet Table 2. Operating cement plants in Russia process technology to dry.

Construction period, years

Capacities put into operation, m tons

Before 1960

27

1960-1965

18

1966-1970

15

Annual growth in cement cost by 10-15% is inevitable

Import and export

Currently, there are 5 percent import and 0 percent export duties for cement in Russia.

1971-1975 15 The amount of imported cement depends 1976-1980 9 directly on the pricing policy of Russian 1981-1985 4 cement producers. The dramatic increase of cement imports in 2008 was the result of 1986-1990 5 a domestic price surge caused by Russian Noteworthy is also the Eurocement Group, 1991-2007* 2 producers. The largest importers of cement whose founder managed to consolidate a 2008-2010 9 to the Russian market are Turkey and China. significant part of cement assets in Russia, * in 1990-2007 about 17mm tons of obsolete and physiUkraine and Uzbekistan in a short time, cally worn cement capacities were taken out of service.

In the future we expect a gradual increase turning Eurocement Group into the largest in imports is expected caused by increasing cement company in Russia and Eastern Out of all of Russia’s production lines, 75 domestic cement prices resulting Europe. lines with the total capacity of 26.7 million from installation of energy inefficient tons have been in operation for at least 50 technologies.

Consolidation years and 95 manufacturing lines with total capacity of 65.8 million tons have been in Until recently export of cement was caused Major consolidation activity was finished operation for 30-50 years. As of January by shortages in some neighboring countries, by 2007. Today in Russia there are some 1, 2011 wet, dry and semidry process primarily Kazakhstan and Azerbaidjan.

Table 3. Export and import of cement and clinker in 2003-2010 Parameters

2003

2004

2005

2006

2007

2008

2009

2010 (Jan - Nov)

Export of cement and clinker, ‘000 tons, incl.:

2,051

2,291

3,050

3,207

1,869

803

3,004

4,418

Cement

1,680

1,696

2,305

2,787

1,658

771

1,542

1,397

Clinker

371

595

745

420

211

32

1,462

3,021

132

191

367

671

2,445

8,070

1,452

1,331

Cement

83

126

195

556

2,212

7,331

1,123

1,084

Clinker

49

65

172

115

233

739

329

247

Import of cement and clinker, ‘000 tons, incl.:

34

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FEATURE

Graph 1. Import of cement, import and domestic cement price in 2007-2009

1500

160 1200

140

80

K tons

900 100

‘000 tons

120

600 60 40

300

international companies such as Lafarge, Holcim, Buzzi and HeidelbergCement.

These companies do not have significant influence on the market – their total capacities are about 14.9 million tons, which accounts for 19.2 percent of the Russian cement capacities.

successful in overcoming consequences of the crisis. New players are emerging in the market and constructing new cement plants. Equipment for new manufacturing lines is generally supplied from abroad and many new plants are backed by Chinese, Turkish and Russian companies.

We think that The future asset flow will depend on the market situation. With the demand stabilization and growth rates not exceeding 5-7 percent per year, the largest players, especially those located in Siberia, may face difficulties. In any case, Eurocement Group represents the most attractive asset in Russia’s cement industry since the company controls the market of the European part of Russia, where about 80 percent of the cement is sold.

Currently investments are being actively made in Greenfield cement projects, as well as necessary reconstruction and modernization of existing plants, in Russia.

To this end, the international experience in reconstruction and modernization of wet process cement plants will be very useful in Russia.

The cement product mix will significantly change during this decade. Amount of additives used will be much higher with the share of clinker steadily going down.

Industry outlook After 2015 alternative fuels are expected to Generally, cement companies are fairly become more popular, while the number

DEC 2009

NOV 2009

SEP 2009

OCT 2009

JUL 2009

AUG 2009

JUN 2009

APR 2009

MAY 2009

FEB 2009

MAR 2009

JAN 2009

DEC 2008

NOV 2008

SEP 2008

OCT 2008

JUL 2008

AUG 2008

JUN 2008

APR 2008

MAY 2008

FEB 2008

MAR 2008

JAN 2008

DEC 2007

OCT 2007

NOV 2007

SEP 2007

JUL 2007

AUG 2007

JUN 2007

MAY 2007

APR 2007

FEB 2007

0

MAR 2007

20

JAN 2007

USD.per ton (w/o VAT and transportation)

180

0

of plants using coal or mixed fuel may go up. Technologies allowing use of additives, industrial wastes and alternative fuels in cement production will become popular on the market. BMWeek CemWeek CW Group Coal Week BMWeek BMWeek

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About the authors

Coal Week Coal Week

The authors are associates of CMPRO, a Moscow-based company specializing in investments in Russian and CIS construction materials industry.

The company has experience in the management of industrial groups, individual companies and projects. Its partners are expert in various areas, including production and technologies, marketing and sales, corporate finance, and M&A.

Table 4. Top 10 Russian cement companies (ranking parameter – cement capacities) Breakdown of capacities’ age Group

Capacities, mm tons

Output in 2010, mm tons

Utilization rate, %

more than 50 years

50-30 years

30-20 years

less than 20 years

Eurocement

25.7

19.4

75%

21%

65%

14%

-

Sibirskiy cement

5.4

3.2

60%

11%

76%

-

13%

Mordovcement

4.5

3.8

84%

25%

55%

-

20%

Holcim

4.4

2.1

47%

30%

70%

-

-

Lafarge

4.2

2.4

57%

67%

33%

-

-

Novoroscement

4.1

4.0

98%

39%

29%

32%

-

Vostokcement

3.9

1.5

38%

41%

59%

-

-

Buzzi

3.8

1.9

50%

-

66%

-

34%

Sebryakovcement

3.6

3.3

94%

43%

43%

-

14%

RATM

3.0

2.0

67%

21%

65%

14%

-

MARCH / APRIL 2011

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35

REGIONAL REPORT:

NORTH AMERICA The U.S. and Canadian cement markets slowly continued to recover. A depressed housing market, slow growth in employment, and fewer construction projects contributed to lower cement consumption levels. While the industry was optimistic that recovery would gain momentum in 2011 and 2012, many manufacturers remained focused on improving cash flow and margins.

SRMG looked to cut costs by requesting a $60 million tax reduction for its Clarksdale Arizona plant, while Lafarge moved forward with measures to reduce fuel costs, such as instituting a program to burn waste fuel at its Oklahoma plant. Global manufacturer Holcim took more drastic action by shuttering its Catskills, New York plant.

Despite first quarter losses, Texas Instrument (TXI) moved forward with plans to acquire a ready mix operator, and is proceeding with operations in Mexico by investing $400 motivated. The district attorney alleges the expansion of the Hunter Cement plant. million, despite indications demand had Medina’s pursuit of its contract to acquire a dropped 10 percent. portion of Francesa is “damaging the state,” a move that would allow the state to avoid MAJOR MOVES BY MEXICAN COMPANIES Corporacion Moctezuma also remained compensating the owner of the cement Mexican-based Grupo Cementos de optimistic about the recovery of the company for the nationalized operation.

Chihuahua (GCC) began ramping up Mexican cement market. The company’s production at its US facilities, as the new Veracruz cement unit, which launched CENTRAL AMERICA company anticipated higher demand. The in November 2010, is expected to increase plants, with a combined capacity of 2.5 total production to 6.4 million tons.

The Panamanian government signaled its million tons, had seen production levels drop by as much as 50 percent in the past Cimentos Chihuahua persisted in its arbitration efforts with the Bolivian few years. government to obtain compensation for In Mexico, one manufacturer was thinking its sequestered shares in cement maker of global reorganization, and another Francesa. The Bolivian government reaffirming a commitment to expanding continued to drag its feet, suggesting it its operations. Cemex moved forward had yet to determine the proper amount with its cost-saving reorganization plan. A of compensation for the stake in the now management reshuffle and a new structure nationalized company. Meanwhile, the with fewer management levels was expected District Attorney of Chuquisaca in Bolivia to yield Cemex a $400 million savings. pushed for the arrest of Francesa’s former Meanwhile, Holcim announced it would majority shareholder, Samuel Doria Medina, move forward with plans to expand its in a move viewed largely as politically 36

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support for the ongoing construction on the third set of locks at the Panama Canal when it waived the levy on cement products used for the project. The action was viewed as having a positive impact on reducing the costs associated with the project.

Cemex, which had invested $300 million in expanding its Panama operations and been awarded the cement supply contract for the Panama Canal project, also delivered the first 500,000 tons in March.

Price hikes hit the construction sector of the Dominican Republic hard in April. Twelve

construction-related products, including cement, saw a rise in prices that averaged between 17 and 30 percent. The costs of power, fuel, and freight also rose.

SOUTH AMERICA Brazil’s cement market continued to expand, as manufacturers maneuvered to gain an even stronger foothold in the country.

Cimpor, which finds the Brazilian market indispensable to its operations, indicated it would continue to add 2.3 million tons of production capacity through 2013, and announced plans in March to add another factory in either 2012 or 2013. This factory is in addition to the one publicized in November, 2010.

In March 2011, the Brazilian government recommended that either Camargo or Votorantim sell its cement plants to avoid problems with excessive market concentration, or create a separate company called Cimpor Brazil. The recommendation came after Brazil’s competition authorities had previously recommended the approval of the Camargo Corrêa and Votorantim purchase of 31.8 percent and 21.2 percent of Cimpor. Cimpor declined to comment.

CAPACITY ISSUES IN PARAGUAY AND VENEZUELA

Paraguay looked to increase its cement imports from Uruguay and Portugal, as its construction sector was hit hard by the lack of cement production at the state-owned cement maker, INC. It was estimated that 80 percent of all construction work had been affected by the shortage. INC promised to Votornatim’s plan to invest R$2.5 billion in deliver 14 million bags, or 100 percent of Brazil over the next two years took another current demand, by 2012. Currently, it is REGIONAL PROJECTS IN THE WORKS Company (Location)

Plant

La Cruz Azul (Mexico)

New cement grinding system with rated cement output of 175 tph installed by Polysius.

Cost

Operational

Tasser (Paraguay)

New factory with installed capacity of 30,000 bags/day

Est. $70 - $100 million

Spring 2011

Cementos Yguazu (Paraguay)

New cement plant backed by Camargo Correa in Villa Hayes area in Lower Choca with installed annual capacity of 400,000 tons

$105 million

2012

Osho Group (Paraguay)

Plans to build cement, steel plants and a river transport fleet.

$500 million total investment

Mizu Group (Brazil)

Expansion of Barauna unit.

Total annual capacity when complete will be 3.3 million tons

$330 million initial installation; $220 million second phase

Cimpor Brazil

New waste to power generator at Paraiba

€160 million

Cement Jamaica (Cemcorp)

New plant in St. Catherine; 1.5 million ton capacity; aluminous cement

$350 million

Lafarge (U.S.)

New kiln scrubber at its Alpena Plant

2012

Initial Phase – 2011; Second Phase - 2015

2013

2014

HAPPENINGS IN FINANCE Company (Location)

Type

Status

Liz Cementos (Brazil)

IPO

Cancelled offering in April on low demand.

Lafarge (Brazil)

IPO

Short-listing banks that will be involved in the transaction. Time and size of the share sale TBD.

Votorantim CIMENTOS (Brazil)

Fixed Rate Notes

A $500 million fixed rate note offering is under consideration.

Cementos Lima (Peru)

20-Year Bonds

Road shows regarding the proposed sale are ongoing.

Cemex (Mexico)

Convertible Notes

$1.38 bn in convertible notes to raise funds to pay off debt.

REGIONAL REPORT: AMERICAS

step forward when it resumed production at its Sao Paulo unit. The company had invested $70 million to upgrade and recondition the plant, which had been shuttered since 1998.

The 750,000-ton capacity factory is expected to partually supply also the Pernambuco market in the northeast of Brazil.

only meeting 52 percent of market demand and has reported that expansion efforts will require a $40 million investment.

New cement units to be built by Cementos Yguazu and Camargo Correa will likely help, but those facilities will not be ready until 2012.

In Venezuela, the government indicated in March it would develop a plan and budget within the coming year to expand the production of cement and concrete, as it continues to struggle with low production.

While nationalization efforts have concluded, an operational crisis from a lack of investment and major health and safety issues are prominent. Cement production was weak, prompting the government to step up price speculation monitoring efforts.

Government complaints and court action dominated the news from Peru, as officials from the Environmental Ministry visited the Cementos Sur plant in Caraco after receiving complaints from the mayor regarding pollution. Cementos Otorongo, a subsidiary of Cimpor, lodged a complaint against Gloria SAC alleging an abuse of power related to a water use license. Finally, the Constitutional Court rejected Cementos Lima’s request to gradually reduce tariffs.

The company had argued the reduction of the tariff on cement from 12 to 0 percent had been excessively abrupt and not gradual, but CW CemWeek the court disagreed. BMWeek CW Group Group CemWeek BMWeek MARCH / APRIL 2011

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37

REGIONAL REPORT: Mergers & Acquisitions

Africa African cement markets expanded, with total capacity on the continent reaching 207 million tons. Dangote leads one of the largest expansion efforts with plans to add 16.5 million tons and invest US$3.8 billion by 2013. The company recently signed a contract with Sinoma for new plant projects in Tanzania, Gabon and the Republic of Congo. Plans are also underway to add lines at existing facilities in South Africa and Nigeria.

The ongoing unrest in Libya halted operations at Austrian-based Asamer’s three cement units. However, the company remained hopeful the plants would resume production and that its investment of over EUR 125 million would not be lost.

A Singaporean company seeking to build a US$255.4 million cement plant in Sidi Bouzid, Tunisia received thumbs down from the government. With domestic consumption at 6.5 million tons, and total capacity expected to grow to 12 million tons by 2015, overcapacity remains a concern and licenses for new facilities are restricted.

Political unrest affects production Meanwhile, the Sudanese government is and demand looking to export more as a result of new The political unrest which spread throughout cement units coming online. much of North Africa left its mark on several of the region’s cement markets. In nigeria seeks imports Egypt, labor unrest and wage disputes at ASEC and Helwan Cement added to the Cement production in Nigeria was at an problem of low demand in March. As signs all time high of 27 million tons, but this of politically stability began to appear in may not be enough to meet demand. Four April, demand and prices started to climb. local cement makers have sought permits to import 5 million tons over the next five years.

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acquiring company

purchased company

status

electra

Hanson Israel (Israel)

Deal finalized to purchase Heidelberg owned Hanson for NIS 425 million

cement francais (italcementi group)

Set Group (Turkey)

Deal finalized with Limak Holdings; included EUR 270 million paid in cash at closing

cements mozambique (cimpor)

Cement Nacala (Mozambique)

Deal finalized with Camargo Correa to purchase a 51% stake

italcementi

CimFra (France)

Purchases 1% stake

lagan cement

Healy Brothers (Ireland)

Purchase for €3 million

nuh cimento

Kudret Enerji Hydropower Company (Turkey)

Cement firm purchases 17 MW energy plant for $36 million

raysut cement

Pioneer Cement Industries (UAE)

Purchase for $175mm; financed by BankDhofar

In East Africa, Ugandan cement manufacturers asked the East African Community to enforce the block’s market protocol laws to enable them to compete with products from other member states.

Angola considers regulations for import quotas, and Nova Cimangola’s new $21 million cement mill in Luanda comes online providing an additional 600,000 tons.

Middle East Prices moved upward in April, prompting the Saudi Arabian government to open the market to more competition. Seven new limestone exploration licenses and five cement licenses were on offer. However, reports of fuel shortages at plants like Yanbu Cement, which have stalled production, are concerning. Jordan is experiencing similar fuel shortage problems as it considers allowing cement companies to import their own fuel. At least three manufacturers have petitioned the government to import heavy fuel oil despite Jordan Petroleum Refinery’s insistence that it can produce enough to satisfy current demand.

While last year’s political crisis in Yemen resulted in cement output dropping 80 percent, production in Iran and Lebanon surged ahead. Lebanon saw its production surge from two million to six million tons between 2006 and 2011, and Iran set a lofty goal of reaching 110 million tons of production capacity by 2015, after production jumped 18 percent and exports climbed 54 percent between March 2010 and March 2011. Production in Syria is also on the rise, with the completion of the Al Badia Cement plant and interest expressed

by Turkish and Lebanese firms to set up additional plants. Syria is on track to surpass the 5.65 million tons produced in 2010.

Optimistic that demand is on the upswing, modernization and expansion plans are on the agenda in the United Arab Emirates, Kuwait and Turkey, as manufacturers such as RAKWC, Kuwait Cement, and Akcansa announced multi-million dollar plans to boost capacity over the next few years.

Europe Conditions in Europe were mixed. Spain, contending with one of the worst down markets to date, struggled with wage protests and labor unrest. Production and ultimately earnings were casualties for Cimpor, Molins and also Portland Valderrivas, which announced in February it was thinking of delisting.

Cementir saw volumes in Italy drop three percent in the first quarter of 2011, but pushed forward with plans to build its Taranto plant scheduled for commissioning in 2013. Despite a 36 percent drop in net profits in 2010, Italcementi remained optimistic, believing the cement market had finally bottomed out.

For optimism, look East In Eastern Europe, there were also some signs of optimism. Polish cement manufacturers projected a rise in sales of between 5 percent and 8 percent, citing economic improvement and reconstruction efforts post-floods. Cement Gorazdze finished its modernization efforts on its second kiln, making it the biggest investment by the company in the last 30 years. The market

REGIONAL REPORT: EUROPE, MIDDLE EAST AND AFRICA

Iran, Lebanon & Syria See Growth

New Builds/Expansions Company (Location)

Plant

Nova Cimangola (Angola)

■■ New facility with 2 million ton capacity at Cacuaco ■■ Estimated investment: $255 million with expected completion 2013

Wopfinger (Austria)

■■ Filitration system ■■ Estimated investment: $5 million with expected completion June 2011

Ghana Cement (Ghana)

■■ Expansion of capacity at Tema unit from 1.2 to 2.2 million tons ■■ Estimated investment: $26 million

Limak Holding (Iraq)

■■ New 1.5 million capacity plant to be built in Arbil in northern Iraq. Would be largest in Iraq.

Arabian Cement (Jordan)

■■ New Qatraneh facility with 1.5 million capacity ■■ Estimated investment: $74 million with expected completion first quarter 2011

Akemenes Cement (Lithuania)

■■ New production line built by Panevezys ■■ Estimated investment: $150 million with expected completion in 22 months

Boane plant (Mozambique)

■■ New cement plant in the Maputo province; 550,000 ton capacity ■■ Estimated investment: $100 million with expected completion in 2012

British General Consolidated Minerals (Mozambique)

■■ New cement clinker factory at Port Bevia; capacity 110 tons/hr ■■ Estimated investment: $24 million

Magude plant (Mozambique)

■■ New cement plant in the Maputo province; 500,000 ton capacity ■■ Estimated investment: $78 million with expected completion in 2012

maputo plant (Mozambique)

■■ New cement plant in the Maputo province; 800,000 ton capacity ■■ Estimated investment: $72 million with expected completion in 2012

Pretoria Portland Cement (Mozambique)

■■ New 600,000 ton production unit in the southern province ■■ Estimated investment: $200 million

Dangote (Nigeria)

■■ Construction preparation of new cement factory in Douala; 1.0 million capacity ■■ Estimated investment: TBA with expected completion in TBA

Dangote (Nigeria)

■■ New cement factory at Ibese with 6 million ton capacity built by Sinoma International ■■ Estimated investment: $680 million with expected completion in summer 2011

Oman Cement (Oman)

■■ Modernizing existing facilities using two Chinese firms: SPEC and CNBM ■■ Estimated investment: $37.57 million with expected completion in Jan/Feb 2012

Dyckerhoff (Russia)

■■ Plans for the Akbulak plant previously shelved in 2009 back on; 2 million ton capacity ■■ Estimated investment: €450 million with expected completion in 2014

Impulse (Russia)

■■ 2 mm ton cement plant in the St. Petersburg area; construction to start first quarter of 2012 ■■ Estimated investment: RUB 1 billion

Ciments du Sahel (Senegal)

■■ Polysius finishing 3,600 tpd cement clinker production line

Holcim (Slovakia)

■■ Installation of environmental controls at its Rohoznik unit, which will allow the company to save between 40 and 60% in energy costs ■■ Estimated investment: €11 million

outlook for Romania may not be as positive, as demand dropped 11 percent in 2010 due to a lack of infrastructure projects and a weakened real estate market. Regardless of the downturn, Holcim Romania announced plans to invest EUR 35 million to upgrade technologies at its plant in 2011. Lafarge Trbovlje halted production in Slovenia because of low demand and the loss of its environmental permit in March.

Russia & Ukraine Cement markets in Russia picked up speed as the government continues to invest heavily in updating the country’s infrastructure in preparation for the 2014 Winter Olympics and the FIFA World Cup. Several

manufacturers including Dyckerhoff, Lafarge, Iskitcement, Baselcement, and HeidelbergCement were either expanding production lines or building new plants in anticipation of the continued increase in volumes.

The Ukraine also saw improvement in its production levels, up 40 percent in March.

Poldosk announced plans to put in a new dry technology cement line for EUR 210 million which, when completed in the next two months, will produce 2.5 million tons. Eurocement also restarted two of its clinker production lines at the Balakleya District plant. Finally, as gas prices rose, Buzz Unicem successfully completed the conversion of two of its Ukrainian cement units from natural gas to coal. BMWeek CemWeek MARCH / APRIL 2011

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REGIONAL REPORT: Cement companies raised their prices, leading to a retail level of Rs 305 in March.

On a pan-India basis, the average increase in prices equaled Rs40 per bag in March 2011 compared to the third quarter average. The upward trend lasting since October 2010 is expected to soften somewhat in the next few months. But while current prices exceeded the peak level reached in FY 2008, regional differences still persist. The Union Budget release is also negatively impacting the price evolution. The new budget imposes higher duty cost of Rs 3-4 for every cement bag, which generated a domino effect within the market.

In response to the perceived high prices, India’s Builders Association announced plans to build four or five captive cement plants in order to assist its members with product availability at competitive prices.

Andhra Pradesh, Rajasthan, Gujarat, and Chhattisgarh are considered potential locations for the plants.

Increasing coal prices threaten cement profits

INDIA

shut down Ghugus plant, while Grasim, JK Lakshmi, Cement Manufacturing Company India’s ACC, owned 49.3 percent by Holcim, Limited (CMCL), and Shree Cement will may be looking into new acquisitions. The strengthen their positions by building new plans are still general and no targets have cement plants. been identified, but ACC will consider units meeting its criteria. The company mining in Meghalaya is focusing on finalizing the acquisitions of Lucky Minmat, National Limestone, A special three-judge forest bench issued and Encore Cement & Additives. Other notice to the government and asked it to file companies are also considering inorganic a reply. On April 8, the apex court directed growth strategies. The Anil Ambani Group, CEC to investigate whether members of through Reliance Cementation, is eyeing the Shella Village Action Committee (SVAC) Jayajothi Cement plant located in Andhra were illegally mining limestone in the Pradesh. Rain Commodities intends to East Khasi hill area and were exporting to boost its cement capacity to 10 million Bangladesh. The CEC report concluded that tons per year through plant acquisitions. at least seven different mines were illegally It is considering opportunities in Andhra mining limestone, but it did not provide the names of the companies behind the mining.

Pradesh, Tamil Nadu, and Karnataka.

The Supreme Court urged that the list of As consumption is expected to increase by names be provided by May 11.

5 percent in 2011, Indian cement players have continued to announce expansion Lafarge submitted before the Supreme projects (see table for notable projects). The Court and the three-judge bench that it did proposed projects will add over 15 million not violate the law by mining its Meghalaya tons of capacity across five Indian states and unit, as at the time of allotment the land was six companies. ACC will replace the recently not identified as forest land and it required no forest clearance.

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The cement companies declared that the increasing prices are determined by higher prices of inputs, especially coal. The 12 percent increase in coal prices that took place on February 27, 2011, is greater than the initially estimated ten percent increase for 2011-2012. The steep rise in coal prices is likely to generate a 3.4 – 6.6 percent EBITDA reduction, while EPS may fall in the range of 2.7 – 12.2 percent in the current fiscal year.

The most affected companies are estimated to be ACC, Ambuja, and Ultratech, which are the most dependent on coal usage.

PAKISTAN After four plants were shut down following financial losses, decreasing the cement capacity to around 41 million tons, annual capacity is set to increase back to 44 million tons as the new 7,200 tpd Fauji unit is finalized by the end of April, 2011.

On a different expansion note, a Pakistani company is also set to build its first cement unit in Tajikistan.

Cement demand has been below the industry’s output for several years, with consumption at 23 million tons. The

Regulations and prices generate turmoil On the back of the multitude of duties imposed on cement manufacturers, including GST, Special Excise Duty, and Federal Excise Duty, the black market is thriving in Pakistan. The dual increase on entry tax imposed by the Afghan authorities also generated a protest of the exporters union by halting the cement trucks at the border between Pakistan and Afghanistan.

However, the government’s move to reimpose the Supervised Clearance System at the Afghan border was well received, with domestic cement players asking the

government to intervene further by adding the Jaffna peninsula south of India, as a inland freight subsidies in order to facilitate state venture instead of offering it to local or the exports. foreign private investors.

In terms of domestic prices, Pakistan witnessed a surge of 21 percent to Rs 395400 per bag since the beginning of 2011. The Prime Minister was called by the Association of Builders and Developers to examine the recent increase in prices. However, All Pakistan Cement Manufacturers Association (ACPMA) insists that domestic cement is still sold at a loss due to the slack demand.

REGIONAL REPORT: SOUTH ASIA

situation is about to improve somewhat for the domestic cement companies after domestic sales have increased and India’s BIS has renewed exporting certificates for the Pakistani companies. Due to ongoing logistic issues and the major capacity additions that will be implemented in India, cement exports are expected to reach 80,000 – 100,000 tons in FY2011, with prospects to increase up to 500,000 – 800,000 tons in FY2012.

The Government in Bangladesh decided to introduce mandatory use of jute bags.

The cement companies are opposing this regulation, as they fear that it will cause cement prices to increase. The price of a jute bag exceeds the current packaging price by Tk 60-70. India expanded its distribution into the country as the UltraTech brand was launched in Bangladesh in April. BMWeek CemWee

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Pakistani cement companies are also negatively affected by the increase in coal prices, up an unprecedented 34 percent to average $117 per ton in April 2011 primarily due to the severe floods in Australia and the post-earthquake Japan crisis.

OTHER SOUTH ASIA The Governments of Sri Lanka and Bangladesh have taken important decisions for their cement industries. In Sri Lanka, the government decided to develop the Kankesanthuraj cement plant, located on

india expansion projects Company

Location

capacity

details

state

JK Lakshmi

Jhajhar district of Haryana

550,000

To be completed in 2011.

Haryana

JK Lakshmi

Durg (Chattisgarh)

2,700,000

To be completed in 2013.

Chattisgarh

Shree Cement

Raipur

2,000,000

This is the first time the company is setting foot outside Rajasthan.

Chattisgarh

Rain Commodities - optimization

Karnataka

400,000

The total production capacity of cement will increase through improved fly ash blend ratio.

Karnataka

Cement Manufacturing Company Limited

Meghalaya

1,700,000

The expansion process is divided into two phases.

Meghalaya

Cement Manufacturing Company Limited

Meghalaya

1,200,000

Phase 2 will begin once the 1.7 million tons project is deployed.

Meghalaya

Grasim

Malkhed Rajshree

4,250,000

ACC

Ghugus

2,460,000

The cement plant will replace the Ghugus unit, which was closed on February 28 due to repeated pollution violations.

Maharashtra

Penna Cement Packaging Plant

Panvel, Maharashtra

NA

The packaging plant will be operational from April, 2012.

Maharashtra

Karnataka

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REGIONAL REPORT:

cement unit that led to an 80 percent fall in 2010 net profit of the company despite the strong recovery of the cement industry.

Pressure on margins at the Chinese companies will further expand, as the government will impose a 20 Yuan increased high energy usage tax for the eight top consumers of the country, including the cement industry. The climbing demand and higher input prices led to a 25 percent year-on-year cement price increase in the first quarter of 2011. China plans to lower its carbon intensity by 20 percent in 2020 compared to the 2005 levels, with an ambitious milestone set for a 17 percent decrease between 2011 and 2015.

Taiwan Mainland China has become an attractive investment environment for Taiwan’s top cement manufacturers. Taiwan Cement intends to acquire 65 percent of Gangan Cement, becoming the leader in Guizhou Province. Additional cement plant construction projects implemented in Guizhou, Sichuan, Chongqing, and Liaoning will drive the total output of Taiwan Cement to 52 million tons by 2012. Asia Cement is speeding its Jiangxi Province construction projects scheduled by 2014, which will take the company’s total cement output to 30 million tons. The Far Eastern Group is also looking into the opportunity to acquire three cement plants in China.

Japan

Taipei,Taiwan

Japan is recovering from the March 11 earthquake, which damaged the cement plants located in affected areas. Four Annual Chinese cement demand is cement units that represent 30 percent of expected to increase by 550 million tons the country’s production level are still out due to the large-scale housing construction of action due to damages and unstable schedule that will add 10 million units in power. Taiheiyo Cement Oohunato, one of the first five years and add an additional the shut down plants, is the main supplier 36 million houses in the second five-year of the Northeast Oohunato (Ofunato, Iwata phase. Demand will also be driven by Prefecture). Due to its temporary inability commercial and private home construction. to provide needed cement production, China Cement Associated (CCA) attributes Taehiyo Cement asked competitors Lafarge picks up Shui On assets the demand growth to the increased Sumitomo Osaka and Ube-Mitsubishi to investments in water projects, estimated at supply it with low heat cement.

On the flip-side, Shui On construction 4 trillion Yuan to be invested over the next is planning to focus on the real estate decade. sector, and looking to phase out cement While the government has not yet released official estimates of the earthquake damages, Anhui Conch Cement intends to strengthen production by selling its stake in the cement other sources have estimated reconstruction joint venture to its partner, Lafarge.

Shui On its position by investing 10 billion Yuan in cement demand at 10 million tons to be used is disappointed by the under-performing CW Group Coal Week CemWeek BMWeek

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expanding operations, reducing emissions, and undertaking acquisitions, leading to a 10 percent higher cement output by the end of 2011. Also, what are said to be the world’s largest capacity kilns will be put into production starting this September by Wuhu Conch in Anhui Province. The two lines will posses a daily installed capacity of 12,000 tons of clinker, and will support a 36 MW waste heat power generation project.

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REGIONAL REPORT: ASIA PACIFIC

Jakarta, Indonesia within four years, while the reconstruction costs have been estimated at US$180 billion.

The effects of the earthquake are expected to boost cement prices internationally. Taiwan prices will increase in the first half of the year by at least 10 percent due to a comparable increase in sales as Japan’s reconstruction efforts are seen to boost exports.

Holcim Indonesia will finalize its 1.7 million ton Tuban cement plant. Holcim also announced that it will invest US$8 million to build three cement silos in Sumatra by the end of 2011, each storing up to 2,000 tons.

from an increased carbon tax, currently boycotted by the Cement Industry Federation. The Federation believes the tax increase may be detrimental to its members.

Three new plants for Siam Cement

Other Asia Pacific

The Siam Cement Group will lift the cement capacity of the region by 8 million tons by 2015 through the construction of its cement plants in Indonesia, Vietnam, and Cambodia. Chinese companies in the Yunnan region are also increasingly targeting Myanmar as an export destination.

Holcim Philippines is considering investing up to US$500 million to increase cement capacity. The company will decide this year whether to activate more idle assets or to build a new greenfield cement plant in the country.

The Asia Pacific area is affected by increasing raw material prices. Cement producers within the region have already announced price increases or expect decreased margins due to the combination of raw material price increases and decreased cement prices.

Cement consumption in Indonesia showed move upward in the first quarter of 2011, increasing by 6 percent to 10.3 million tons from 9.7 million tons registered in the first quarter of 2010. In Philippines, demand decreased from 4.1 million tons in Q1 of 2010 to 3.9 million tons in the first three months of 2011. The country will need to revise its optimistic 4 percent growth projection for 2011.

In terms of supply, the Indonesian market is going to receive a major lift in 2011, with two cement plants still on track to completion. In total 5 million tons will be deployed by Semen Tonasa, with its South Sulawesi cement plant, and Semen Gresik with the Tuban cement plant. Addititionally, in 2012 HeidelbergCement-controlled Indocement plans to open a new cement plant in Indonesia with an annual capacity of 2 million tons, and by the end of 2013,

Raw materials affect cement prices

South Korea’s Ssangyong Cement announced a 30 percent price increase, while the Vietnam Cement Association declared that its members will increase prices by between 12 percent and 15 percent.

Vietnam has been dealing with regional price differences, however that situation is expected to change as prices increase in the Northern region, where they are currently Australia’s Adelaide Brighton (AdBri) is the lowest in the country. focusing on organic growth and is set to invest US$94 million in lime and cement Philippines companies are precluded from over the next two years. Infrastructure increasing prices due to higher costs of projects of South Australia and mining coal and fuel by declining demand and demand in Western Australia are considered stiff competition. In April 2011, the cement to be the company’s major contributors prices in Philippines were below P200, for outperforming its peers, coupled with declining from P215 – P220 per 40-kg its decision to focus mainly on lime and cement bag in November 2010. BMWeek CemWeek CemWeek BMWeek cement instead of diversifying its industries.

CemWeek BMWeek The Australian market is expected to suffer CW Group CemWeek BMWeek MARCH / APRIL 2011

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Sector coverage: Construction & materials

SECTOR COVERAGE:

Construction markets Long road to recovery As the world emerges from the global economic slowdown, the construction industry is exhibiting signs of being on a gradual path to recovery, albeit in varying degrees. Indeed, the future of construction may even outpace GDP growth according to a study by PriceWaterhouseCoopers.

China’s construction sector will more than double in size to $2.5 trillion by 2020, accounting for a fifth of world construction.

Emerging markets are also seen driving construction activity in the coming years.

as the construction purchasing managers that interest, as its government is embarking index declined to 46.1% in March from on a massive infrastructure development program, and it has set aside at least $400 47.8% in February. billion over the next few years.

France has experienced a slight uptick in construction activity, as its CC rose by 1.73 The UAE is expected to grow as much during the previous quarter. Germany’s as 20% annually between 2010 and 2013 construction orders in January increased because of renewed interest in the building from last year, as new orders in the materials industry. This is as it emerges country’s construction industry increased from a construction slump brought about 8.6% annually, while orders for building by the global financial crisis. construction climbed 21.2%.

US construction spending shrank month on month last February, hitting a seasonally adjusted annual rate of $760.6 billion.

Analysts note that small gains may be seen in 2011 and 2012 on growing demand in The UK construction industry is still residential and non-residential sectors. sluggish, as the Purchasing Manager’s Index (PMI) there slid to 56.4% in March, Despite the threat of political turmoil, the compared to 56.5% for February, which was Middle East construction market is still considered an eight-month high. Ireland’s drawing interest from both local and foreign construction sector also continues to slide, investors. Saudi Arabia is at the forefront of 44

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INDIA

The first joint project by French cement major Lafarge Group’s research arm and the Indian Institute of Technology-Madras (IIT-M) is expected to start soon. The research project will test the durability of concrete as a building material in different climatic conditions.

India has banned stone crushing activities

According to the law, crushing units should be situated at least half a kilometer away from state and national highways, and three kilometers away from the district headquarters.

Builders in the country are also adopting green building concepts, especially in Kerala state, where energy efficient greenhouses are being built. Keralan architects and builders say there has been an unprecedented increase in the number of people opting for eco-friendly methods in home construction.

This in turn has led to the establishment of several ‘green’ builder groups in the state.

Among the companies leading the way is the Habitat Technology Group, which has been promoting green architecture for the last two decades in Kerala.

GYPSUM Lafarge’s plaster unit has reportedly drawn interest from private equity funds. But the funds are said not to be interested in making an offer for the whole plaster division, only its European operations. The plaster division is the smallest in the group, and is estimated to be worth between 1 and 2 billion euros.

Last year, the unit generated about 9 percent of the group’s total sales.

In other news, Saint-Gobain Gyproc recently celebrated the first anniversary of its Abu Dhabi facility. The $60 million plasterboard facility was the first of its kind in the region, and was built to improve the firm’s position in the market.

could also pave the way for a multi-milliondollar listing of the building material group.

Sector coverage: Construction & materials

in residential areas, and has come out with an eight point formula to control these activities. According to its High Court, stone crushing poses a severe health hazard, and the government has decided to shut down all stone crushing units in unsafe zones.

Grace has also opened new manufacturing facilities in Cartagena, Colombia and Panama City, Panama. The facilities will manufacture cement additives and concrete admixtures to serve customers in Colombia, CONCRETE Panama and throughout Central America In the US, TXI bought the ready-mix and the Caribbean. operations of Transit Mix Concrete in Central Texas. TXI transferred to Trinity Cemex has launched its first global brand Materials two existing aggregate operations of ready-mix concrete, Promptis. The firm says the rapid-hardening, fast-formwork serving the Texas and Louisiana markets. removal concrete technology is already Meanwhile, Spain’s Essentium has gained being sold in France, UK, Ireland, Israel, a foothold in the Brazilian market with Spain, and Croatia and will be made its acquisition of a 50 percent stake in available in Austria, Poland, Latvia, UAE, WTorreEngenharia for 120 mm euros. It and Hungary starting in the second half of plans to invest 250 million euros over the 2011. next few years in the fast-growing Brazilian market.

LIME In Costa Rica, Cemex has launched its retail franchise called Construrama to Metso secured an EUR 11 million deal to promote and distribute Cemex products. supply a 900 TPD lime calcining system to It hopes to recruit local distributors by Martin Marrieta Specialties in Ohio, USA. offering technical and other assistance to In Slovakia, Baum and Calmit will spend the vendors.

1.4 million euros to reduce environmental impact and improve its limestone In France, Cemex upgraded a concrete production units there. plant in Macon, investing 560,000 euros.

According to the firm, the upgrades will Meanwhile, Lhoist has renewed its lime allow it to double production capacity from transport contract with France Europorte 35 m3 to 60 m3 per hour. for another five years. The contract renewal secures lime supplies for the company’s In Australia, Boral paid $173 million for units in France and Germany. BMWeek CemWeek CemWeek BMWeek the concrete division, as well as the cement CemWeek BMWeek grinding unit, of the Wagner Group. This

MARCH / APRIL 2011

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LEADERS

COMMENT

An African Experience:

Saving Energy Through Advanced Cement Blending The Nairobi, Kenya, office of JPMorgan ClimateCare has recently begun a major CDM based cement blending project. Mr. Tom Owino, company Mr.Tom Owino vice president, spoke with CemWeek and Prescon about the process in advance of his speaking engagement on Clean Development Mechanisms in Africa’s Cement Industry at the upcoming Precon conference.

The project aims to reduce fuel costs and greenhouse gas emissions per ton of cement produced

CW Tell us about the CDM project you did with East African Portland Cement order to meet projected cement demand, Company (EAPCC) and what new ground the proposed project will raise the annual you broke in the process? production rate from the current 700,000 tons to 1,300,000 tons. EAPCC has opted TO The Clean Development Mechanism to increase the Pozzolana blend in the (CDM) project (“Increasing the Blend cement as a means of overcoming clinker in Cement Production at East African production capacity constraints while at the Portland Cement Company Limited) entails same time reducing the carbon intensity of increasing the Pozzolana content of the the production process.

Portland Pozzolanic Cement (PPC) blend in cement production to 35% from the current The project aims to reduce fuel costs and level of 25.30%, with a corresponding greenhouse gas emissions per ton of cement decrease in clinker content and energy produced while responding to the everconsumed per ton of cement produced. In increasing cement demand in Kenya by 46

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replacing clinker with Pozzolana (volcanic rocks) in the cement blend.

The proposed project involves the addition of a Closed Circuit Ball Mill System with a classifier to the existing Open Circuit Cement Mill. The milling technology, which is mature and well tested elsewhere, has never been applied at EAPCC before.

Through the project, greenhouse gas emission reductions will be realized through the following means: ■■ On-site emission reductions as a result of reduced clinkerization and therefore, amount of carbonates calcined in the clinker making process.

■■ On-site emission reductions due to reduced thermal energy consumption per ton of PPC produced ■■ Off-site emission reductions resulting at the electricity generating plants that feed the national grid due to reduced electric energy consumed per metric ton of PPC produced ClimateCare started development of the carbon asset of the project in the third quarter of 2008 when technical development was at an advanced stage, with design and

LEADERS COMMENT

CDM rules are complex and keep changing, and getting expert advice very early in the process is critical Maintenance work at the EAPCC production unit procurement completed and civil works at the final stages. The Project Design Document (PDD) was ready by February, 2009 and validation started in March, 2009.

and getting expert advice very early in the process is critical in ensuring the right process is followed from the start and that the appropriate documents are prepared and maintained. Any situation that causes Our experience has been that getting delays must be avoided at all costs. a cement project through validation is a frustrating and slow process. It is CW What does the cement industry need particularly difficult because EAPCC made to do better for us to see more projects of decisions about the project starting in 2006 this nature? without a carbon asset developer to advise them on which documents to prepare and TO The first thing is that the cement keep. However we feel we have broken blending project must go beyond the significant ground with the project since it regional prevailing practice levels. This is the first such cement blending project in kind of project is capital intensive and the Africa to get to validation and hopefully get required underlying capital investment CDM registration. We have learned many must be available, especially to acquire the lessons in the process, a key one being the technology. Secondly, the industry needs to engagement of a carbon asset developer as understand the CDM process well enough early as possible in the project development. to have an appreciation of what taking some decisions and preparing some documents CW Is this a model for other projects would mean. across Africa or even worldwide, or how does it need to be adapted?

CW With the loss of momentum behind the Kyoto protocol and the failure of the TO I do not think it is a model from a Copenhagen conference, how do you see technical view since the technology is in the future of carbon credits shaping up? wide use. It is, however, a potential model Will there still be a global market? for carbon asset development in the cement industry in Africa with amendments to TO Climate change and the need to find avoid some of the problems experienced solutions is a permanent global issue. The during the carbon asset development and need for effective climate change mitigation achieving CDM registration. Generally, is becoming increasingly urgent. I do CDM rules are complex and keep changing, believe that this momentum will sustain

the carbon market, but the form of the market will continue to evolve. I do not believe that the Kyoto Protocol offered fair opportunities for all developed countries with particular emphasis on Africa. The Kyoto Protocol, and specifically CDM which is project based, favored countries which could attract investment. Africa has only recently started to attract capital and is increasingly becoming an attractive investment destination.

Also the CDM EB has recently made some decisions which make certain countries (LDC) attractive for carbon projects.

Unfortunately, cement industry projects are not likely to be the most attractive carbon projects in these countries. BMWeek CemWeek BMWeek BMWeek

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Mr. Tom Owino will give a full presentation on the issues raised in his interview during the 2nd Environmental Cement Africa Conference 2011, which will take place in Nairobi, Kenya, on the 11th and 12th of May. The conference, which also features an exhibition, a Gala Dinner and a cement plant visit, is a prestigious gathering of various stakeholders in Africa’s cement industry. For information on participation, the programme and exhibition bookings, please visit the website at www.prescon-int.com MARCH / APRIL 2011

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CW CW CW

PROJECTS expansion updates In Russia, FLSmidth, KHD, CBMI Construction, and Polysius received contracts to modernize outdated equipment and install new production lines. Mexicanbased La Cruz Azul tapped Polysius to install a new grinding system at its Lagunas plant, and the UAE’s Gulf Cement announced it would collaborate with FLSmidth to upgrade current production capacity.

Sinoma signed a sizeable contract with Nigerian-based Dangote to expand its current operations in West Africa. Sinoma’s US$1.4 billion portion of a US $3.9 billion contract has the company building seven production lines and a cement-grinding mill in several African states including Nigeria, Senegal, Ghana, Ethiopia, Tanzania, Republic of Congo, and Gabon. Sinoma will handle the design and provide the labor, while all equipment will be procured from Germany. Dangote indicated it had selected Sinoma because of its competitive pricing and familiarity with the African business environment.

NOTABLE PROJECT AWARDS MARCH - APRIL 2011 VENDOR

COMPANY / LOCATION

TERMS

FLSmidth

FosAgro & St. Petersburg State Mining Institute (Russia)

Modernization of equipment and technological design at the Pikalevo industrial complex. The estimated value of the project EUR 270 million (April)

KHD Humboldt Wedag

Impulse (Russia)

Installation of dry cement production line which is part of the construction of a 2 mm ton cement plant in the St. Petersburg area (April)

Sinoma Engineering

HeidelbergCement (Togo)

Contract to build a 5000 tpd dry process cement production line for unit Togo Scantogo Mines (April)

Gebr Pfeiffer

Mass Jordan Company (Iraq)

Ordered placed by General Contractor, Sinoma (Suzhou) Construction, for a MPS 5000 B vertical roller mill. (April)

ThyssenKrupp Polysius

Spassk Cement (Russia)

Modernize kiln plant 1 at the Spassk-Dalny factory (March)

CBMI Construction/ Sinoma

Lafarge (Russia)

Contract to build a new cement plant called Kaluga Cement (March)

ThyssenKrupp Polysius

La Cruz Azul (Mexico)

New cement grinding system at the Lagunas plant in the state of Oaxaca (March)

Sinoma International

Dangote Group (Nigeria)

Signed a US $1.4 billion contract for the engineering, procurement and construction (EPC) of seven cement production lines and a cement grinding mill in West Africa. (March)

FLSmidth

Gulf Cement (UAE)

Upgrade of production capacity (March)

KHD Humboldt Wedag

Askale Cimento (Turkey)

Contract for a 3,500 tpd kiln line at the Van cement plant (March)

Greco Reinforces European Commitment With A Tec

Cong Thanh Cement plant will reach a record-breaking height of 150 meters. The lifting system from Aumund forms part of GRECO Combustion Systems has recently the 12,000 tpd cement plant’s two producestablished a new office in Austria beside the tion lines in the Vietnamese province of main headquarter in Brazil and the offices in Thanh Hoa. Spain and China. The recent fusion between A TEC and GRECO Combustion Systems The conveying capacities of the Aumund helped the innovative burner producer bucket-elevators achieve up to 450t/h and establish a new engineering office in Austria will be supplied and installed this summer. as well as use the existing workshop facilities Four belt conveyors, also being supplied then, will handle clinker transport from the of A TEC in Austria. silos to the mill (1500t/h) or to the export Additionally, A TEC GRECO was recently silos. hired by Brazil’s CSN Cimentos to provide engineering services and technical Almost all of the core components for the assistance for the commissioning of a 2,500 new line come from Germany. tpd kiln line in Arcos (MG), Brazil. The Polysius And Vecoplan Form Joint project started on March 8, 2011, with the Venture complete plant supplied by China’s CDI. The two groups will focus on bringing enWith these new opportunities, A TEC and vironmental technology to the cement and GRECO are operating together nine different lime industry through a joint venture to worldwide locations offering cement and be called FuelTrack Vecoplan. It will offer lime industry products, engineering and site a complete chain from the preparation to services close to customer installations. the use of alternative fuels in the rotary kiln and calciner. Within the Polysius Group, Record-High Elevators For One Of the joint venture is the new competence Asia’s Biggest Cement Plants center for “alternative fuels”. It is headquarNew bucket elevators ordered for Vietnam’s tered in Bad Marienberg, Germany.

48

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Coal Week Coal Week Coal Week

La Unión Orders Packing System For Valencia Plant The Spain-based cement company will take its old packing unit from 1997 and move it to new cement plant it is establishing in Point Noire, Congo.. In its place, a new Haver Type 16 Rotoclassic has been ordered for the company’s plant in Valencia, Spain.

The new system, which was put into operation at the start of October, is characterized by its unique high performance. With 25-kg bags, a continuous speed of 5700 bags/hr is reached, and 4700 bags/hr with 35-kg bags.

Buzzi Converts Ukraine Plants To Use Coal Instead Of Gas

PEOPLE MOVES

Cemex announces changes to senior level organization

Cemex' operations will be reorganized Plants at Yug and Volyn were converted under six regions:Juan Romero will be the starting two years ago, as gas prices inpresident of Cemex Mexico and he will also creased. Buzzi Unicem approved a large investment to convert the plants to use coal oversee Global Technology. Karl Watson, Jr. will be president of Cemex USA, and as the main fuel rather than gas.

Jaime Muguiro will be president of Cemex A Pfeiffer MPS 200 K coal mill from the Mediterranean.

Neubeckum (Germany) plant was installed at Yug, and a Pfeiffer MPS 280 raw mill from Jaime Elizondo has been named president Lengerich (Germany), which was converted of Cemex South America and Caribbean, and will also oversee Global Procurement. to grind coal, was installed at Volyn.

Ignacio Madridejos will be president of The two mills were placed into operation Cemex Northern Europe and will also in exactly the same manner. Within a few oversee Global Energy and Sustainability. days from starting production, the Yug Joaquin Estrada has been named president cement plant was able to replace 70% of the of Cemex Asia and will also oversee Global methane used with petcoke, while at Volyn Trading. petcoke replaced 75% of the methane used, In other corporate staff appointments, also within a few days.

Fernando Gonzalez is named executive vice Spassk Cement Asks Polysius To president of finance and administration, and will also assume the role of Chief Financial Upgrade Line Officer. The company also appointed The Spassk Cement plant north of Juan Pablo San Agustin as executive vice Vladivostock, Russia, contracts Polysius president for strategic planning and business to upgrade production line at the Spassk- development, as well as Luis Hernandez as Dalny factory. The modernization program executive vice president for organization includes a number of different measures and human resources. to reduce fuel consumption and increase Peru: Cementos Pacasmayo appoints output. new CEO Polysius is supplying a Polytrack clinker cooler with a throughput of 3,300 tpd to Humberto Nadal replaces outgoing CEO replace the first and second grates of the Lino Abraham as the new CEO. Before existing cooler. The new cooler will be becoming the CEO, Mr. Nadal worked in integrated into the housing of the old one, Cementos Pacasmayo as the Manager of allowing the clinker conveying equipment Corporate Development since 2007 and the director of the firm since 2008.. to be retained in its present form.

The modernization is expected to raise the production capacity of the entire kiln line at the plant. Polysius is also supplying a Polcid cooler control system, the electrical equipment and the basic engineering.

Mass Orders Grinding Unit For Iraq A second order has been issues for a Gebr Pfeiffer grinding unit intended for Mass Jordan Company’s second 5,000 tpd cement production line. The plant is located in the province of Sulaymaniyah in northern Iraq.

New board member joins KHD

Yizhen “Mario” Zhu will also take on responsibility as AsiaPac COO and head of the global EPC business, following AVIC's (formerly CATIC) investment in KHD. He will also joint the management board of KHD Humboldt Wedag International in the role of COO Asia Pacific. Zhu will be in charge of KHD’s global EPC business as well as developing KHD’s new customer service center for the Asia Pacific region.

Mr. Zhu is 39 years old and has both an MBA and an engineering degree. He has held a variety of senior management positions at AVIC and has been a strong driver in developing AVIC’s cement plant construction business Dyckerhoff's Volyn Cement has new Director General Sergei Dudzyana has been named Director General at Dyckerhoff 's Volyn Cement, replacing a director who is retiring after spending the majority of his professional life with the company. Mr. Dudzyana is currently the deputy manager, and will be promoted to Director General. The former CEO will be retained in a consultant's capacity. [ Final sentence is unclear as there is no prior reference to a former CEO] India: Managalam Cement appoints new Directors

The board of directors of India's Managalam Cement announced new appointees for its board of directors. Anshuman Vikram Jalan and Vidula Jalan were appointed as fulltime directors and executive directors Mr. Abraham had been CEO for the group of the company effective April 1, 2011. The since 2004 and is currently serving the appointments will be confirmed after the company as vice chairman. He has also been approval by the shareholders. a director of Pacasmayo Investments since Lafarge Slovenia appoints new 1989. head Loma Negra builds IR function Lafarge has appointed Janusz Miluch as Argentinian firm Loma Negra has the new Director General for its Slovenian appointed Juan Roza Alconada as head operations, reports Siol. of the company’s new Management of Mr. Miluch will succeed Iztok Virant in the Institutional Relations unit. Mr. Alconada position. He is a company veteran with 13 will be responsible for conducting corporate years tenure. Prior to his appointment as affairs related to government agencies, Director General, he was the company’s chambers and business associations, and Commercial Director in Poland. coordinating media relations, a report posted at Mercado said.

Sinoma (Suzhou) Construction, acting as general contractor, placed the repeat order for a MPS 5000 B vertical roller mill designed for grinding raw material and achieving a capacity of 450 t/h. The first Mr. Alconada is a lawyer with master's Pfeiffer MPS raw mill will be commissioned degree in communications management. shortly. BMWeek CemWeek CW Group Coal Week He will report directly to the CEO of the CemWeek CW Group Coal Week BMWeek cement firm.

BMWeek

CemWeek

CW Group

Coal Week

MARCH / APRIL 2011

CW Group CemWeek BMWeek CemWeek CW Group BMWeek www.cemweek.com CemWeek BMWeek CW Group

49

DATA

SHARE PERFORMANCE

As of April 29, 2011. All share prices in local currency Company (Exch)

52 WEEK HIGH

52 WEEK loW

% from 52Hi

% from 52Lo

50d Mov Avg

200d Mov Avg

% from 50d Mov Avg

% from 2000d Mov Avg

ADEL BRTN FPO (ASX)

3.72

2.51

-15.05%

25.90%

3.23

3.31

-2.30%

-4.52%

BORAL LTD FPO (ASX)

5.98

4.15

-17.73%

18.55%

5.06

4.87

-2.70%

1.12%

TITAN CEMENT (Athens)

20.10

13.16

-10.45%

36.78%

-

-

N/A

N/A

DHAR CEMENT (Bombay)

1.00

1.00

0.00%

0.00%

1.00

1.00

0.00%

0.00%

INDIA CEMENT (Bombay)

129.40

81.00

-23.30%

22.53%

96.80

102.73

2.53%

-3.38%

JK CEMENT (Bombay)

214.30

114.00

-40.64%

11.58%

133.12

146.58

-4.45%

-13.22%

PRISM CEMENT LTD. (Bombay)

65.90

44.85

-15.33%

24.41%

54.65

54.00

2.11%

3.34%

SAGAR CEMENT(BSE (Bombay)

198.65

113.00

-26.00%

30.09%

141.86

134.75

3.63%

9.09%

SHIVA CEMENT (Bombay)

11.49

5.50

-42.91%

19.27%

6.61

7.79

-0.82%

-15.79%

FLSMIDTH & CO. (Copenhagen)

549.00

328.80

-19.03%

35.19%

445.81

467.10

-0.29%

-4.84%

WEST CHINA CEMENT (Frankfurt)

0.34

0.10

-17.20%

178.27%

0.29

0.28

-0.64%

2.32%

SHANSHUI CEMENT (HKSE)

8.77

3.15

-1.03%

175.56%

7.18

6.18

20.97%

40.55%

ASIA CEMENT CH (HKSE)

6.68

3.15

-5.24%

100.95%

4.95

4.11

27.93%

53.96%

ANHUI CONCH (HKSE)

56.90

21.50

-35.76%

70.00%

46.80

37.97

-21.90%

-3.74%

INDOCEMENT TUNGGA (Jakarta)

19,400.00

12,750.00

-12.37%

33.33%

16,108.60

16,098.50

5.53%

5.60%

HOLCIM INDONESIA (Jakarta)

2,575.00

1,800.00

-12.62%

25.00%

2,043.57

2,154.82

10.10%

4.42%

SEMEN GRESIK (PER (Jakarta)

10,350.00

7,250.00

-8.21%

31.03%

9,220.00

9,150.00

3.04%

3.83%

TONGYANG CEMENT & (KOSDAQ)

3,885.00

1,675.00

-56.63%

0.60%

2,057.36

2,057.84

-18.10%

-18.12%

ASIA CEMENT (KSE)

51,100.00

41,350.00

-8.71%

12.82%

45,731.90

44,896.40

2.01%

3.91%

LAFARGE MALAYAN C (Kuala Lumpur)

8.11

6.06

-10.73%

19.47%

7.75

7.52

-6.59%

-3.77%

YTL CEMENT BHD (Kuala Lumpur)

4.85

3.80

1.24%

29.21%

4.76

4.40

3.13%

11.47%

CIMPOR R (Lisbon)

5.48

3.91

-14.87%

19.31%

4.95

5.00

-5.78%

-6.62%

STEPPE CEMENT (London)

70.00

39.00

-38.57%

10.26%

44.53

47.30

-3.43%

-9.08%

CEMENTOS PORTLAND (MCE)

17.91

11.06

-14.01%

39.24%

14.94

13.90

3.07%

10.83%

GRUPO CEMENTOS (Mexico)

56.50

38.00

-22.48%

15.26%

41.47

43.63

5.61%

0.38%

BUZZI UNICEM (Milan)

11.37

7.00

-8.09%

49.29%

10.07

9.10

3.80%

14.78%

CEMENTIR HOLDING (Milan)

3.05

1.78

-28.74%

21.84%

2.15

2.20

1.13%

-1.58%

ITALCEMENTI RSP (Milan)

4.88

2.96

-21.72%

29.05%

3.74

3.56

2.15%

7.20%

50

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CW Group CemWeek BMWeek CemWeek CW Group BMWeek BMWeek CW Group MARCHCemWeek / APRIL 2011

Coal Week Coal Week Coal Week

DATA As of April 29, 2011. All share prices in local currency Company (Exch)

52 WEEK HIGH

52 WEEK loW

% from 52Hi

% from 52Lo

50d Mov Avg

200d Mov Avg

% from 50d Mov Avg

% from 2000d Mov Avg

ASSOCIATED CEMENT (NSE)

903.60

415.05

23.15%

168.11%

786.51

618.19

41.49%

80.01%

ANDHRA CEMENTS LI (NSE)

23.70

8.60

-38.19%

70.35%

13.78

14.08

6.32%

4.08%

BINANI CEMENT LIM (NSE)

96.60

72.50

-8.07%

22.48%

87.65

88.13

1.31%

0.76%

BURNPUR CEMENT LI (NSE)

13.95

7.75

-37.99%

11.61%

8.36

9.65

3.42%

-10.33%

DALMIA CEMENT (BH (NSE)

284.80

134.00

-76.70%

-50.49%

216.64

225.53

-69.37%

-70.58%

DECCAN CEMENTS LI (NSE)

198.90

122.05

-23.00%

25.48%

144.24

149.91

6.18%

2.16%

ITD CEMENTATION I (NSE)

292.40

174.25

-28.61%

19.80%

203.55

221.63

2.55%

-5.81%

MADRAS CEMENTS LT (NSE)

136.70

90.10

-27.58%

9.88%

100.60

104.36

-1.59%

-5.13%

MANGALAM CEMENT L (NSE)

128.00

46.25

-4.84%

163.35%

112.25

73.90

8.50%

64.82%

SHREE CEMENTS LTD (NSE)

2,360.00

1,500.00

-14.83%

34.01%

1,917.54

1,926.94

4.83%

4.32%

CRH PLC AMERICAN (NYSE)

29.31

14.76

-14.88%

69.04%

23.04

20.83

8.31%

19.76%

CEMEX, S.A.B. DE (NYSE)

12.39

7.46

-29.94%

16.35%

8.79

9.34

-1.27%

-7.09%

EAGLE MATERIALS I (NYSE)

33.22

15.91

-12.43%

82.84%

30.04

28.13

-3.18%

3.42%

TEXAS INDUSTRIES, (NYSE)

47.42

27.28

-11.07%

54.58%

42.86

40.51

-1.62%

4.10%

CIMENTS FRANCAIS- (Paris)

77.62

57.85

-8.06%

23.35%

70.70

68.64

0.93%

3.97%

LAFARGE (Paris)

55.87

35.57

-14.49%

34.31%

44.37

44.74

7.68%

6.78%

ANHUI CONCH CEMEN (Shanghai)

43.05

14.50

-12.24%

160.55%

38.98

31.04

-3.07%

21.72%

FUJIAN CEMENT CO. (Shanghai)

12.67

6.35

-12.15%

75.28%

10.40

8.55

7.02%

30.14%

CHINA SINOMA INTL (Shanghai)

50.50

16.81

-22.08%

134.09%

43.67

40.00

-9.90%

-1.63%

HUAXIN CEMENT CO (Shanghai)

5.48

1.93

-11.48%

151.40%

4.31

3.13

12.54%

54.99%

SIAM CEMENT -F- (Stuttgart)

9.70

5.85

-1.54%

63.25%

8.66

8.48

10.23%

12.64%

TAIWAN CEMENT TWD (Taiwan)

42.90

24.60

-2.21%

70.53%

35.81

33.07

17.13%

26.84%

ASIA CEMENT CORP (Taiwan)

37.80

25.65

1.32%

49.32%

33.90

32.01

12.98%

19.64%

CHIA HSIN CEMENT (Taiwan)

18.70

12.45

-3.74%

44.58%

16.98

16.50

6.04%

9.06%

LUCKY CEMENT TWD1 (Taiwan)

8.30

6.81

-8.92%

11.01%

7.39

7.61

2.35%

-0.60%

HOLCIM N (VTX)

84.20

59.65

-10.57%

26.24%

70.43

68.01

6.91%

10.72%

HEIDELBERGCEMENT (XETRA)

54.00

30.86

-4.39%

67.30%

49.21

46.02

4.92%

12.18%

KHD HUMBOLDT WEDA (XETRA)

8.24

3.52

-12.85%

104.09%

7.24

7.01

-0.83%

2.47%

MARCH / APRIL 2011

CW Group CemWeek BMWeek CemWeek CW Group BMWeek www.cemweek.com CemWeek BMWeek CW Group

51

MARKET

UPDATE

Demand Tracking Universe Year-Over-Year Report:

EMERGING MARKETS LIVE UP TO THE TITLE, DRIVING WORLD CEMENT GROWTH IN 2010 lobal demand for cement rose in 2010, despite many of the developing markets seeing tough trading conditions.

The CW Group and CemWeek demand tracking universe of cement volumes, which represents 85 percent of global demand, indicated year-over-year (YoY) global volumes increased just over 12 percent from 2009 to 2010.

and real estate investments. Production continued to grow, as the top sixty-five cement producers boasted individual capacity of over 5 million tons per year, with the top twenty having a capacity of over 10 million tons per year. Demand for cement is projected to rise further in 2011, as a new

2010, as signs of economic recovery were found in several countries. For instance, Peruvian cement consumption increased as the country continued to enjoy a strong economic recovery. The construction sector appeared to be resilient and business confidence improved, leading to a 15.8 percent YoY growth in cement volumes.

The Chinese market accounted for approximately 67 percent of total global cement volumes in 2010

Brazil saw ongoing construction on largescale projects related to its hosting of the 2014 World Cup and the 2016 Olympics, contributing to the 14.3 percent YoY increase in cement volumes. Economic recovery also had a positive influence on the demand for cement in Colombia and Argentina.

However, not all South American countries experienced increased demand. For instance, efforts by the Chilean government to provide grants for the construction of 70,000 housing units following the country’s devastating earthquake failed to revitalize the construction sector.

Emerging markets, particularly Brazil, China, India and Russia, reported some of the largest increases in cement volumes, pushing overall regional averages higher.

China (treated here as a region due to its size) showed the largest YoY increase in cement volumes at 15.5 percent, followed by South America at 13 percent. Nations in the Asian, African and Middle Eastern regional universe tied with a YoY annual increase of 8.3 percent. The North American and European set experienced the weakest growth in cement volumes, as slower than expected economic recovery dampened demand. Overall, YoY growth in the North round of government housing projects and American region averaged 1.4 percent, and an increased investment in water projects in the European set, YoY growth was only are set to get underway.

0.7 percent.

After the global economic slowdown China’s strong performance was fueled by of 2008 and 2009, cement producers in continued growth in infrastructure spending South America had reason to celebrate in CW Group Coal Week CemWeek BMWeek 52

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CemWeek CW Group BMWeek BMWeek CW Group MARCHCemWeek / APRIL 2011

Coal Week Coal Week

Regionally, Asian cement volumes in the CemWeek demand-tracking universe showed a YoY increase of 8.3 percent in 2010. Vietnam experienced strong growth coming in at 21.8 percent, and India rounded off the top three with volumes increasing an average of 14 percent. India’s cement volumes, adjusted in the tracking

MARKET UPDATE SOUTH AMERICA

ASIA EX-CHINA

EUROPE

MIDDLE EAST & AFRICA

NORTH AMERICA

14%

12%

5%

60%

60%

12%

10%

4%

50%

50%

10%

8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

3% 2%

0%

BRAZIL

VIETNAM

PAKISTAN

THAILAND

KYRGYZSTAN

CHILE

ARGENTINA

KOREA

INDIA

JAPAN

universe for comparison purposes, trended higher in 2010, showing a 14 percent increase over 2009. This occurred despite a winding down of construction activities related to the Commonwealth Games, a slower pace of infrastructure development, and the withdrawal of stimulus money from the government. A different scenario unfolded in Japan, where volumes declined as cuts in capital spending, declining public works spending, and a rise in export stocks pushed cement volumes down.

The African and Middle Eastern region averaged a YoY increase of 8.3 percent in 2010 as well. Heavy investment by the government in infrastructure projects and private investment in the real estate and housing markets fueled demand in Kenya.

Additionally, market recovery resulting from improving economic conditions and higher public spending helped to boost cement volumes in Saudi Arabia and Turkey. Conversely, a slower than expected recovery in the residential building market helps explain the decline in YoY cement volumes noted in South Africa.

0%

-1% -2%

-4%

BOLIVIA

10%

0

-3%

PERU

20%

10%

-2%

COLUMBIA

30%

20%

-1%

09 VOLUME WEIGHTED CONSTRIBUTION

40%

30%

1%

-4% 09 VOLUME WEIGHTED CONSTRIBUTION

40%

09 VOLUME WEIGHTED CONSTRIBUTION UK SWITZERLAND SPAIN RUSSIA POLAND CYPRUS

POLAND ITALY GERMANY FRANCE CZECH REP

-1% 09 VOLUME WEIGHTED CONSTRIBUTION TURKEY SOUTH AFRICA SAUDI ARABIA MOROCCO

and European regions was noticeably lower in 2010. Despite a modest YoY growth seen in Mexican cement volumes, the U.S. market struggled to recover, showing a slight 0.7 percent decline in volumes.

The European region exhibited the smallest increase for 2010

The European region exhibited the smallest increase for 2010, averaging only 0.7 percent YoY. While declines in demand volumes were noted in several individual markets such as Spain and Italy, a few countries such as Switzerland, France and the United Kingdom showed YoY growth in Demand for cement in the North American cement volumes.

LEBANON KENYA ISRAEL

09 VOLUME WEIGHTED CONSTRIBUTION MEXICO US

Russia showed the largest annual gain, averaging a 14.5 percent YoY increase in cement volumes in 2010. Although the residential and non-residential construction sectors remained depressed throughout much of the country, infrastructure spending on roadways, railways, airports, and facilities related to the country’s hosting of world events including the 2012 APEC Summit, the 2014 Winter Olympics and the 2018 World Cup Games likely drove the demand for cement.

Overall, in 2010, global cement volumes trended higher, boosted in particular by the strong performance of the Chinese market, which according to the CW Group’s and CemWeek demand tracking universe, accounted for approximately 67 percent of total global cement volumes in 2010. Other emerging markets delivering above average performances included Russia, Brazil, India, Peru, Kyrgyzstan, and Vietnam. Finally, even though the economic recovery in much of North America and Europe failed to gain significant momentum, these regions were still able to demonstrate increases, albeit modest ones, in cement volumes. BMWeek CemWee BMWeek BMWeek

CemWee CemWee

2009-2010 CEMWEEK DEMAND TRACKING UNIVERSE VOLUME CHANGE (% CHANGE IN TONS)

20% 15% 10% 5% 0%

North America

South America

Europe

Asia ex-China

China

MARCH / APRIL 2011

Middle East & Africa CW Group CemWeek BMWeek CemWeek CW Group BMWeek www.cemweek.com CemWeek BMWeek CW Group

53

FLASHBACK

In addition to perennial hotspots USA, China and India, CemWeek.com readers kept up with important industry developments in Russia, Brazil, Egypt, Nigeria and Mexico during March and April. The Middle East and Sub-Saharan Africa saw specific topics drive the information flow (e.g., pricing, competition and expansions).

IN THE NEXT ISSUE

Strategic sourcing

Why it is not 'cheap-sourcing'

It's Not Nagging:

Why persistent, redundant communication works

White cement

Movers and shakers

CemWeek India survey

Second annual survey of the cement sector

Pulse on sustainable development

Highlights from recent CemWeek WBCSD research

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