India Cement and Construction Materials #46: March 2019

india A CemWeek Publication

issue 46

Cement

MARCH 2019

& construction Materials

LEADERS Q&A

Paul Rodzianko President of Georgian Cement Association and CEO of Kavkaz Cement

CW Research

Trade protectionism pressures world cement prices in 4Q2018

Are Indian cement prices finally recovering?

News

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Analysis

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Market Coverage

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Interviews

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People

GLOBAL GLOBALCEMENT CEMENT TRADE TRADEPRICE PRICEREPORT REPORT TheThe Global Global Cement Cement Trade Trade Price Price Report Report (GCTPR) (GCTPR) provides provides a must-have, a must-have, data-centric data-centric assessment assessment of monthly of monthly andand quarterly quarterly prices prices (USD (USD per per ton)ton) for for cementitious cementitious products products - gray - gray cement, cement, white white cement, cement, clinker clinker & granulated & granulated slagslag (GBFS): (GBFS): Ex-works Ex-works andand retail retail prices prices Trade Trade pricing pricing Together Together withwith insights insights on cement on cement producers' producers' pricing pricing strategies strategies andand importimportant ant price price revisions, revisions, the the GCTPR GCTPR provides provides insights insights andand datadata on on domestic domestic cement cement pricing pricing for over for over 30 key 30 key markets, markets, as well as well as international as international trade trade prices prices for 70+ for 70+ cement cement markets. markets.

Analysis Analysis and and forecast forecast ofof global global cement cement trade. trade.

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TheThe GCPR GCPR is intended is intended as as a tool a tool for for understanding understanding the the national, national, regional regional andand international international cement cement pricing pricing environment environment andand the the around around the the world. world. competitive competitive price price scenario scenario in key in key markets markets CEM CEM ENTENT • BUILDING • B UILDING M ATERIALS M ATERIALS • DRY • DRY BULK BULK CARGO CARGO & SHIPPING & SHIPPING • CHEMICALS • CHEMICALS • • INDUST INDUST RIAL RIAL MINERALS MINERALS • INDUST • INDUST RIAL RIAL EQUIPMENT EQ UIPMENT • PAPER • PAPER & PULP & PULP • PET • PET COKE COKE r e s eraersceha. rccwhg. cr pw. gc ropm. c o•m i n• q uiinr qi eusi @ r i ecsw@g cr pw. gc ropm. c o•m s a•l essa@l ecsw@g cr pw. gc ropm. c o m

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FEATURES DEPARTMENTS the editor Leaders Q&A: Paul Rodzianko 04 Learning 2 Letter from opportunities In a comprehensive interview, Paul Rodzianko addresses a major issue in the Georgian cement industry: poor-quality cement. In a comprehensive discussion, Rodzianko explains the background for the creation of the Georgian Cement Association, the impact of a possible dumping situation, and what the Georgian cement industry can do to become more competitive and sustainable

Analysis: Have Indian cement 14 Insight prices reached a turning point?

After seeing their margins hammered by rising costs and stagnated prices, Indian cement manufacturers are enjoying some respite thanks to recovering rates. Still, the outlook for Indian cement pricing remains uncertain

Analysis: 4 Challenges for 18 Insight the cement industry in 2019 and beyond

The IMF and the World Bank are expecting the world economy to face several challenges in 2019, as some key economies cool down. As governments face issues that will affect their decisions for investment in the construction sector, how will the global sector be affected by an expected economic slowdown during the year?

Cement & construction Materials

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rOBERT MADEIRA

3 Demand slightly decreased in most numbers in brief

geographies, leading to a price contraction on a USD basis

Research and Analytics 28 Cement Volumes cement 30 regional news

cemweek publisher head of cw group research

Margarida Cunha Editorial Coordinator

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Research: Trade protectionism 24 CW pressures cement prices in 4Q2018 Despite a surge in China’s cement ex-works prices over the fourth quarter, both domestic indices and trade prices were globally dragged down by a combination of economic headwinds, adverse weather conditions, and subdued demand

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letter from the editor

Learning opportunities

n the previous issue of India Cement & Construction Materials, I wrote about how cement manufacturers in India, through resilience and optimism, are building the future with strong foundations. Despite a challenging 2018, producers remained enthusiastic about 2019 thanks to improved utilization rates and a forecast increase in Indian cement demand.

Perseverance paid off. In February, the average price of bagged cement finally recorded a significant improvement, providing manufacturers with much-needed relief.

However, some risks subsist. In this issue of ICCM, we look back on how Indian cement producers have struggled in the past couple of years with a competitive market plagued by lukewarm demand, and ponder whether the rising trend in cement prices is likely to continue.

evolution of both domestic indices and trade prices of cement over the fourth quarter of 2018 and analyzes the main factors behind their contraction.

The negative evolution of cement prices can be framed within a broader scenario, one in which economic, and environmental factors, among others, are bound to shape the global cement industry in the coming years. Be sure to read our feature on the four main challenges facing the cement sector in 2019 and beyond.

The times may be challenging for the industry in the coming years. But they also represent learning opportunities. And if there is something the cement sector has shown thus far is that it can be an excellent student.

But India is not alone in its challenging atmosphere concerning cement prices. Trade protectionism continues to take its toll on a global scale, with regional economies showing a slightly negative pricing trend in the last quarter of 2018. In this issue, CW Research examines the

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India Cement and Construction Materials Journal

Margarida Cunha

Editorial Coordinator

numbers in brief

Cement prices

decrease globally in 3Q 2018

Demand slightly decreased in most geographies, leading to a price contraction on a USD basis During the third quarter of 2018, cement ex-works prices declined in most geographies. A slight softening of demand year-to-year and the depreciation of local currencies in key markets were the main reasons behind the downward trend.

CHART: 3Q2017 and 3Q2018 Ex-Works Regional Prices (USD/t)

Source: Company reports, CW Research’s Global Cement Trade Price Report

The most notable decrease in ex-works cement prices in USD per ton occurred in the Middle East. Intense competition from neighboring countries and lower demand are the two main factors for the average ex-works price to have decreased 11.3% in this region. Nevertheless, ex-works cement price in USD per ton registered a 27.9 % YoY increase in China. A steep increase in the cement price in China is mainly attributed to the closure of several cement plants (as part of the government’s consolidation and scaling down process), which limited cement supply, coupled with a decline in consumption that is slower than the decrease in production.

CHART: 3Q2017 and 3Q2018 selected retail prices (USD/t)

Source: Company reports, CW Research’s Global Cement Trade Price Report

A similar increase was registered in the Chinese cement retail price during 3Q 2018. In the Mediterranean Basin region, retail prices decreased when considering the regional average. Turkey was the country with the biggest decline retail price-wise, registering a 24.1 percent contraction year-on-year. The depreciation of the lira (when compared to US dollars) and a decrease in cement demand played an oversized role in the Turkish pricing decline. Egypt’s pricing appreciation (in USD terms) was not enough to offset a decrease in the cement regional average retail price. The slight recovery of domestic cement demand was not sufficient to counter the regional price decline.

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Leaders Q&A

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India Cement and Construction Materials Journal

Paul Rodzianko President – Georgian Cement Association; Chairman/CEO – Kavkaz Cement

In an exclusive interview with CemWeek Magazine, Paul Rodzianko addresses a major issue in the Georgian cement industry: poor-quality cement. In a comprehensive discussion, Rodzianko explains the background for the creation of the Georgian Cement Association, the impact of a possible dumping situation, and what the Georgian cement industry can do to become more competitive and sustainable

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Leaders Q&A The Georgian Cement Association (GCA) is a very recent one, having been formed in 2017. What factors played into the creation of the Association?

For several years, the Georgian Building Group (GBG), a wholly-owned subsidiary of our Kavkaz Cement holding company, conducted market surveys the way any responsible company should, to evaluate and see for ourselves the quality of competing bagged cement products available on the Georgian market.

We visited different markets, purchased sample bags from different producers, and then tested these products in our accredited laboratory. We were shocked by the results. Some bags advertised a strength of, say, 32.5 mpa but, in

actuality, the range of tested strengths was huge: about one-quarter of the samples tested to the advertised specification but three-quarters failed by as much as 90% – a shocking disparity. Clearly, the purchasers of these products were being cheated as to the quality of the product they thought they were buying.

If you don’t put clinker into cement according to standard industry formulas, you will produce a product that costs a lot less and looks the same as quality cement The other major conclusion was that certain producers, by selling an inferior product disguised as a quality product,

were competing unfairly with the producers who were producing quality cements. Clinker is the most expensive raw material for making cement. If you don’t put clinker into cement according to standard industry formulas, let’s say 70% to 80%, and you instead put in 20% to 30%, you will produce a product that costs a lot less to make and yet visually looks the same as quality cement. As a result, the cheaters, even while discounting their prices somewhat, make a lot more money – at the expense of their customers and at the expense of the quality producers’ market share.

One of the ironies of this situation is that a number of these small producers are fully capable of manufacturing good-quality wholesale cement because builders they sell to test every shipment to ensure quality for their construction. Retail customers who buy bags do not test the product they buy. As a result, by putting bad cement into bags that cannot be traced to them, the cheaters realize a much higher profitability – at their customers’ expense – as well as engage in unfair competition with the quality producers.

Once all this became clear to us, we compared notes with HeidelbergCement.

They too had been performing similar

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F

ormed in January 2017, the purpose of the GCA is to inform all Georgian cement producers and users as to how (1) construction safety is affected by cement quality and (2) customer protection is guaranteed by “truth in advertising” of cement products sold in bags.

Furthermore, it is important to note that maximizing domestic production of quality cement results in job creation and incremental economic growth. To meet this need, HeidelbergCement Caucasus

(HCC) and the Georgian Building Group (GBG), a wholly-owned subsidiary of Kavkaz Cement, have decided to form the Georgian Cement Association.

market tests and had encountered the same situation. We both agreed that a sustainable Georgian cement industry could not tolerate such cheating. As a result, we decided to form the GCA in order to bring the issue of cement quality into the public’s view by educating the consumer and the government as to what was really going on. To do so in in the

most proper way, we decided to enlist the support of the Georgian Chamber of Commerce to purchase the samples anonymously in the open market four times a year and to organize a blind testing with the Georgian Technical University. Membership is open to any Georgian producer whose products meet international quality specifications. Our initial press conference took place in January 2017. It was well attended by

The founding members have united around the issue of cement quality.

To achieve this goal, it is essential to test all domestically-produced products, those of the founding members as well as those of all other local producers, in order to ensure that the quality of cement in the bag corresponds to the

quality of the product specified on the bag. Bags to be tested will be purchased anonymously in the open market quarterly and distributed to laboratories on a “blind” basis. Testing shall be conducted primarily by an independent and neutral laboratory, such as Georgian Technical University, and reconfirmed by parallel testing.

Additionally, the overall process will be supervised by Chamber of Commerce and industry of Georgia, as an independent and neutral side. both government and industry as have subsequent ones. Our next one should take place in February 2019. While the number of conforming products has increased somewhat over the last couple of years, there is much that needs to be done and we welcome the Government’s responsiveness and initiatives in this direction.

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Leaders Q&A What role can the Association play in stimulating and promoting the Georgian cement industry?

The Georgian cement industry does not operate in a vacuum. Turkey has a very large cement production capability.

Azerbaijan has a pretty substantial one, while Armenia is quite modest. Iran not only has one of the largest production capacities in the world, about 90 million tons, but also possibly the largest currently unutilized capability – about 50 million tons.

In Georgia, three major companies – ourselves, i.e. Kavkaz Cement; HeidelbergCement; and more recently Lafarge – produce most of the cement in Georgia and about 25 small producers the rest. HeidelbergCement is the only

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There’s enough milling capacity to meet all current and potentially all future cement requirements of Georgia producer of clinker in Georgia and, until late last year, had been operating a mixture of wet lines and dry lines but, with the completion of their large dry line project in Kaspi, they have shut down the wet lines which could, however, be reopened if market demand justifies such a move.

With all lines running, Heidelberg’s clinker production capacity could

India Cement and Construction Materials Journal

potentially supply the entire Georgian cement market even if today’s market demand increases substantially due to all of the expected infrastructure projects.

The same is true with respect to milling capacity if you include the capacity of all the small mills in the country as well.

There’s enough milling capacity to meet all current and potentially all future cement requirements of Georgia.

The role of the GCA is to encourage as much quality domestic clinker and cement production as possible in order to ensure a sustainable building materials sector contributing significant jobs and tax revenues. If there is sufficient clinker and cement milling capacity in-country at least at present, the big question becomes, how does one deal with all of the potential imports of both clinker and cement from nearby countries?

Over the last few years, clinkers primarily from Turkey, Azerbaijan, Armenia and Iran have been imported into Georgia but a little has also come in from farther away.

Currently, Azeri and Iranian clinker are present on the market but at significantly differing price levels.

Some of the imports are priced at levels comparable to those offered by HeidelbergCement and others at very significant discounts to the prevailing market price. The Government has now also instituted a process of testing imported clinkers and/or requiring a certificate as to guarantee of quality.

Perhaps it is helpful to remind ourselves now that clinker and cement are large-scale commodity items. To be manufactured cost-effectively, clinker is manufactured in large kilns. The components of clinker are also commodities: limestone, slag, electricity, etc. The result is that the cost of manufacturing clinker of a certain quality is pretty standard and well-known around the world. It is just not possible to have

It is just not possible to have huge discrepancies in the intrinsic cost of clinker huge discrepancies in the intrinsic cost of clinker. The same is true of cement since a certain amount of clinker is blended with proportions of gypsum, additives and energy to produce the finished product.

Once again, the cost structure of cement is quite predictable. The question that needs to be asked is: if Georgia has the overall lowest-cost of cement in the region, why are other countries able to import competitively into Georgia while Georgia is in effect prevented from exporting to those same neighboring countries?

The four major clinker suppliers have also imported cement into Georgia. In

December last year, the GCA for the first time tested a few samples of foreign cement bags. Roughly half of the samples tested turned out to be below-specification. The Georgian government was concerned by this situation and, as a result, temporarily banned all imports of cement. It is not clear currently whether or how the border might be re-opened but product testing or certificates of quality should certainly have to be part of any new procedure.

We have discussed that the role of the GCA is to represent the industry in making recommendations to the Georgian government as to what measures would be appropriate in light of the foregoing.

One of the two most important issues certainly is that some cement is coming into the country at extremely low prices. The logical question: If cement is being shipped from a thousand or two thousand kilometers away and the price is substantially lower than any produced locally, are we dealing with a dumping

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Leaders Q&A situation? In our opinion, it is important, not only in cement but also in any industry sector, for governments to have anti-dumping regulations that can be triggered in such situations following an in-depth analysis of any such situation. If no such legislation exists, then dumping, i.e. an economic attack, can take place with impunity at any time, in any business sector and from any country. In the case of cement, such an attack could destroy Georgia’s domestic industry and result in the loss of thousands of jobs.

Some nay-sayers believe that such legislation might be wrongly applied to sectors where inexpensive imports provide an economic benefit to Georgia.

My response would be that, in such an instance, it would not make sense to activate such a legislative defense. Such actions would only apply to dumping actions that threaten Georgian economic well-being.

The other critical issue is to address relations with neighboring countries who wish to export to Georgia while prohibiting exports of similar commodities from Georgia to them.

Some restrictive actions result from high import duties on these products and other measures. The question here is

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If cement is being shipped from a thousand kilometers away and the price is substantially lower than any produced locally, are we dealing with a dumping situation? whether Georgia should enact legislation analogous to the legislation in whatever neighboring country effectively prohibits Georgian exports. This might be called “the shoe on the other foot” test.

Finally, it is most gratifying that the Georgian government has now enacted measures to test the quality of production internally with real penalties to be levied on those companies that engage in manufacturing malpractice.

To summarize, there’s a number of policy levels on which we can advise the Government. It’s important for a country

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such as Georgia that doesn’t have a large industrial base, to protect, not unfairly, its manufacturing sector and the jobs of the working people. Our mutual goal should be to make sure that cement and concrete are sustainable, long-term contributors to job growth and the economy.

According to the Association, in tests conducted in December 2017, out of 26 samples of cement produced in the country, only eight turned out to be of high quality. In the most recent test conducted by the GCA, nine out of 21 samples met European Standards. How challenging is cement quality for the Georgian cement industry, and what can be done to improve it?

Since January 2017 until December 2018, we’ve had mixed results. In some testing rounds, a few more samples came in favorably, but the percentage fluctuates. We don’t have a steady line of improvement. We’re seeing a certain amount of movement to improve quality overall but there’s still way too much cheating going on. As I mentioned above, the flood of imports – Iranian, in particular, at exceptionally low prices, caused us to start testing those products as well.

We were actually surprised to discover that roughly half of the samples tested did not meet specifications. Those results demonstrated that the GCA has to be vigilant and test absolutely everyone and every product that is on the marketplace.

I also want to stress the irony that some of the international products that were tested and turned out to be off-spec came from very large producers who are perfectly capable of producing excellentquality cement.

So, clearly, you have to ask yourself the question, just as in the case of small mill producers who produce off-spec cement: are they doing it deliberately for greater profit? Are they just getting rid of their off-spec product? I’d say it’s a mixed result. There’s some improvement with some players, and lack of improvement with others.

What are the other main challenges of the Georgian cement industry in the coming years?

On a macro level, thanks to the infrastructure projects that could very well start hitting this year, a very substantial increase in demand for product is likely to take place. The challenge will be how to meet that demand. I discussed above that Georgia has the potential to meet most if not all of this demand by domestic clinker, cement and concrete production.

Notwithstanding this potential, it is clear that neighboring countries are interested in supplying the Georgian market. We have discussed these issues above but at present I cannot predict how it will all play out. However, it would most certainly be beneficial for Georgia to meet the challenge of increasing domestic production if the market size expands dramatically due to infrastructure projects.

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Leaders Q&A A major challenge concerns modernization. There are basically two dry line kilns in operation and three producers who run modern cement mills with closed circuit grinding capability in the country. As far as I know, all the other cement producers have older-generation equipment and cannot operate with the degree of economic and environmental efficiency that a more competitive market will require, especially if competitivelypriced imports become a larger factor on the market. As a result, I’d say that the challenge for a large number of small cement producers is to decide whether they can afford to modernize. Their trade-off is between reinvesting money into their business in the form of more hard assets so as to be able to compete in the longer term or whether to adopt a short-term mentality by saying “we’re going to cheat on quality, since we don’t want to invest long term in the plant, and we’ll hang in there as long as we can.”

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Are producers of off-spec cement doing it deliberately for greater profit?

As such, the challenge would be for small players to modernize their facilities, so that the Georgian cement industry as a whole can consistently produce a high-quality cement, while addressing environmental issues.

India Cement and Construction Materials Journal

The cement industry continues to be one of the most polluting in the world. What steps is the Georgian cement industry taking towards a more sustainable production approach?

There’s a big difference between producing clinker by the wet method or by the dry method. The dry method is a much more cost-effective and environmentally friendly way. The dry method uses fewer resources, less water, less electricity, and it’s much more effective overall.

HeidelbergCement has shut down their wet lines in Georgia and is now producing exclusively on dry lines. This step alone has addressed a major environmental aspect of in-country clinker production.

That being said, in the region, every country around Georgia, Turkey, Azerbaijan, Armenia and Iran all operate dry line capacity – the environmentally friendlier production of clinker. But, since we are addressing imports, let us examine another environmental aspect related thereto: transportation. Clinker is transported to Georgia via rail, truck or combination of rail and ship. The further away that an exporter has to ship their products to Georgia, the larger the environmental footprint – from transportation.

As far as to further optimize the dry line environmental efficiency, that could be achieved potentially by burning tires and garbage. Is that a feasible option?

The new Kaspi dry line is configured in such a way that such a fuel option can be implemented technically but the logistics and economics of collecting and delivering this material would have to be studied fully.

The challenge for a large number of small cement producers is to decide whether they can afford to modernize When it comes to the production of cement from clinker, which is primarily a milling activity, you’re dealing with two aspects: 1. the amount of energy necessary to operate the facility; 2. how much dust is produced by the mill. In the case of the three producers with the most modern mills, they have already optimized the cement milling process by increasing energy efficiency (more efficient mills), closed circuit grinding and state-of-theart filtration systems.

A couple of years ago, Kavkaz Cement/ GBG upgraded our mill capacity and added a separator. As part of the EBRD/ BoG financing facility, we received a substantial grant for having dramatically improved our energy efficiency.

I think that the way for the industry to become more sustainable and profitable over the long term is to have people committed to upgrading, investing, and honoring quality by producing the product that is specified on the bag.

The government also has an important role to make sure that appropriate measures are triggered should a dumping or similarly unfair competitive practice appear in the market. Assuring the Georgian customer that all cement producers are producing a quality product is also essential, even to the extent that enforceable regulatory policies are adopted.

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Insight Analysis

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Have Indian cement prices reached a turning point?

After seeing their margins hammered by rising costs and stagnated prices, Indian cement manufacturers are enjoying some respite thanks to recovering rates. Still, the outlook for Indian cement pricing remains uncertain.

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Insight Analysis

H

igh production costs, overcapacity, and low prices painted a grim landscape for the Indian cement market over the course of the past three years. With demand showing signs of recovery, hopes of reconquering pricing power reverberated in the market. A sharp increase in the average price of bagged cement, witnessed during February, seems to have vindicated the more optimists, but caution is still required.

Closing 2018

For the past three years, cement manufacturers in India have endured a competitive market, characterized by an excess in supply and lukewarm demand.

Companies have been forced to introduce their products at a discount in the market in order to maintain their sales, further depleting their pricing power.

Falling prices, combined with a sharp increase in the costs of freight and energy and the depreciation of the Indian rupee, have squeezed the profit of cement manufacturers. During the fourth quarter of 2018, coal and diesel prices rose by 5.8 percent while average price realization in the cement sector declined by 0.7 percent.

Utilization rates have been providing some hope to the sector. In the first semester of 2018, most cement producers reported an improvement in their utilization rates.

Even during the third quarter, when the monsoon typically reduces the volume of construction activity, the sector was able to maintain an average rate of 70 percent, compared to 65 percent a year earlier.

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Out of the six major cement manufacturers in India, three – UltraTech Cement, The Ramco Cements, and Dalmia Bharat – registered a decline in their EBITDA margins in every single quarter of the year.

Shree Cement’s EBITDA margin declined in three out of four quarters, while the two companies by LafargeHolcim, ACC and Ambuja Cements, recorded a fall in EBTIDA margins in half of the quarters.

Falling prices, combined with increased production costs and the depreciation of the Indian rupee, have squeezed the profit of cement manufacturers The current landscape The end of the monsoon is usually a time when prices recover, with construction activity typically picking up. However, manufacturers were disappointed to see prices entering their fifth consecutive monthly fall during December, with a panIndian average decrease of one rupee. Even in southern states such as Karnataka and Kerala, the most affected by the copious rain, prices continued to fall, and in Tamil Nadu, slow approvals of real estate projects and lack of timely payments to contractors by the government – among other factors – contributed to depressed cement rates.

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The real turnaround came only in February, when the average All-India prices rose

by INR 17 to INR 334 per 50-kilogram bag. However, this price hike was still regionally unbalanced, with prices going up by an average of INR 40 in the southern states and by INR 14 in West India while rising only marginally or even falling in the remaining regions. Price hikes have only become fully effectively in March.

Sanjay Ladiwala, chairperson of the Cement Stockists & Dealers Association of Bombay, told the Business Standard overcapacity in the southern states has been dragging the national average. With infrastructure projects in the region coming to life and tax breaks to be felt in the realty sector, the situation has now headed towards improvement. But in spite of the latest rally, demand is still a problem for manufacturers.

Dealers say that uncertainty created by the upcoming general elections is cooling down the market.

Cost-wise, petcoke prices have declined by 20 percent, opening up some breathing room to manufacturers. On the other hand, wage adjustments are expected to increase costs with staff by two percent.

and that it is now more difficult to enter the sector, contributing to a de-escalation of competition.

The managing director of Shree Cement, H M Bangur, believes that overcapacity is still a strong fundamental of the Indian cement market Going forward UltraTech, currently the leading cement manufacturer in India by installed capacity, believes that cement demand will continue to increase by a margin corresponding to 1.2 times the gross domestic growth rate, supported by large infrastructure, affordable housing, and rural housing segments.

Speaking to the World Economic Forum in Davos, Puneet Dalmia, group managing director of Dalmia Bharat Group, said that the construction of 15 metros and several new airports will contribute to manufacturers regaining their pricing power. He believes the sector has achieved a measured consolidation in the past years

India is the second largest cement producer in the world. However, the country has one of the lowest per capita cement consumption in the world, at 210 kilograms, below the world average of 580 kilogram and the astonishing 1,780 kilograms per person registered in China. Thus, there is still plenty of room for the cement sector to expand. The main question is whether or not demand will be able to keep up with new capacity additions.

The managing director of Shree Cement, H M Bangur, believes that overcapacity is still a strong fundamental of the Indian cement market. The construction of new factories, he says, will contribute to cap prices to a growth of three to four percent.

Conclusion Few attempt to predict whether or not the latest price hike in Indian cement market is sustainable. An improvement in the market conditions of southern states and an increased capacity utilization seem to be providing some hot steam to prices, but uncertainty over the coming general election and the construction of new cement factories are pushing in the opposite direction.

The Indian cement market is much regionalized, as one can see through the difference between the sharp price hikes of South and East India, and the more stable situation of the rest of the country. For this reason, it is important to remember those differences, expect regional imbalances, and consider the geographical exposure of each company.

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Insight Analysis

4 Chall e n the cem ges for e in 2019 nt indust ry and be yond

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The IMF and the World Bank are expecting the world economy to face several challenges in 2019, as some key economies cool down. As governments face issues that will affect their decisions for investment in the construction sector, how will the global sector be affected by an expected economic slowdown during the year?

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Insight Analysis

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019 could be a proving year for the cement industry at worldwide level as the global economy is expected to face several challenges, which in turn could dampen investment in construction projects, and lead to a decline in consumption of cement.

The slowing economic growth

The forecast for the global economy in 2019 has been lowered, with the IMF decreasing its global growth expectations to 3.5 percent, 0.2 percentage points below its October report, while the World Bank is projecting global growth to slow down to 2.9 percent during the year in its most recent Global Economy Prospects.

The slowdown is mostly expected due to the impact of the trade conflict between the US and China, among others, and to softening international investment and production, as well as financial distress in some of the strongest economies, such as Germany and China.

Financial policies around the world are also expected to tighten as economic conditions are set to worsen, which could make it more difficult for investors to borrow credit, a problem that could impact the industry in both the growth of supplies, and in the number and size of projects, leading to a decline in demand.

The Chinese headwinds China’s sluggish economy in 2019 is one of the most concerning factors for the global cement market, as the country is one of the largest producers and consumers of cement. The IMF and the World Bank are

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forecasting the Chinese economy to grow by 6.2 percent in 2019, a pronounced decrease from the exponential expansion from the previous decades, and one of the smallest since 1990, according to Bloomberg.

Cement companies in the country are expected to shut down some of their capacity due to tighter environmental regulations, which could offset the increase of almost four percent per year between 2018 and 2023 projected by CW Research for global ex-China.

Financial policies around the world are expected to tighten as economic conditions worsen In its latest Global Cement Volume Forecast Report, CW Research projects cement capacity in China to slow down and contract at an annual average of 3.0 percent between 2018 and 2023, as the country rolls out new capacity rationalization efforts related to its new environmental policies.

Likewise, CW Research forecasts Chinese cement demand will continue sliding through 2023, whereas consumption in

India Cement and Construction Materials Journal

global ex-China is poised to improve by one percent during the same period.

The lack of investment in the real estate and infrastructure sectors by the Chinese government is one of the factors weighing cement demand down, as the market’s consumption is estimated to have decreased by almost three percent from 2017 to 2018, to 2.55 billion tons.

One, two, three, four, I declare a trade war The trade tensions between the United States and some of its major trade partners, including China and the European Union, are also one of the major dampeners for the global cement trade from 2019 onwards.

Some investors are holding out to see if the most recent trade truce announced in early December at the G-20 summit, in Argentina, will achieve any positive outcomes, especially as the recent tariffs and trade barriers concerned many raw materials used in the construction industry, including iron, steel, wood, and fuels, such as coal, diesel, and petcoke.

The conflict is already having an impact on the trade of key commodities between China and the United States, with other global players in key sectors, such as grain, benefitting from the heavy tariffs that the two nations imposed on each other’s products. This could prove an opportunity for some, but as the global macroeconomic picture remains challenging, several governments could hold out investment in infrastructure and other large-scale construction projects, which could further dampen demand.

An automated and sustainable future The cement industry is increasingly under pressure to reduce emissions, as carbon dioxide production during the manufacturing process is very high, with estimates from Chatham House placing it at around eight percent of all fossil fuel emissions, the third largest source of anthropogenic emissions of carbon dioxide. Not only that, but cement production is also an energy-intensive

process, which usually means the burning of fossil fuels such as coal, petcoke and fuel oil, which have a high rate of emissions.

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Insight Analysis Furthermore, automation is a cement equipment sub-segment that is bound to shape trends in the future. An increase in automation – be it in process monitoring, control, regulation, or optimization systems – could help companies optimize their existing facilities in order to cut emissions and improve compliance with regulations, as it eliminates inefficiencies.

According to CW Research’s World Cement Equipment Market and Forecast Report, companies are expected to invest in equipment to their existing facilities rather than in greenfield or brownfield expansions, particularly in machines that provide more flexibility in the fuel process.

The use of alternative fuels by the cement industry in the European Union was studied by the International Financial Corporation, which shows that they comprise 31.6 percent of the total fuels used in the cement industry, with conventional fossil fuels representing 63.7 percent of the total, and biomass accounting for 4.6 percent. The preferred alternative fuels are plastics (37.1 percent), mixed industrial waste (17.7 percent), and the burning of tires (14.9 percent).

While the industry in Europe has a good rate of replacing their fossil fuel consumption, they only account for a small portion of the global cement production; but the alternative fuels that they use is a good representative of the

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Cement companies in China are expected to shut down some of their capacity due to tighter environmental regulations industry on a global scale, and shows that, while there have been significant strides in reducing the share of the use of fossil fuels in the industry, there is still much to be done, and the switch to these fuels needs to be coupled with other initiatives, such as carbon capture.

Processes such as waste heat recovery and carbon capture could also provide added value for the industry, once they are optimized. Carbon capture and storage is no stranger to the green agenda, but Norway has come up with a plan that has renewed global interest in the process:

India Cement and Construction Materials Journal

the world’s first undersea CCS project to capture CO2 emissions from multiple industrial sources, which would then be stored in the Norwegian continental shelf.

The first phase of the project could reach a capacity of approximately 1.5 million tons per year. Norway would thus stimulate new commercial carbon capture projects in the country, Europe and more globally across the world. In addition, the project has the potential to be the first storage project site in the world receiving CO2 from industrial sources in several countries. When it comes to carbon capture and storage, the challenge for companies would be the initial investment, which is significant and could deter producers with the best of intentions.

Other solutions involve the use of industrial waste during the manufacturing process. In India, manufacturers have begun incorporating fly ash, a byproduct of coal burning, in the cement production process. Thanks to this, the country has been able to consume about 63.3 percent of the fly ash it produces, with the cement industry being the top consumer of the ash, with a share of around 24 percent.

The use of renewable energies in the industry is also being studied, with the most

An increase in automation could help companies optimize their existing facilities in order to cut emissions and improve compliance with regulations recent international case involving the use of a solar reactor and how it could be used in the production of cement. Companies such as Dalmia Bharat and LafargeHolcim are also investing in solar energy research so that they can more easily incorporate it into their operations.

More solutions such as these are necessary, especially if the industry at a global scale is to contribute to the Paris Agreement goals, which aim to keep temperature rises below two degree Celsius above preindustrial levels by 2050. A new study

by Chatham House calls for the sector to reduce emissions by around sixteen percent up to 2030 in order to be able to comply with the Paris Agreement goals.

Conclusion The worldwide cement industry should expect a challenging 2019, as the global economic prospects are not very positive.

As macroeconomic conditions worsen, financing is set to be tighter, and trade conflicts between large economies are not likely to benefit the climate for large investments either in the industry or in large projects that require cement.

The Chinese economy remains the most concerning factor and challenge for the industry during the year, as the country plays a major role in both the supply and demand sides.

China’s size in both the industry and the global economy is a huge influence on smaller markets, so any negative effect on its market is likely to have repercussions throughout the world.

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feature CW RESEARCH

Trade protectionism pressures cement prices in 4Q2018 Despite a surge in China’s cement ex-works prices over the fourth quarter, both domestic indices and trade prices were globally dragged down by a combination of economic headwinds, adverse weather conditions, and subdued demand.

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feature

I

n the fourth quarter of 2018, global gray cement ex-works prices weakened across most major markets, with the exception of China, according to the 4Q2018 update of CW Research’s Global Cement Trade Price Report. Trade prices for gray cement also recorded a mild decline over the fourth quarter, despite a year-on-year increase.

In China, tighter environmental regulations led to a significant reduction of cement capacity

Curbed capacity boosts “Adverse weather conditions, stagnating domestic prices in China demand, and the depreciation of national currencies against the US dollar are some of the reasons attributed to the contracting trend in gray cement domestic indices”, notes João Sobrinho, business analyst at CW Group. “Despite a positive outlook for trade prices, a few risks subsist. Currently, the largest threat to growth in the global cement industry continues to be trade protectionism, which, coupled with geopolitical tensions and political uncertainties in key economies, could pose an obstacle to the recovery of cement prices.”

In China, the average ex-works price of cement surged almost 20 percent on a yearly basis. Increasingly tighter environmental regulations led to a significant reduction of cement capacity, thus translating into favorable pricing when compared to the same period in 2017.

In Algeria, the domestic cement market is no longer undersupplied. With cement production continuously increasing and surpassing demand, cement prices are continuing to decrease.

EX-WORKS REGIONAL AVERAGE PRICES (USD/ton)

Source: CW Research

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As for the US, cement ex-works prices inched down on a year-on-year basis, a contraction mainly driven by the adverse meteorological conditions that plagued the region.

In the UAE, ex-works prices for cement hiked 23 percent compared to the same period the previous year, due to an increase in cement demand. On a quarter-onquarter basis, ex-works prices slipped as a result of a tough competitive environment.

FOB prices poised to recover In the quarter ended in December 2018, global average trade prices for gray cement inched down to USD 60.8 per ton when compared to 3Q2018.

During the fourth quarter of 2018, Turkey, Japan, and Canada were among the top exporting markets of the commodity, with Turkey emerging as the world's largest gray cement exporter, accounting for nine percent of the total trade.

In the upcoming three months, most regions are expected to record an increase in gray cement FOB prices, with the exception of Eastern Europe, North

In the upcoming three months, most regions are expected to record an increase in gray cement FOB prices America and Caribbean, and Scandinavia and the Baltics. The Asia-Pacific-Japan region is projected to witness the biggest price hike, with trade rates forecast to top USD 50 per ton.

Asia-Pacific-Japan leads clinker and slag exports In 4Q2018, white cement export volumes slightly declined to 1.4 million tons, when compared to the previous quarter. Likewise, on a quarterly basis, FOB prices for white cement are estimated to have recorded

mild contractions in markets such as AsiaPacific-Japan, and the Mediterranean Basin.

Conversely, regions such as Western Europe and the Middle East have witnessed an estimated price increase of 11.7 percent and 4.2 percent, respectively.

As for clinker, over the fourth quarter, global trade volumes rose over 14 percent on a quarter-on-quarter basis, an increase that was even more significant as compared to the same period the previous year. In 4Q2018, global average clinker trade prices are estimated to have reached USD 38 per ton in 4Q2018 for a set of 23 countries.

During the period, Asia-Pacific-Japan is once again estimated to have been the world’s largest clinker exporting region.

Regarding slag, in the quarter ended in December 2018, global export volumes improved to over six million tons when compared to 3Q2018. Similarly, average FOB slag prices recoded an upward trend on a quarterly basis, being estimated to have reached USD 15.4 per ton in 4Q2018. AsiaPacific-Japan remained the world’s leading exporting market for the commodity, having accounted for over 60 percent of the total trade during the quarter.

About the report The Global Cement Trade Price Report (GCTPR) is CW Research’s benchmark price assessment for monthly gray cement, white cement, clinker and granulated blast furnace slag prices and volumes.

The 150+ page report, published on a quarterly basis, serves as the industry go-to source for monthly price data for over 70 individual markets worldwide, including multiple cornerstone data series: import, export, ex-works and market prices. Additionally, the GCTPR includes extensive discussion of key players’ price strategies as well as trade price forecast and select trade volumes for each country.

The report also provides regional price indices as well as a quick review of trading dynamics and drivers in the different regions. Additionally, the GCTPR includes monthly historical data series, preliminary estimates for the latest quarter, as well as a threemonth forecast for all price types.

More information about the report can be found here: http://www.cwgrp. com/research/research-products/ product/1-global-cement-trade-pricereport

For more information and placing an order, please contact Liviu Dinu, Market Services & Marketing Consultant, CW Group (Europe), by phone at +40-74467-44-11, or e-mail at ld@cwgrp.com.

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CEMENT MARKETS

CW Research

Cement Volumes In October, Peru’s cement production increased 0.2 percent to 8.2 million tons when comparing 2018’s year-to-date to the previous year. This slight increase followed an investment in business buildings.

The Russian economy is recovering, with its cement production rising by 0.4 percent on a year-todate basis as compared to 2017.

Cement production in Argentina rose by 1.7 percent on a year-to-date basis in October 2018 compared to the same period in 2017, and its consumption by 0.7 percent. These shy increases in both production and consumption were due to a slowdown in construction activity.

The Russian economy is recovering, with its cement production rising by 0.4 percent on a yearto-date basis as compared to 2017. This humble increase follows the armed conflict with Ukraine.

From this country selection, India was the one that showed the biggest increase in cement production on a year-to-date basis (15.4 percent), due to the government’s investment in infrastructures and its housing program. The second highest increase in cement output from this set of countries was recorded in Vietnam, with the 5.4 percent improvement on a year-todate basis following increasing exports and a recovering construction sector.

Cement demand in Pakistan increased 8.4 percent on a year-to-date basis. However, without new construction projects announced, cement consumption has reached stagnation.

A great improvement in exports is helping the smallest producers to face rising input costs.

CHART: Year-to-Date Cement Demand in October 2018 (%)

Sources: CW Research

To learn more, please contact the CW Research team at sales@cwgrp.com

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CW Research CEMENT MARKETS

In Kenya, cement consumption dropped 5.7 percent, due to the slowdown in the real estate market, when comparing the year-todate through October with the same period in 2017. Cement production is following the same declining trend, by decreasing 9.0 percent on a year-to-date basis.

elections in June, cement consumption has been growing, due to the increasing confidence in the market and in the housing sector.

Brazil saw its cement consumption decrease by 1.4 percent on a year-to-date basis, due to October elections and to the increasing interest rates that are delaying investment.

Cement demand in Morocco decreased 3.4 percent year-to-date in October 2018, when compared to the same period the previous year, following a decline in the housing and urbanism sector.

In Colombia, despite a month-on-month improvement, cement consumption slipped 0.5 percent on a year-to-date basis through October, when compared to 2017’s YTD. Since the last

Mexican cement consumption rose 1.5 percent on a year-to-date basis, as a result of growing demand in the industrial and commercial sectors.

Due to the economic crisis and lower purchasing power, cement consumption in Chile decreased 0.1 percent on a year-to-date basis through October.

CHART: Year-to-Date Cement Production in October 2018 (%)

In Colombia, despite a monthon-month improvement, cement consumption slipped 0.5 percent on a year-to-date basis through October, when compared to 2017’s YTD.

Sources: CW Research

To learn more, please contact the CW Research team at sales@cwgrp.com India Cement and Construction Materials Journal

March 2019

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cement Regional news

R

egional news

Cement prices surge in India, signal recovery

Over the last year, cement manufacturers have been forced to cut on their prices to ensure sales.

After a long period of depressed prices, average rates have now increased by six percent in a panIndia basis during February.

Prices have recovered by around INR 15-20 per 50-kilogram bag compared to the prices seen by the end of January. The surge was particularly high in the southern states, where prices increased by INR 40-45 per bag.

Meanwhile, in West India, prices have increased by an average of eight percent or INR 12-15 per bag.

In the North, East, and Central regions, price hikes were modest, to the tune of INR 5-8 per bag.

ACC, Ambuja expects slower growth for 2019 The two subsidiaries of LafargeHolcim in India – ACC and Ambuja Cements – are expecting a demand growth to slow down from the nine percent registered in 2018 to around seven to eight percent this year.

According to both companies, demand will be bolstered by government initiatives in the areas of housing and infrastructure. However, higher costs

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with crude oil and raw materials and the high tax rate charge on cement will push demand the other way.

Meanwhile, ACC and Ambuja are expected to benefit from the master supply agreement they mutually entered, allowing the supply of cement at a discount price between them, among other synergy concessions.

LafargeHolcim's Asia Pacific net sales rise in 2018

Tamil Nadu builders want gov't intervention on rising prices

The Confederation of Real Estate Developers' Associations of India is requesting intervention from the Tamil Nadu government after cement prices in the state rose by 36 percent.

"The housing and real estate sector is the biggest demand driver of cement, accounting for 65 percent of the

total consumption. The other major consumers of cement include public infrastructure at 20 per cent, industrial development at 15 per cent”, said WS Habib, president of the confederation’s chapter in Chennai.

Habib pointed out that the hike has life more difficult for the 30,000 construction projects currently underway in the state. Conditions are especially hard for low- and middleincome housing projects.

Cement Company of India sells plant in Madhya Pradesh

Cement Company of India is selling a long-mothballed cement plant in the state of Madhya Pradesh. Deloitte Touche Tohmatsu has been chosen by the government to conduct the sale.

The bidding process for the Nayagaon cement plant is expected to attract much interest from manufacturers with interest in Central and Western Indian markets.

Companies with a minimum net worth of INR 200 crore will be able to make their bids until April 16.

In its full-year results 2018, LafargeHolcim reported the Asia Pacific region benefited from favorable market conditions in most countries, leading to strong Net Sales and Recurring EBITDA growth. China was a key driver of higher profitability. India’s solid demand was driven by infrastructure and rural housing, whereas in the Philippines demand was mainly supported by the public sector. The Malaysian market continued to remain challenging.

The divestment of the entire Indonesian shareholding to Semen Indonesia for an enterprise value of CHF 1.75 billion, on a 100% basis, was successfully closed at the end of January 2019.

Net Sales for the Asia Pacific region overall grew by a strong 8.3% on a like-for-like basis. All segments benefited from pricing traction and contributed to the positive Net Sales development.

Recurring EBITDA showed very strong growth of 22.5% on a like-forlike basis. Strict cost management and price discipline more than compensated for increasing energy costs across the region. The share of Huaxin joint venture profits in China was recognized in the 2018 result, amounting to CHF 334 million of Recurring EBITDA.

”It is an early 1980s vintage unit with a capacity to make four lakh tons of cement a year. The main issue could be the energy efficiency of the unit, while the big positive is that it is bang in the heart of limestone reserves”, a source said.

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Flashback NEWS FLOW IN CEMWEEK.COM LAST TWO MONTHS (darker blue shows higher news volume)

Russia 10 articles

United States 12 articles

Uzbekistan 10 articles

Spain 9 articles Egypt 41 articles

Mexico 14 articles

Pakistan 9 articles

Indonesia 11 articles Brazil 9 articles

cw Research agenda / reports The CW Research will be hosting and participating in a number of webinars and conferences. We invite you to join us on-line or in person at the events to discuss our views of the industry. To learn more, please visit https://www.cwgrp.com/research/webinars-and-meetings

CW Research's meeting agenda includes: April 4, 2019

World Cement, Clinker & Slag Sea-Based Trade Forecast

April 11, 2019

Global Cement Volume Forecast 1H 2019

Cw Research's newest reportS:

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April 25, 2019

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World Cement Bag & Bagging Equipment Industry & Forecast

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Ground and Precipitated Calcium Carbonate Industry and Outlook 2023 December 2018

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Global Calcium Global Cement Aluminate Cement Trade Price Report Market Report and 4Q2018 Update Forecast 2023 January 2019

March 2019

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LafargeHolcim's Asia Pacific net sales rise in 2018 2. ACC, Ambuja expects slower growth for 2019 3. India: Cement price rise worrying real estate developers 4. Indian cement producers start to recover pricing power 5. Dalmia Bharat optimist over cement prices in India 6. JK Cement expects 4Q2018 to show higher profits 7. India Cements sees strong demand boosting prices 8. Cement prices increase in India, doubts persist 9. Cement demand may surpass supply in Eastern, Northern India 10. Cement prices surge in Telangana and Andhra Pradesh

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Prices for Chinese petcoke show mixed trends Chinese petcoke prices remain unchanged INC having issues with petcoke supplies Bapco modernization project including delayed coker 5. Lukoil’s profit increases in 2018 6. Thousands of petcoke offloaded in Namibia 7. Marathon Petroleum wants to continue storage of petcoke along Detroit River 8. Petcoke prices in China fall slightly 9. Indian Oil begins export of products from Paradip refinery 10. Paraguayan cement company denounces petcoke acquisition

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Turkish producers export more cement in 2018 2. Russian Railways transports less cement in January-February 2019 3. Cement consumption, production decline in Kenya 4. Holcim Philippines ordered to close facility 5. Cement prices in Mexico surge over six years 6. Semen Indonesia expects higher cement consumption in Indonesia during 2019 7. Cement makers make new price hike announcement in Turkey 8. White cement project in Novgorod still on the table 9. Cement sales grow in Brazil, January 2019 10. US boosting oil well cement demand through 2024

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Officials in Oklahoma considering new tax in aggregates 2. LafargeHolcim acquires new concrete assets 3. Vulcan Materials’ revenues increase in fourth quarter 4. Armenian government introduces new cement import duty 5. Imerys Talc’s bankruptcy not to impact operations 6. UK construction activity declines in February 7. Ireland: Brexit to pose challenge for construction sector 8. Reliance Infrastructure receives airport contract in Gujarat 9. New Zealand’s construction industry faces several challenges 10. Construction in Dubai expected to improve in 2019

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GLOBAL CEMENT VOLUME FORECAST REPORT The Global Cement Volume Forecast Report (GCVFR) is a twice-yearly, data-oriented forecast report, providing extensive details on the global outlook as well as key cement markets worldwide.

The benchmark report provides a five-year outlook on cement consumption, production, net-trade, cement production capacity and other key cement metrics that decision makers cannot live without. The GCVFR is built with investment-grade analytical rigor, informing industry professionals about what is expected around the corner for world cement markets. visit: http://goo.gl/eib8fE Our global presence: Greenwich (US) • Mumbai (IN) • Porto (PT) • Bucharest (RO) • Sao Paulo (BR)

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