OMAN: Raysut Cement’s profit drops again

Raysut Cement, Oman’s biggest cement producer, yesterday announced a 47 per cent fall in profit before tax at RO10.17 million for the first nine months of 2011, against RO19.03 million posted for the same period last year. 

However, the profit before tax in the previous year included the price subsidy of RO1.59 million received from the government for cement import, the company said in a statement posted on MSM website. 

The decline in profit is attributable mainly to severe competitions faced by the company both in the domestic and the export markets impacting both volume and the price, which have started from the previous year. “The fall in the market value of investment also has added to the pressure.” 

Pioneer Cement for the nine-month period earned a profit of RO1.49 million in spite of the severe competitions faced by the company in the UAE market. 

Raysea Navigation, Raysut’s subsidiary that provides with shipping services, has started commercial operation during the year and has earned profit of RO470,000 during the period of nine months. 

The group has earned revenue of RO62.67 million and the profit before tax of RO11.71 million. In spite of the severe price competition from the UAE suppliers, and the volatility in the export market, Raysut Cement has achieved the sales revenue of RO44.25 million during the period of nine months ending September 2011 against RO49.88 million achieved during the corresponding period in the previous year, a decline of 11 per cent. 

The substantial developmental plan has been mooted or under execution in the central region of Oman with the facilities of modern port. It is expected that the economy in Oman would grow by 5 per cent at current prices. 

The above developmental initiatives have led to larger demand in the infrastructure industry including cement. “However, the dumping of cement from UAE suppliers continues impacting the cement industry in Oman severely. With the larger growth in the region in the coming years, the situation is expected to improve though gradually.” 

This has led the company to explore new avenues for growth in the export front and newer markets, the company’s initiative to further explore the potentials in the export market, alongside meeting the growing demands in the domestic front would place the company in a distinctly advantageous situation in the coming months and years. 

The group as a whole has produced 2,533,512 tonnes of clinker and 233,214,1 tonnes of cement during the period ended September, 2011. During the period of nine months, 1,598,942 tonnes of clinker were produced in the Salalah plant of RCC, against 1,613,317 tonnes produced in the same period of 2010. It produced 1,362,628 tonnes of cement in its Salalah plant, against 1,537,913 tonnes produced for the same period last year. 

The company has sold 1,538,901 tonnes of cement and 329,278 tonnes of clinker during the period against 1,556,788 tonnes of cement and 319,370 tonnes of clinker in the corresponding period in the previous year, registering a decline of about 1 per cent on cement and an increase of 3 per cent in sale of clinker.

INDIA: Dalmia in talks to acquire new cement plants

Cement maker Dalmia Bharat Enterprises is in talks to acquire newly built cement plants to expand in a market where some new entrants, facing subdued demand and rising costs, are seeking exit, its managing director said on Monday.

"Our firm view is that time to invest is when there is pessimism and recession. That's not the time to run away. That's the time to have conviction and courage," Puneet Dalmia told Reuters in an interview.

Dalmia said the company is betting on the long-term prospects for the sector and its partner private equity firm KKR, which holds 15 percent stake in its cement unit, shares its views on acquisition.

"KKR is fully behind us and they have said for the right transaction, a lot of capital is available. So the capital firepower is not a problem. I think the question is can we get a return on the capital," Dalmia said.

The company also plans to utilise its cash reserve of about 2.5 billion rupees for the acquisition.

Acquisitions help consolidate the market and carry less risk compared with greenfield projects, Dalmia said, without giving details on the size or timeframe for acquisition.

It prefers a company based in south and eastern India, where its current plants are, but is also looking at other regions. About 10-20 million tonnes of cement capacity is available for acquisition, he said.

India's cement industry is facing a demand crunch as a rising interest rate, sluggish policy decisions and global uncertainties have slowed the infrastructure and real estate sectors, the key consumers of cement.

New plants have further pressured capacity utilisation and cement prices across the country, forcing some new entrants, who set out to build plants driven by demand optimism and cheap credit available in 2007-08, to seek exit, Dalmia said.

The sellers are now getting more realistic about price expectation, boosting chances for a deal, Dalmia said.

Dalmia Bharat Enterprises operates 13 million tonne cement plants at present. Its plans to add 5 million tonnes of capacity has slowed down as demand is sluggish and it looks to acquire new capacity.

It plans to commision one plant of 2.5 million tonnes in 2 years, but would take longer to complete the other plant.

Last December, it had said it will set up two plants of 2.5 million tonnes each in two-and-a-half years.

Dalmia doesn't see demand for cement reviving in the next 12-18 months and expects prices to remain stable for the next 3-6 months.

"In short term, there are headwinds and there is demand contraction in states which lack political leadership," Dalmia said, adding that overall cement demand was growing at about 3-4 percent, much lower than the industry's expectation of 10-12 percent.

A stubbornly high inflation and rising interest cost are further denting the company's margins, Dalmia said. The cement maker has a current capacity utilisation of 60-65 percent.

At 02.28 p.m., shares in Dalmia Bharat, valued at $180 million, were trading 1 percent lower at 107.95 rupees in a weak Mumbai market.

INDIA: Builders want govt to rein in cement producers

India is the world's second largest producer (224.4 million tonnes per annum ) of cement , after China , in the world. Tamil Nadu is the third largest cement producing state , after Andhra Pradesh and Rajasthan , in the country. But ironically, cement prices in Tamil Nadu are among the highest in the world.

The reason : Against an installed capacity to produce 34.38 million tonnes of cement per annum in the state , the 19 major cement plants and four small plants manufacture only 20 million tonnes per annum . "Underutilization of the installed capacity , cartelization , syndication and rationing of supply have resulted in a rapid rise in cement prices ," noted NNandakumar ,secretary of theTNchapter of the Confederation of Real Estate Developers Association of India.

CementcostsRs 300 per 50kg bagin Tamil Nadu . In the north , it is available at Rs 190 per bag , he noted . Cement being a decontrolled commodity , state and central governments can do little to regulate prices . "But the state , which gives licence for mining limestone , has every right to interfere if the cement manufacturers indulge in unfair trade practices . If they do not fall in line , the issue should be escalated to the Competition Commission of India," opined Nandakumar.

Rising cement prices had put the brakes on government infrastructure projects in the past . When the erstwhile Kalaignar Housing project was stalled owing to spiralling cement prices a year ago , the then DMK government issued a take-over warning to private cement manufacturers . The suppliers wriggled out of the issue by offering cement to the Kalaignar housing scheme at reduced prices . But the common man was left in the lurch even then . The government did not bother much.

While cement consumption is growing at 7% per annum worldover ,in India it is increasing at 9%. The volume of cement entering the international trade is just 6-7 %of the total global production . The rest is consumed in the respective domestic markets.

Large-scale imports are the only immediate solution to tide over the present crisis , opined a senior government official. Tamil Nadu Cements , the state-owned cement supplier , is gearing up to import about five lakh tonnes of cement, out of which, about one lakh tonnes will be imported in the first phase . The government needs to speed up this process.

PAKISTAN: Pakistan’s D.G. Khan Cement Profit Rises on Prices

D.G. Khan Cement Ltd., Pakistan’s second-biggest producer of the building material, said first- quarter net profit rose because of higher prices.

Net income rose to 355.5 million rupees ($4.1 million), or 0.81 rupee a share, in the three months ended Sept. 30, from 46.3 million rupees, or 0.11 rupee, a year earlier, the Lahore- based company said in a statement to the Karachi Stock Exchange today. Sales rose to 5.3 billion rupees from 3.7 billion rupees.

Cement prices increased 25 percent to 400 rupees for a 50 kilogram bag in the north of the country during the three months ended Sept. 30, BMA Capital Management Ltd., a brokerage firm, wrote in an Oct. 20 note to clients while maintaining a “buy” stance on the stock.

“We expect the growth momentum to continue going into the second quarter on the back of a further 15-rupee hike in the cement price,” Farid Aliani wrote in the report. “Should the government decide to eliminate the subsidy on electricity another round of price hikes cannot be ruled out going forward.”

Domestic sales of the building material rose 10.6 percent to 1.6 million metric tons in August, the All-Pakistan Cement manufacturers Association said on Sept. 22. Exports fell 9.5 percent to 1.5 million tons during the two months ended Aug. 31 and local sales increased 13.6 percent to 3.7 million tons.

Total cement sales, both local and overseas, are expected to rise 8 percent to 33.9 million tons in the year ending June, Aliani said.

D.G. Khan’s shares rose 1.9 percent to 22.22 rupees as of the 3:30 p.m. local time close on the Karachi Stock Exchange.

MEXICO: Losses put Cemex under pressure

Cemex, the world’s third-largest cement producer by production, reported hefty third-quarter net losses of $821.7m on Wednesday, heightening concerns over its ability to meet forthcoming debt obligations.

The losses, which were more than twice what analysts had expected, place the Mexico-based company under increasing pressure as it struggles to meet a December covenant to lower its debt-to-earnings ratio.

As part of a $15bn bank loan negotiated in 2009 to avoid bankruptcy, the company committed to reducing its level of total funded debt to seven times earnings before interest, taxes, depreciation and amortisation by December. Last month, that ratio stood at 7.2 times.

Yet analysts were quick to point out that much of the third-quarter losses came from adverse foreign-exchange movements as well as equity derivatives on Cemex shares, which fell more than 50 per cent during the quarter.

Meanwhile, consolidated earnings before interest, tax, depreciations and amortisation grew 1 per cent to $658m for the quarter. “We see the results as positive,” said Barclays Capital in a research note. Cemex shares in New York went up 2.4 per to $3.67 in early morning trading.

Attempting to head off concerns surrounding the December covenant, Fernando González, the company’s executive vice-president of finance and administration, said in a press release on Wednesday that the company continued “to be confident in our ability to meet all of our financial obligations”.

Mr González said that Cemex had already sold $80m in non-core assets during the first nine months of this year, and planned to sell between $100m and $200m in further assets before December. The sell off is part of a plan to raise $1bn in such sales between now and the end of next year.

Fortunes turned sharply for Cemex following its $14.2bn purchase of Rinker, the Australian building-materials supplier, in 2007. The acquisition, which was funded with short-term debt, substantially increased the Mexican company’s exposure to the US and European markets just at the onset of the US financial crisis and subsequent global recession.

More recently, Cemex saw its share price plunge to 13-year lows as prospects dimmed for recovery in key US and European markets. At the same time, a rapid devaluation of the Mexican peso in recent weeks has made it more difficult for the company to pay its dollar-denominated debt.

There were several bright spots in Wednesday’s results. Net sales during the quarter increased 5 per cent to about $3.9bn, driven mainly by a 9 per cent year-on-year improvement in northern Europe where sales were $1.3bn. In the US, net sales reached $713m, up 4 per cent compared with the same quarter in 2010.

AZERBAIJAN: New cement plant Holcim in Azerbaijan to start clinker production by the end of the year

Baku, Fineko/abc.az. Swiss company Holcim finishes work on expansion and efficiency increase of OJSC Garadagh Cement’s cement plant in Azerbaijan belonging to it.

Today in Baku CEO of Garadagh Cement Raoul Waldburger has reported that the realization of investment project for 300 million euro is coming to an end.

" The new kiln at Garadagh Cement will start clinker production by the end of the year ",- R. Waldburger said.

Earlier construction work on kiln erection was expected to finish by 30 June 2011 and testing production output – by the end of the year.

Construction work is being carried out by Chinese CBMI Construction Company (belongs to Sinoma International Engineering). Thanks to new kiln construction the plant will pass to dry cement production technology and capacity of the enterprise will increase from 2,616 to 4,000 tons clinker per day or from 1.3 million to 1.7 million tons per year. At the same time, power consumption for manufacture of one ton of cement will grow from 61.2 to 72.8 kW.

Cost of the project makes 325 million euros ($442 million), out of which 57 % (185 million euros or $251 million) will be provided by the basic proprietor of enterprise Holcim, and 140 million euros – by ADB (20 million or $27 million) and the European Bank for Reconstruction and Development (EBRD) (120 million euros). Loan for Garadagh Cement is the first investment of ADB in infrastructure of private sector in Azerbaijan.

Controlling block of shares of Garadagh Cement belongs to Switzerland-based Holcim Ltd. The plant, 35 kilometers from the Azerbaijan capital of Baku, is the only integrated clinker and cement producer in the country. In 2008, the European Bank for Reconstruction and Development (EBRD), a minority shareholder in Garadagh Cement, began to arrange loaning needed to help upgrade the plant.

SAUDI ARABIA: Saudi Arabia to Offer 7 Cement Licenses This Year, Okaz Says

Saudi Arabia plans to offer seven licenses for cement plants before the end of the year, Okaz reported, citing Deputy Minister for Mineral Resources Sultan Shawli.

A license-holder can own 50 percent of the cement plant while the balance must be sold in an initial public offering, the Jeddah-based newspaper said, citing Shawli. The Ministry of Petroleum and Mineral Resources has selected 16 limestone sites across the kingdom, the newspaper said, citing the official.

EEUU: Ash Grove Cement Company in Inkom to suspend production

Ash Grove Cement Company is announcing plans today to alter operations at six of its 10 manufacturing plants in the Midwest and Western United States due to poor economic conditions that continue to affect the entire U.S. cement industry.

Ash Grove will temporarily suspend production at six plants, as inventories continue to rise and seasonal demand is projected to decrease due to the onset of winter conditions. Product shipments to current and prospective customers will not be affected as Ash Grove will draw from inventories built over the past several months.

Employees at six facilities will be affected by today’s announcement. Production at certain individual facilities will be affected beginning in late November (see list below) and plants are expected to resume production on a rolling start-up basis as sales demand dictates. Approximately 220 employees will be affected. 

“The furloughs this year are less extensive than those in the previous two years because we will work on special projects in select departments and perform regular maintenance on our facilities, which will shorten the furlough period for some employees,” according to Ash Grove senior vice president of manufacturing Mike Hrizuk.

“The economic downturn affecting the entire cement industry is an ongoing concern,” said Ash Grove spokeswoman Jacqueline Clark.

“It is very difficult for our employees and the company to experience a furlough for the third consecutive year,” said Clark. “As in the past two years, we will do our best to support our employees and the communities in which we operate during this period.”

The decision to suspend production was made because of continued poor economic conditions resulting in a decrease in the demand for cement and concrete products. The Portland Cement Association (PCA), the cement industry’s trade association, indicates that U.S. cement consumption is not beginning to rebound, following three consecutive years of unprecedented declines in demand. The most recent PCA forecasts project that demand may not tick upward for two more years.

Ash Grove will suspend production at the following locations. Dates listed below are projected as product demand will affect inventory levels and may affect furlough dates.

AFRICA: Chinese investors in Sh8bn cement factory venture

A consortium of Chinese and local investors is setting up an Sh8 billion cement grinding plant expected to open early next year, tapping growing local and regional demand for the product.

The firm now known as Savannah Cement will break into the highly competitive regional market that has seen the entry of two new manufacturers in the past three years, as the existing players have raised their production capacities.

The new plant in Athi River is expected to be complete by December—a year after the planned timelines following the relocation of the initial site from Kitengela town when residents objected to its establishment, to the current premises within the Export processing Zone (EPZ).

Benson Ndeta, the chairman at Savannah Cement and a former chair of the government-controlled East African Portland Cement, says his firm was keen on satisfying supply shortfalls since demand for cement is projected to overtake the installed supply within the next two years.

“A cement plant is a very capital intensive investment that would take as much as three years to complete, which means that the installed capacity will fall below demand in the next two years,” said Mr Ndeta, adding that the growth of the construction industry promises sustained demand.

“Year-on-year growth of cement in the region is projected to exceed 14 per cent which the installed capacity cannot match,” Mr Ndeta said, revealing that 30 per cent of the company’s production would be sold in the countries outside the five East African countries.

Savannah Cement is a joint venture bringing together Savannah Heights—a consortium of local investors, Wan-Ho, a Chinese investment firm and Catic Cement sharing the stakes at 40 per cent, 40 per cent and 20 per cent respectively.

The entry of Mombasa Cement and Simba Cement over the last two years, with a joint installed capacity of 1.4 million metric tonnes has raised competition in the cement market, where Larfage-owned Bamburi and EAPC have maintained dominance while Athi River Mining (ARM) completes the list of top three.

Only ARM among the three major players has gained on market share while sales for both Bamburi and EAPC have remained nearly flat, an indication that they have ceded market shares to the newer entrants.

Bamburi has an installed capacity of 2.3 million tonnes, EAPC has about 1.5 million tonnes while ARM has about 650,000 metric tonnes—though it is keen to double the output in 2013 when its next plant will be complete.

Analysts at the Standard Investment Bank project Bamburi and EAPC will control just under half of the cement market in view of rising competition by 2015, since the newer entrants are able to price their products more competitively owing to the cheaper technology that they have used.

Market estimates place the energy costs at about 40 per cent of the entire production costs for the older plants—a factor that Savannah will be keen on capitalising to have the ‘lowest production costs’ in the market, according to Mr Ndeta.

Catic had initially planned to go solo on a cement production in the Kitengela plant before the resistance from the community occasioned an about-turn that saw the entry of the local investors, and the subsequent relocation of the plant to EPZ.

Savannah Cement plans to invest an additional Sh15 billion ($150 million) in a clicker plant in the second phase, expected to fall within the next three years and dependent on the market.

Mr Ndeta says the firm will head-hunt a chief executive to head the operations of the new cement maker rather than advertise, because the firm ‘has an idea of whom it wants’.

CHINA: Anhui Conch Cement net profit more than doubles

Anhui Conch Cement Co Ltd, China's biggest cement producer by output, said itsnet profit soared 124.66 percent year-on-year to 3.06 billion yuan ($482.4 million) in the thirdquarter of 2011.

The profit upsurge was driven by increases in both cement prices and sales volume, Conchsaid in a statement filed with the Shanghai Stock Exchange on Wednesday.

Operating revenue stood at 12.6 billion yuan for the third quarter, according to Conch.

The share price of dual-listed Conch rose more than 4 percent in Shanghai in morning tradingand gained 2.6 percent in Hong Kong.

PAKISTAN: Cement exports stagnant

Cement exports have shown a dismal performance as witnessed by a paltry 0.21 percent increase in the first quarter of the financial year 2012 (FY2012) compared to corresponding period last year. According to a statement issued by All Pakistan Cement Manufacturers Association (APCMA), exports to different countries via sea route have dropped significantly by 24 percent compared to first quarter 2010-11, standing at 0.857 million tonnes in first quarter 2011-12. 

Exports to India increased by 53.8 percent but the small volume of 0.163 million tonnes only in the first quarter 2011-12 was contrary to expectations of an over 1.0 million tonnes increase owing to improving trade relations between Pakistan and India. According to the statement, major factor behind limited exports is sharp increase in input cost as prices of almost all of major inputs like, furnace oil, coal and electricity etc have surged during first quarter of this financial year. The transportation cost has also increased exorbitantly due to increase in diesel prices. In the meantime, there was no progress in cement exports by truck via Wagha Attari border post, which if opened, can substantially boost export volume. 

Cost of power has increased by 9 percent during last three months from Rs 7.1 per kWh to Rs 7.7 per kWh with increasing load shedding and the situation seems set to become worse with expected further increase of Rs 3.04 per kWh in power tariff. Rates of diesel, coal and furnace oil have also increased by 15, 8 and 28 percent respectively in first quarter of FY 2012 and the impact of this increase for the upcountry plants is much higher as these inputs have to be transported from Karachi. Gas rates have also increased during last 3 months by over 10% for cement plants and as well as their captive power units. However, local cement sales improved due to a slight increase in local consumption, which witnessed a growth of 12.23% during the first quarter of current fiscal year 2011-12. The cement manufactures of the northern region have sold 4.23 million tonnes cement, while southern mills sales stood at 0.945 million tonnes in Jul-Sep 2011 period.

INDIA: Cement makers not worried about coal shortage

Indian cement companies are not much affected by the coal shortage in the country. Deep pockets, good cash flows, coal stocks and the ability to pass on the costs to consumers have kept cement makers at ease.

In an industry where 60 per cent of the market share is dominated by big players like Holcim, UltraTech, Jaiprakash Associates, Shree and India Cements, it is only the mid-sized and smaller players that would be at the receiving end, if the prices increase further.

Shree Cement CMD H M Bangur says: “We have enough stock of coal to last our operations. Coal shortage will not affect companies which can afford to pay higher prices. I do not see any immediate impact. I believe, those companies which are at the bottom of the pyramid may be affected.”

Already cement makers are forced to operate at lower capacity utilisation on the back of poor demand scenario. In some regions, such as in the south, it is as low as 60 per cent, which has resulted in reduction of coal intake for companies, say industry players. According to them, it does not make sense to operate at higher capacity utilisation when demand is poor.

Currently, prices of domestic as well as imported coal are almost the same. The 30 per cent increase in coal prices by Coal India early this year has bridged the gap between the two. Prices of higher-grade imported coal are around $130 a tonne, while that of poor quality with higher moisture content is available in the range of $75-90 a tonne. UltraTech, Ambuja Cements, India Cements are the majors which import relatively higher quantity of coal.

Southern major India Cements imports close to 65 per cent of its coal requirement. V M Mohan, joint president (corporate finance), India Cements, says, “Capacity utilisation is low currently and we have sufficient stocks of coal to take care of our operations.”

S Sreekanth Reddy, executive director of Andhra-based Sagar Cements agrees. “As of now there is no problem of coal shortage. We have medium-term contract of four-six months for coal,” adds Reddy.

At a time when units of power companies are being forced to shut down units, cement makers are well prepared. However, they also have made clear that any further cost push in whatever form would be passed on to the consumers. “We cannot keep selling our produce at low prices when input costs are not sliding," said an official.

Cement makers are known to pass on costs to customers, except on some recent occasions where they could not as the demand was miserably low. In the last two months, all-India cement prices have started rising. In September, prices hovered at Rs 250 for a 50-kg bag. In October, too, some further price rise took place, pushing the average cement price to Rs 260 a bag.