NIGERIA: Lafarge Says Nigeria Cement Prices May Rise in 2015 After Slump

Nigerian cement prices are expected to rise next year after a slump in Africa’s biggest economy, according to Lafarge Africa Plc (WAPCO)’s country Chief Financial Officer, Anders Kristiansson.

Prices, which fluctuate depending on movements in the local currency and when capacity comes on board, fell 22 percent in November, Kristiansson said in an interview today in Hong Kong. The Lagos-based unit of Lafarge SA is “very optimistic” prices will probably increase again from mid-2015, he said.

“Prices have been adjusted, so there’ll be an impact for the next six months,” Kristiansson said. “Over the long run, they’ll stay around the current level.”

Paris-based Lafarge, which is merging with Holcim Ltd. to create the world’s biggest cement company, competes in Africa with Dangote Cement Plc (DANGCEM), owned by the continent’s richest man Aliko Dangote. Dangote Cement, Nigeria’s largest company and producer of the building material, said last month it cut cement prices.

Lafarge’s cement capacity at its plants in Nigeria and South Africa will rise above 20 million metric tons by 2020 from about 12 million tons currently, Kristiansson said. Lafarge Africa’s shares listed in Lagos have dropped 38 percent this quarter, compared with the 19 percent decline of the Nigerian Stock Exchange All-Share Index.

“Demand is so big in Nigeria that we’re struggling to meet it although we’re investing heavily,” he said. “Hopefully, we’ll be able to export one day, but our first focus is to meet demand in South Africa and Nigeria.”

OMAN: Cement producers’ cost to increase due to gas price hike in Oman

Two cement producers in Oman — Raysut Cement and Oman Cement — on Sunday said that the hike in natural gas price will jack up their cost of production. 

The gas price has been doubled to 41 baisas per standard cubic metres from 20.5 baisas per standard cubic metre with effect from January 1, 2015 and an annual increase of 3 per cent thereafter.

Oman Cement's costs will increase by OMR2.1 million in 2015 when the government introduces planned hikes to gas prices, the company said.

Oman Cement said the proposed gas price rises will be effective January 1 and will increase every year at rates specified by the Ministry of Oil and Gas, according to a filing to Muscat's bourse.

It would try to minimise the impact of the higher gas prices by improving productivity, restructuring its own pricing and reducing other costs. Raysut Cement's costs will rise by 3 per cent next year due to Oman state plans to introduce higher gas prices from January 1.

Raysut will try offset the impact of higher gas prices by making other cost reductions, improving efficiency and restructuring its own prices, according to a bourse filing.

USA: Dixon cement plant could reopen

A cement plant that has been idle since December 2008 has approached the city about reopening.

About 90 employees lost their jobs when St. Marys operations ceased. A few workers remained to oversee the plant’s use as a distribution terminal.

Dixon Mayor Jim Burke said representatives from St. Marys approached him about five months ago about the possibility of restarting manufacturing operations. The talks were in very early stages, so he was surprised to see the company’s classified ad in Sauk Valley Media publications looking for more than 65 workers, he said.

“We’re optimistic, and it would be a great thing to have the plant up and running again,” Burke said. “But honestly, I saw the ad and thought they might be jumping the gun.”

The plant is old and not nearly as efficient as many others owned by the company. St. Marys is part of Votorantim Cimentos, based in Sao Paulo, Brazil.

Restarting operations would require a large capital investment, and the company is looking for help.

“We’re working with them to see if there are incentives to make it all work,” Burke said. “We would like to get Sen. Dick Durbin involved as we look at state options.”

The company had attributed the closing to a deteriorating economy and rising energy costs, but the Environmental Protection Agency also played a role.

The EPA fined St. Marys Cement and co-owner St. Barbara Cement $800,000 for violations of the federal Clean Air Act. In addition, the settlement called for the companies to spend nearly $2 million to upgrade pollution control on three of its four kilns. The fourth kiln had to be replaced or shut down.

The settlement was the first completed as a result of an EPA crackdown on Portland cement manufacturing facilities. EPA said the companies illegally modified the kilns at the Dixon plant in a manner that increased harmful sulfur dioxide and nitrogen oxide emissions. In addition to failing to install the proper pollution-control equipment, the companies were cited for failing to get the proper permit before making the modifications.

When the company bought the Dixon plant from Cemex in 2005, it assumed liability for the kilns that were not operating up to EPA standards. St. Marys had said it was a coincidence the EPA settlement and the announcement to suspend operations occurred on the same day.

St. Marys had left the door open to resume operations in Dixon, saying the decision would be based on product demand rather than the cost of EPA compliance.

VENEZUELA: Holcim Receives Final Payment

Holcim Ltd. said Monday that it has received a final payment of roughly $100 million from Venezuela, completing compensation tied to the nationalization of its cement operations in the South American country.

Jona, Switzerland-based Holcim said the Corporación Socialista Del Cemento, SA had made a $97.5 million payment to compensate the Swiss cement company fornationalization of its plants in Venezuela. The payment, part of $650 million in overall compensation, was originally due on Sept. 10.

Holcim had pursued the matter with the International Centre for the Settlement of Investment Disputes, a unit of the World Bank in Washington, before an agreement was reached.

The payment comes as Holcim works to complete a $50 billion union with French rival Lafarge SA, a deal that would reshape the global building-materials market.

USA: PCA Forecast Sees Continued Growth for U.S. Cement Industry

Despite a late start to the construction season and weaker than expected housing start numbers, a recently released report from the Portland Cement Association (PCA) shows that cement consumption in the United States will meet 2014 forecast expectations.

PCA's cement forecast remains essentially unchanged since the September 2014 forecast. "The United States' cement market is expected to grow 8.2 percent in 2014, followed by similar rates of growth in 2015 and 2016," said PCA Chief Economist and Group Vice President Edward Sullivan. "However, minor adjustments have been made regarding the construction sub-sectors. Housing starts, for example, have been trimmed slightly compared to forecasts released earlier in 2014."

While single-family housing starts are not reaching projected levels, the report indicates a new emphasis on multifamily starts. Demographic trends and the still strict mortgage standards are pushing more potential homebuyers into rental units.

Additionally, the oil price environment has changed significantly since the summer and these new impacts have been integrated into the forecast projections for the paving sector. 

Going forward, Sullivan noted that the underlying economic fundamentals are strengthening and are reflected in the labor market. Sustained gains in monthly job creation, stronger state and local tax receipts, more favorable return on investments for commercial building and stronger household formation can lead to stronger construction spending in 2015. 

About PCA

Based in Washington, D.C., with offices in Skokie, Illinois, the Portland Cement Association represents cement companies in the United States. It conducts market development, engineering, research, education, and public affairs programs.

INDIA: Cement prices slip on weak demand

Cement prices usually start rising from September when construction activity resumes after a lull during the monsoon. This time around, the trend seems to have reversed. Improved realization, on the back of robust cement prices that held up since January, did not sustain in October.

The key reason is weak demand, which hinges on capital and infrastructure expenditure. In fact, even the 5.5% year­on­year volume growth for cement in the September quarter was lower than that posted in the previous two quarters. What’s worrisome is the outlook on government spending. An Emkay Global Financial Services Ltd report points out that after increasing 30% year­on­year in September 2014, government spending contracted 11% last month, implying a growth of 4.3% in 2014­15 till date, as against 18.3% in the corresponding period last year.

Analysts reckon that the maximum demand is now coming from whatever activity is seen in the real estate market. Industrial capex is yet to trigger major upsides in cement demand.

A note from Religare Capital Markets says that a survey of over 40 dealers across 30 cities suggests cement prices have fallen in multiple regions during October­November as demand slowed down against expectations of a pickup after the festive season. Northern and eastern states have seen

the sharpest dip of around R10­30 per 50 kg bag of cement. A few pockets in the west and south are looking stable, although lack of major project announcements may see prices slip in December again, as supply exceeds absorption of cement.

What’s interesting is that in spite of weak demand and pricing challenges, large and mid­sized companies reported better operating margins in the last three quarters. This made investors bet on the cement sector’s recovery and cement shares posted decent returns in the past six months.

But they have lost steam on news of a dip in prices during a normally good period. Manufacturers, though, are still optimistic about a gradual but sure recovery in cement demand and prices over the next two years. It’s just that new capacity and lower­than­expected demand offtake in the last one

year are only slowing the pace of growth.

Meanwhile, the top five companies by capacity are trading at valuations of eight to 10 times the enterprise value to operating profit per tonne. The name of the game ahead is purely cement sales volumes, which is critical to determine revenue growth and rise in profitability.