Friday, February 13, 2015

INDONESIA: Cement Sales Drop in January Amid Heavy Rain

Cement sales in January fell 2.9 percent from the same period last year to 4.5 million metric tons as heavy rain disrupted construction and weak commodity prices undermine demand in the mining and agricultural industry.

“The sales decreased due to high intensity of the rain and a weakened price of mining and agricultural commodities,” Widodo Santoso, the chairman of Indonesia Cement Association (ASI) said, on Tuesday.

Sales dropped the most in Kalimantan and Sumatra, islands in which their economies rely on palm oil production and coal mining. Kalimantan’s sales dropped 13 percent to 327,000 tons last month, while sales in Sumatra fell 9.6 percent to 924,000 tons.

Cement sales in Bali and Nusa Tenggara dropped by 4.6 percent to 245,000 tons and by 4.1 percent to 334,000 tons in Sulawesi. Sales in Java were flat at 2.55 million tons, said Widodo.

Widodo predicted that sales would remain stagnant in February unless construction picked up.

“If the government quickens the infrastructure development in mid-March, it is possible that cement sales could increase,” he added.

Domestic cement sales reached 59.9 million tons in 2014, up 3.3 percent from the previous year.

Thursday, February 12, 2015

AUSTRALIA: Upbeat Boral looks to cement acquisitions

Building materials giant Boral will scour North America for merger and acquisition possibilities after flagging a return to profit for its US division this financial year as stronger housing markets pushed half-year profits to $112 million.

Efforts to realign Boral’s portfolio and cost-cutting programs were paying off, according to chief executive Mike Kane, and Boral was “sorting” through the US market. “You kiss an awful lot of frogs before you find something you like,” Mr Kane said.

“I’ve made it clear we are geographically unbalanced. We’re heavily balanced in Australia and too light in Asia and North ­America.

“Asia will grow larger simply with the market expanding, but in the US growth will probably ­involve mergers and acquisitions.”

The company reported revenues of $2.3 billion for the six months to December, with earnings remaining flat at $167m. But net profit after tax and one-off items of $105m, against a loss of $26m for the previous corresponding period, were in line with analysts’ expectations.

Deutsche Bank expected a first-half net profit of $111.8m, while UBS analyst David Leitch forecast a profit of about $110m.

Boral declared a full-franked interim dividend of 8.5c, up 21 per cent on last year. The shares fell 1.2 per cent to $5.79.

Weaker road and infrastructure activity contributed to a 4 per cent drop in earnings to $150m for the company’s largest division — construction materials and cement — although falls in earnings from concrete and quarries were offset by improvements in asphalt and concrete placing.

Mr Leitch said there were some future earnings risks due to the possibility of a decrease in infrastructure work in Queensland and Victoria, but a good level of work remained to be bid on and he expected to see growth in the next three years “weighted to the back end of those three years”.

Mr Kane said there had been a chronic shortage of spending on infrastructure in Australia over the past two decades, and while political complications might have an impact, a significant “quantum” of projects were ­already at the bidding or exploration stage and would be unstoppable.

Boral’s building products ­division posted $14m in earnings, up from $5m in the previous corresponding period, with growth in bricks and roofing ­offset by weakness in timber products.

The company had reportedly considered selling that division, but Mr Kane said good progress was being made in improving performance through joint ventures and cost reductions. “Long term, we need a better solution, and it may not be core to Boral, but if there’s no market to sell it to then our obligation is to fix the business and that’s what we’re doing,” he said.

A brickmaking joint venture with CSR, to proceed after receiving approval from the Australian Competition & Consumer Commission in December, is expected to bring savings of between $7m and $10m for Boral and CSR, with the possibility of greater synergies as the possibility of closing and selling assets and land is ­considered.

The company is targeting $58m in cost reductions for the ­financial year, an increase of $38m from forecasts last June.

TANZANIA: We Are Not Closed, Says Twiga Cement

Tanzania´s largest cement producer, Tanzania Portland Cement Company (TPCC) has refuted reports of closing down its operations due to environmental concerns as "false and overly exaggerated".

The TPCC Managing Director, Mr Alfonso Rodriguez, told the 'Daily News' on Wednesday that, "We are not closed, the operations are going on as usual at TPCC," Last week, TPCC which trades as Twiga on the Dar es Salaam Stock Exchange (DSE) was reportedly ordered to close down operations by the National Environment Management Council (NEMC).

Several media outlets reported that NEMC faulted one of the plant's chimney for discharging a huge amount of dust said to be bad for people surrounding it.

Mr Rodriguez declined to give more details but noted briefly that, "There are a lot of misinformation and exaggeration on the issue."

TPCC produces almost 50 per cent of the cement output in the country. Closure of the plant was likely to create speculations that could drive up cement prices.

The equity market reports show that TWIGA shares were trading at a sober mood and on Monday this week lost 0.51 per cent after closing at 3,900/- from 3,920/- on Friday.

Official data from the cement industry shows that TPCC produces 1.4 million tonnes of cement out of the country's annual output of 3 million tonnes.

The rest output is shared largely between Mbeya Cement Company and Tanga Cement Company. According to the half year 2014 financial report, TPCC recorded revenues of 115bn/-, which is an increase of 13 per cent compared to the corresponding period in the year 2013.

The increase in revenue was mainly a result of increased sales volumes and overall improved performance. Similarly, the operating profit for the period increased by 38 per cent to 37.08bn/- compared to the same period in the preceding period largely due to reduced production costs.

Net profit for the period increased by 41 per cent to 27.14bn/- compared to 19.25bn/- of the corresponding period 2013.

SAUDI ARABIA: Cement production hits 57m tonnes

Saudi Arabia, the largest cement producer in the GCC, produced over 57 million tonnes of cement in 2014, according to a report.

The kingdom, which recorded a 33.2 per cent capacity expansion in the cement sector in the last five years, is among the top 10 cement producers in the world, the Arab News report said.

The heavy infrastructural developments, including a series of economic cities have led to a high demand for cement in Saudi Arabia. Almost the entire cement production (98.8 per cent) of the sector is being consumed within the country itself, it said.

The strong project pipeline suggests that a huge demand for cement is likely to remain in force over the next few years. Fundamentals of the sector indicate an optimistic outlook in the long term.

Saudi Cement Company with its cement production of eight million tonnes and clinker production of 8.5 million tonnes remained at the top. The company showed a decrease of 8.5 per cent in yearly cement production and 3.4 per cent in clinker production as its Kilns 4 and 5 at Al Hofuf plant were under rehabilitation.

Southern Province Cement followed it, producing 7.77 million tonnes of cement, an increase of 5.6 per cent compared to 7.36 million tonnes of 2013, and produced 7.38 million tonnes of clinker during 2014. The company also intends to add a couple of more lines, which will commence commercial production in the fourth quarter of this year. Both companies contribute 27.6 per cent to the sector’s total production.

INDIA: Slow recovery in Cement demand and prices post monsoons.

The demand growth in FY15 remains relatively more favourable given the new government’s focus on revival of infrastructure and investment spending. The growth in FY15 has also been supported by a low base as cement production grew by merely 3% in FY14. During Apr-May 2014, cement production has grown by 7.9% YoY as against 3.7% in the corresponding period last year.

The industry has seen slowdown in addition of new capacities due to supply glut faced in recent times. Sabyasachi Majumdar, Senior Vice-President, ICRA Limited, says “Between FY11-FY14, the industry added 65 MTPA cement capacities as against 92 MTPA in the preceding 3-year period FY08-FY11. However, slowdown in demand resulted in decline in capacity utilization from 77% in FY12 to 72% in FY14 despite slowdown in fresh capacity addition. Going forward, we expect the industry to add 25 MTPA capacities in FY15, 23 MTPA in FY16 and 8 MTPA in FY17 as against the peak addition of 50 MTPA in FY10. Eastern region will lead the capacity expansion and is expected to witness about 20 MTPA capacity additions during FY15-FY17 followed by Northern region (13.4 MTPA). Southern region, which had witnessed the highest capacity addition in the last five years, will see a considerable slowdown.” Assuming a demand growth of 8-8.5% over the next three years, the all-India cement capacity uitilisation is likely to improve from 72% in FY14 to 75% in FY16 to 79% in FY17.

The wholesale cement prices in North and West came under pressure in Q2 FY15 due to monsoons. Post monsoons, the recovery in prices has been slow. Cement companies raised prices by Rs. 5-20/bag in October 2014 but prices again came under pressure in the months of November and December due to slow recovery in demand. For example, average wholesale cement prices in Delhi declined from Rs. 290/bag in Jul 14 to Rs. 268/bag in Sept 14. Post monsoons, prices increased to Rs. 288/bag in Oct but again declined to Rs. 260/bag in Nov 2014 and Rs. 253/bag in Dec 2014.

Cement prices in North have seen some recovery in Jan 2015. In South, prices remained largely stable post the hikes undertaken in Jun 2014 and were hovering in the range of Rs. 300-310/bag in Hyderabad market till Oct 2014. While there was a minor correction in the month of Nov 2014, cement prices again increased to Rs. 321/bag in Dec 2014. The price hike has been sustained in the month of January. Cement prices in Eastern markets have largely remained stable in this financial year. While average cement price in Q3 FY15 slid below last year’s prices in North and West, the average prices in FY15 (YTD) across most markets are higher than those in the corresponding period last year. Going forward, cement prices are expected to improve with recovery in demand.

There has been some easing of cost side pressures on cement companies over the past six months. Mr. Majumdar elaborates “International coal and petcoke prices have declined by ~20-25% in the past one year which is likely to reduce the power and fuel costs for cement companies. The effect is likely to be more pronounced for South based companies which depend heavily on imported coal. Further, fall in diesel prices has resulted in easing of freight costs for cement manufacturers.”

The operating income for the ICRA Sample increased by 15.5% YoY in Q2 FY15. However, the revenues and earnings of cement companies (barring South) came under seasonal pressure in Q2 FY15 due to monsoon season with operating income for ICRA Sample declining by 7% QoQ in Q2 FY15 and operating margins declining from 17.6% in Q1 FY15 to 15.4% in Q2 FY15. South based cement companies, namely The India Cements Limited and The Ramco Cements Limited reported healthy profitability in Q2 FY15 due to healthy cement realizations during the quarter in South.

For other cement companies, while the margins contracted due to arrival of monsoon season, they were significantly higher on a YoY basis. Overall, the operating margins for ICRA Sample improved on a YoY basis from 12.5% in Q2 FY14 to 15.4% in Q2 FY15. In H1 FY15, ICRA Sample reported a healthy YoY growth of 13.8% in revenues. The operating profitability also improved marginally from 16.0% in H1 FY14 to 16.6% in H1 FY15 driven by higher realizations. Going forward, we expect cement companies in East and South India to report higher profitability on YoY basis in Q3 FY15 due to healthy realizations in the region during the quarter and easing of cost side pressures following decline in international coal prices and domestic diesel prices. While companies in North and West will also benefit from decline in diesel prices, these gains may be offset by pressure on cement realizations.

ZAMBIA: Cement prices likely to drop

The price of cement is likely to reduce significantly on the Copperbelt following the expansion project that Lafarge Cement Zambia has embarked on in Ndola.

The firm intends to spend €8 million on the expansion project of a finish grinding mill, which is expected to add 100,000 metric tonnes of cement production from the current 400,000 metric tonnes produced at its Ndola cement plant.

Company plant manager Friday Nyimbili said the price of the commodity which is currently selling between K65 and K85 will drastically reduce.

“Yes, with the effects of demand and supply, we are hopeful to reduce prices on the market. We know that there are other players on the market and new ones that are coming, but with increased supply, the prices will fall,” Mr Nyimbili said at an environmental consultative meeting on the expansion project at Ndola Cement plant.

Mr Nyimbili said the firm is undertaking the expansion project to keep up with the rising demand.
The project, which will be a complete portable grinding solution consisting of several functional units to be located within the plant next to the existing mill, will also be equipped with a pneumatic transport system to convey products to the existing silos at the packing plant.

He said all the dust generated will be captured using European-based advanced technology while all material transfer points will be equipped with bag filters.

On the positive impact, he said the projects includes job creation, tax payments, reduction in dust and green-house gas emissions by a more controlled filtration system and increased output of cement to the market.

Some of the negative impacts highlighted include marginal increase in noise within the plant, increased demand on service providers and potential dust emissions, mitigated by enclosed facilities.

But most residents of Itawa, Ndeke and McKenzie townships expressed concern at the dust emissions from the existing plant saying the firm should consider replacing it with modern equipment.

Ndola district commissioner Rebby Chanda also called on the company to provide more mobile ambulances to help treat the community members and ensure that benefits trickle down to consumers once the project is implemented.