EGYPT: cement producers face energy cuts

Muted levels of construction activity since the 2011 revolution, combined with constraints on electricity supply, has stifled operating conditions for Egypt’s cement producers, though new projects scheduled to launch in the second half of 2014 could provide a helpful boost to the segment, recently buoyed by the successful IPO of Arabian Cement.

The IPO, the first in Egypt for four years, of the local cement producer was 18.5 times oversubscribed after 85m shares were sold worth $110m. This emphasised the performance of the country’s capital markets in recent months, with the main index rising by more than 70% over the past year.

The large subscription for shares in Arabian Cement, in which Spanish firm Cementos La Union holds the largest stake, not only reflects the latent demand for new Egyptian stock offerings, but may also herald a much-needed turnaround in fortunes for the broader building materials sector. 

Navigating challenges

Output in the building materials industry has been impacted by the turbulence with public spending on construction and infrastructure activity declining. The value of investments in the sector fell by 71% in 2012 according to data by the Central Bank, cited in a report by Bank Audi from March this year.

Private investments in new residential and commercial property development have also dwindled, albeit to a lesser extent. Rents for the best Cairo offices fell to $40 per square metre per month in 2013 from $50 since 2009 while retail rents have plunged to $100 per square metre per month from $150, according to data from real estate consultant Knight Frank.

But things are starting to improve. Construction and building activity grew by 6% in 2013 with construction expenditure standing at $6.2bn according to the Bank Audi report. It is expected to rise to $7.3bn in 2015.

In a bid to revive the flagging economy, the interim government has pledged to pump money into construction, particularly targeting mothballed infrastructure projects and low-cost housing, as part of a $4.3bn stimulus package. With a focus on job-creation through the activation of projects in the public sector, the government is also hoping to spur growth in the private sector. 

Gas flow

But another problem remains. Inadequate supplies of natural gas are impacting the ability of producers to maintain output. Balancing rising domestic consumption with export commitments has been a challenge for Egypt’s gas sector in recent years and in May, a number of cement firms were forced to stop production after the Egyptian Natural Gas Holding Company (EGAS) halted the flow of gas to 10 plants, which account for more than two-thirds of the industry’s output, to ensure sufficient supply elsewhere on the grid.

Supplies to the sector, which obtains gas from state-owned EGAS at a subsidised rate, had already been scaled back by 35% at the start of 2014 as the government sought to balance industrial needs and power stations’ gas requirements, while also moving to increase prices nearer market rates. 

Sector canvassing fuelling options, weighing costs

However, there may be a silver lining as the restricted supply is encouraging producers to diversify their energy sources to keep their kilns operating.

One of these alternatives will be coal, with the government easing restrictions on imports of the fuel in April. There have been objections to the plan to import coal although the government has said the ongoing outages in power supplies to the public warrant both cutting gas flows to industry and allowing coal to be used for industrial purposes and to generate power.

Suez Cement announced at the end of April that it would be shifting to a fuel mix comprising 80% coal and 20% waste material. Another firm, Misr Beni Suef Cement Company, has announced it will be using diesel to keep at least one of its production lines operating, after being informed by the state that gas supplies would be suspended throughout May.

Bruno Carre, Suez’s managing director, agrees that all Egyptians, citizens and companies must help reduce their energy consumption but the process will take time. “Companies, like cement producers, must also diversify their energy mix as was recently approved by the Cabinet. But this will take some time to implement during which cement production will continue to be constrained and costly imported cement products will be necessary,” he told OBG.

PUERTO RICO: Nueva contracción de la economía

El Índice de Actividad Económica (IAE) se contrajo 1.1% en mayo pasado, luego de que un alza decimal en el empleo no agrícola no fuera suficiente para hacer contrapeso a la marcada caída en las ventas de cemento y la generación de electricidad.

De acuerdo con el informe que el Banco Gubernamental de Fomento (BGF) publicó en la noche del viernes, en mayo pasado la economía de Puerto Rico se contrajo en relación a mayo de 2013. En relación a abril de este año, la principal herramienta para medir el rumbo de la economía avanzó apenas dos décimas, lo que confirmaría un escenario de estabilización. Ello no implica que la economía mejora o comienza a crecer, sino que ha parado de caer.

Partiendo del IAE, la economía de la Isla medida por el producto bruto se encuentra en negativo desde diciembre de 2012. Como resultado, el IAE apunta a que luego de dos años fiscales con crecimiento positivo (aunque a niveles decimales), el producto bruto podría contraerse nuevamente al concluir el año fiscal 2014.

Según el informe, en mayo pasado, el empleo no agrícola avanzó cuatro décimas, ubicándose en 932,100 puestos de trabajo. La generación de electricidad estuvo 3.3% por debajo de la generación de hace un año.

El consumo de gasolina menguó en medio punto porcentual y las ventas de cemento hicieron lo propio, pero a razón de 10.8%.

Los nuevos datos económicos surgen al tiempo en que la administración de Alejandro García Padilla se apresta a comenzar un nuevo año fiscal con un presupuesto con $75 millones menos que lo recomendado, lo que agregado a recortes previos podría resultar en una contracción del gasto público y por ende, de la economía.

COLOMBIA: Producción de cemento gris alcanza un récord histórico

La producción de cemento gris en Colombia ascendió a 1,7 millones de toneladas en mayo de 2014, cifra superior en 15,3% a la del mismo mes de un año atrás, en la cual se registró una producción de 929.099 toneladas.

"Esta es la segunda cifra más alta registrada en la serie de producción de cemento gris", dijo el ministro de Vivienda, Luis Felipe Henao, tras conocer las cifras reveladas por el Dane, dice comunicado de prensa del ministerio.

En mayo de 2014 también se despacharon 1,34 millones de toneladas de cemento gris al mercado nacional, lo que significó un incremento del 14,7% frente al mismo mes del año anterior.

De igual forma, desde enero hasta mayo de 2014, la producción de cemento gris presentó un incremento de 12,6%, mientras que los despachos aumentaron 12,2%, frente al mismo período de 2013. Asimismo, en los últimos doce meses hasta mayo de 2014, la producción de cemento gris tuvo un aumento de 9,3 % con relación al año anterior.

Comparado con mayo de 2013, los principales incrementos del pasado mes en los despachos de cemento gris se registraron en Antioquia con 20,0 %, Cundinamarca con 30,0 %, Atlántico con 23,8 % y Norte de Santander con 46,3 %, entre otros departamentos en los que la locomotora de vivienda avanza con sus programas de viviendas gratis y vivienda para ahorradores, Vipa.

"Estas estadísticas son muy significativas, porque muestran lo que realmente está pasando en la construcción de edificaciones, y porque son cifras que nos señalan, una vez más, que la construcción de vivienda social con el programa de las 100.000 viviendas gratis, con el nuevo programa para ahorradores, Vipa, y el subsidio a la tasa de interés, han sido políticas exitosas, que han llevado al sector a jalonar todos los días industria en el país", señaló el ministro de Vivienda en el informe de prensa.

UZBEKISTAN: Eurocement to build new cement plant

The Eurocement Group, the biggest supplier of cement, ready-mix concrete, and aggregates in Russia, plans to construct a new cement plant in Uzbekistan.

The relevant agreement worth $128 million for the supply of equipment, design, installation supervision, and training for the construction of the cement plant in Uzbekistan's Tashkent region was signed with the Chinese CAMC Engineering Co., Ltd., Eurocement said on June 30.

The new plant's capacity will amount to 2.4 million tons of cement per year, and the facility's commissioning is scheduled for 2016.

The Eurocement Group has 16 cement plants across Russia, Ukraine, and Uzbekistan, as well as several concrete mix plants, concrete goods factories, and aggregate-mining quarries.

The cement consumption of the mineral-rich Uzbekistan is 300 kilogram per capita, a figure below the global average which is estimated at 536 kilogram per capita. This places Uzbekistan in a favorable position for the future development of the cement industry.

Local building materials company Uzbuildmaterials JSC announced the government's plans to invest $49.1 million in the local cement industry in late February 2014.

The program includes nine projects for the three largest cement plants in the country: the Kyzylkumcement plant, the Akhangarancement plant, and the Bekabadcement plant.

INDIA: Companies agree to lower cement prices

With chief minister Virbhadra Singh toughening his stand on the issue of cement being sold in Himachal Pradesh at rates higher than the neihgbouring states, cement companies have finally agreed to lower the price by Rs 15 to Rs 35 in the border areas. The cement price has remained a political issue in the state and the development has come days before the start of the monsoon session of the assembly.

A decision was also taken to reduce the cement price from Rs 15 to Rs 25 in other parts of the state. It was also decided that the companies will submit quarterly statement of comparative rates of cement being sold in border areas and other parts of the state to the director (industries) and the pricing formula for Himachal will continue as per the above decisions in the future.

A decision to this effect was taken in a meeting chaired by the CM. Also present in the meeting were industries minister Mukesh Agnihotri and the representatives of cement companies, including ACC, Ambuja and Jaypee, having their plants in Himachal Pradesh. All the three companies have now agreed in principle to lower the rates of cement in border areas of the state from Rs 15 to Rs 35 or bring them on a par with the rates prevailing in the neighbouring states, officials said.

The CM in the beginning of the meeting made it clear to the companies that the government would not tolerate cement being supplied at higher rates to people of the state as compared to its neighboring states, where the prices were low. "The government has given land to these plants to operate in the state, besides many other facilities like water and power, among others. We want people to get cement at cheaper rate," he added.

Giving clear message to the representatives of cement companies, Virbhadra said the first thing they should keep in mind was the interest of the state people.

A similar meeting was held earlier in the chamber of industries minister where all the heads of cement companies were present and all the issues pertaining to cement prices and other related matter were discussed. Mukesh Agnihotri said when the government was providing all facilities to the cement companies within the state, they should not be autocratic and not take decisions as per their convenience while ignoring the interest of the state.