VIETNAM: Government streamlines cement industry, reduces proposed plants

The Prime Minister has approved the Ministry of Construction’s proposal to cancel five cement projects for the 2011-2020 period, which would have projected total capacity of 910,000 tons per annum.

The Prime Minister has also agreed to delay implementation of nine other cement projects, while accepting a new project, Long Son in Thanh Hoa province. The 2.3 million ton per annum cement plant kicked off in early 2014 and is expected to become operational by 2018.

Prior to that, nine small projects with the capacity of below 2,500 tons clinker per day, were also eliminated in a Prime Minister’s Decision released in April 2013.

According to the Ministry of Construction, the small projects with the capacity of below 2,500 tons clinker per day are outdated in terms of the energy consumption index, while they require a high investment rate and cause environmental pollution.

The project development program was set up several years ago, when cement supply was short and the government called for investments in the field.

Nguyen Quang Cung, chair of the Vietnam Cement Association, noted that all the canceled projects were small and not feasible. The investors were not financially capable enough to implement the projects, while conditions were not favorable for production and consumption.

In addition, the government said it would no longer act as a guarantor for enterprises’ foreign loans, and domestic banks have refused to fund cement projects.

Cung believes that the 2011-2020 cement industry development strategy is out of date and other proposals should be eliminated as well. The strategy was created in 2011, but it was based on statistics collected up to 2005.

Economists have urged the government many times to restructure the cement industry, which is suffering heavily from oversupply.

When creating the strategy, the Ministry of Construction used inaccurate estimates on future cement demand in the future. But demand turned out to be much less than predicted, especially after the real estate market slowed down significantly.

Under the development plan, the cement industry would have been churning out 80-90 million tons by 2015 and 130 million tons by 2020.

Meanwhile, under the building materials development program by 2020 approved by the Prime Minister in August 2014, the cement demand is estimated to be only 56 million tons by 2015 and 93 million tons by 2020, much lower than the designed output.

There are 71 operational reverter-furnace cement-production lines in Vietnam which can produce 73.45 million tons.

Once the other four production lines are put into operation, the total production capacity would be 81 million tons by 2015. The capacity is believed to satisfy domestic demand even if the national economy warms up.

INDIA: Sagar Cements to buy BMM Group’s cement business

Sagar Cements is all set to buy cement business of Bangalore-based BMM Ispat Group.

The deal, with an enterprise value of about ₹500 crore, is likely to be sealed in a couple of weeks, according to sources in the know.

The annual general meeting of Sagar Cements scheduled to be held on September 24 is expected to take up the transaction.

The valuation per tonne could be around $80-$85. Once the deal is closed, Sagar’s capacity would go up from 2.75 million tonnes to 3.75 million tonnes as BMM has a one-million-tonne cement manufacturing unit at Tadipatri in Anantapur district of Andhra Pradesh.

The acquisition would benefit Sagar as it would provide easy access to southern markets and significantly reduce freight charges by over 40 per cent.

Further, it also has a captive power plant of 25 MW.

If the enterprise value is pegged at ₹500 crore, the equity payment would be about ₹100 crore as BMM has ₹250 crore debt and an unsecured loan of ₹150 crore.

Sagar Cements plans to pay for the acquisition in cash as well as in the form of its shares.

“A part of the payment could also be withheld to be paid only after 12 months from the date of closure agreement,’’ said a source, adding that barring any `last minute’ surprises, the deal was almost clinched.

Sagar Cements had recently exited from a joint venture with French Cement major Vicat group by selling its 47 per cent stake to the latter for ₹435 crore.

It had also indicated that it was interested in inorganic growth and scouting for acquisitions.

Its scrip gained 4.98 per cent on the Bombay Stock Exchange on Thursday to close at ₹367.65.

INDONESIA: Cement Sales Up in August on Demand by Property, Infrastructure Projects

Indonesian cement sales grew 33 percent year-on-year in August, due to strong demand from property and infrastructure development projects, the industry body announced on Wednesday.

Sales of the building material stood at 4.66 million tons in August, according to Widodo Santoso, chairman of the Indonesia Cement Association (ASI). That compares to 3.5 million tons in the same month last year.

Widodo said various projects, such as construction of power plants and smelter, apartment, housing and hotel development in the country helped spurred demand for the building material.

“I expect demand to continue to increase in the last four months of 2014 … So that the 5 percent growth target for cement sales can be achieved,” he told the Jakarta Globe via text message.

Between January and August, cement sales rose 2.45 percent year-on-year to 37.5 million tons.

Cement sales declined by 25 percent year-on-year in July to 3.76 million tons, due to fewer working days and the presidential election.

A ban on heavy trucks on main roads in the travel period following Ramadan also contributed to the decline.

However, for the entire year of 2014, Widodo estimates sales to grow by around 5 percent, roughly on pace with last year’s growth.

Indonesia saw a 5.5 percent growth in cement sales last year, with the bulk of sales in Java, the country’s most populous island.

State-controlled cement maker Semen Gresik leads producers in sales, controlling 44.6 percent of the market. Indocement Tunggal Prakarsa, a local unit of German company Heidelberg Cement, followed in second place with a 29.3 percent market share and Holcim Indonesia, a local unit of Zurich-based Holcim, was in third place with 14.7 percent.

Other players, including Semen Bosowa Maros and Siam Cement Group, control an 11.4 percent share.

Semen Indonesia announced Tuesday that its Rp 68 billion ($5.76 million) cement packing plant in Mamuju, West Sulawesi, began commercial operations.

Semen Indonesia president director Dwi Soetjipto said the plant will be able to process up to 450,000 tons of cement per year. Construction began in October 2013.

“The presence of our Mamuju packing plant will help strengthen our distribution networks. It is part of our efforts to ensure adequate supply [of cement] in this region,” Dwi said in a statement.

PAKISTAN: Shadow over South African cement exports

With export avenues narrowing down for Pakistani cement, news about filing of an application against dumping in South Africa comes as rather discouraging. To recall, South Africa is the leading export destination for cement exports from Pakistan via sea. 

Amongst cement exporters from Pakistan, Lucky Cement Limited (KSE: LUCK) stands as the leading supplier of Portland cement to South Africa. LUCKs cement costs up to 18 percent less than the ex-factory price charged by PPC, one of the leading cement manufacturers in South Africa. 

Industrial reports indicate that LUCKs exports to South Africa stood at 0.6 million tons during FY14. This accounts for a 24 percent share in the company's total exports and a seven percent share in total industrial exports from Pakistan. During FY14, LUCKs market share in terms of exports was around 20 percent. 

Given these statistics, how would imposition of the duty, if it were to happen, affect LUCK, whose total market share in the cement sector currently stands at 30 percent. 

According to Sajjad Hussain, Research Analyst at BMA Capital, imposition of anti-dumping duty of 48 percent would nullify the entire price differential offered by LUCK compared to local players in South Africa. 

Every 10 percent decline in exports to the country could bring down LUCKs earnings by one percent, while in the advent of no exports to South Africa, earnings could be hit by as much as 10.3 percent, Hussain notes. The situation could be aggravated in case other African countries follow suit and impose similar duties on Pakistani cement, as capacity expansion is also underway in the region. 

On the other hand, Ali Amin, Research Analyst at KASB Securities, posits that LUCK is likely to turn up safe in the anti-dumping case since protection to the local industry would significantly reduce consumer surplus. Local industry in South Africa also raised cases against import of Pakistani cement earlier which were put down by the government for lack of evidence, he notes. 

However, LUCK itself has reportedly been in the process of establishing a plant in the Democratic Republic of Congo which will likely go online next year with a capacity of 1.2 million tons per year. One assumes that the plant would also be delivering to other emerging export destinations in the region, including Angola, Kenya and Madagascar. 

Regardless of the result of the anti-dumping case, LUCK seems to have a plan in place. But, does the Pakistani cement industry have one, particularly at a time when exports seem to be getting more challenging?

VIETNAM: Cement factories destroy town in southern Vietnam

Officials in Kien Luong town say they're shy about greeting people on the street since most of them look as though they forgot to wash their faces in the morning.

“It makes no difference whether you wash your face or not. Even your bike is dusty after a short ride,” one said.

Five cement factories built within a ten kilometers radius has heavily thickened the air above the capitol of the namesake district in Kien Giang Province.

In addition to the tedious task of constantly wiping floors and faces, the ever-present dust has allegedly left many in the town sick.

Tran Quoc Vu, who lives near Kien Luong Cement Factory, demonstrated the extent of the problem by sweeping half a kilograms of dust off his ten square meter floor.

“That much dust falls in just one night. So how much cement have we inhaled after all these years?” Vu cried.

One local said they used to consider the dust a blessing. To make a little money, you need only sweep into a bag it and sell it.

Now many call the dust “unbearable” and use a Vietnamese expression that describes the town as a place that's hard to breath.

Cement factory dust coats trees and roofs all over town.

Sometimes meals when a family fails to close their doors tightly enough, it ends up coating their meals

Trees have withered in the dust.

The owner of footwear shop said she has to clean her merchandise every day to prevent it from looking used.

Tong Quang Quyen, a local man, said the factories' investors know well about extent of the damage since most of their senior advisers built homes far from the factories.

“They don’t have to inhale the dust every day like us,” Quyen said, referring to one such adviser who built a home five kilometers from the nearest factory.

Thanh Nien reporters were directed to visit the home but the people living there refused to receive them.

Locals have recently sent complaints to different government agencies citing high rates of people suffering and dying from respiratory conditions.

Nguyen Van Tuyen, a local town official, said their recent survey of around 2,800 people residents of a single 1.5km stretch of the town found that nearly 40 members had died of cancer, mostly of the lungs and throat.

“That is an unofficial figure, the real one could be bigger,” Tuyen said.

Doctor Huynh Quyet Thang, vice chairman of the Vietnam Oncology Association, called the rate “terrible.”

Thang said environmental damage is inevitable in the areas around cement factories; those impacts, he added, could lead to diseases such as lung and respiratory inflammation.

Asbestos, a fibrous mineral found in many kinds of rock including those used in cement production, and radon – the radioactive element found in rock and soil-- can cause cancer, Thang said.

Dang Kim Thanh, vice chairman of the district, said he has been informed of the health situation and has ordered the district medical center to assist locals.

And leave the factories alone?

Kien Luong Cement Factory had been operating in the area for some time before the authorities decided to establish a residential area around it.

But authorities deviated from the plan by allowing four additional cement factories to open in the area, including the giant Holcim Factory backed by Swiss investment.

The factories have eaten into limestone mountains, many of which were valued for their historical and scenic properties.

With locals accusing the factories of discharging untreated emissions, Lam Hoang Sa, vice chairman of the province, said the factories' environmental pollution stems from their use of outdated technology.

“Only the technology at Holcim is relatively acceptable,” Sa said.

On August 28, a Thanh Nien reporter witnessed raw concrete materials being transported from the factory to barges without being covered.

Wind blew the dust all over the air.

Doctor Nguyen Dinh Hoe, the general secretary of Vietnam's Association for Conservation of Nature and Environment visited the cement town and says the evidence presented by the locals should be enough to shut the factories down.

Hoe said it seems like the environmental ministry and the provincial authorities haven't done a proper job of assessing the environmental impact of such a large number of cement factories before licensing them.

Colonel Pham Trung Thanh, spokesman of Kien Giang Police, disagrees.

“The pollution has not reached a point that merits punishment,” he said, adding that they've asked the factory to clean up their production.

Doan Huu Thang, head of the environment division of Kien Giang Natural Resources and Environment Department, also expressed sympathy for the factories.

“They will have to invest a large sum of money (in treatment and the like), and haven't been able to do that yet.”

Thang specifically defended Kien Luong Cement Factory, formerly called Ha Tien 2, as saying that it has improved a lot compared to the past.