CemWeek Magazine, Issue 2

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MAGAZINE

GLOBAL CEMENT INDUSTRY. KNOWLEDGE. MARCH / APRIL 2011

News | Analysis | Market Coverage | Interviews | People Moves

The CemWeek Magazine is published by the CW Group (CemWeek LLC)848 N. Rainbow Blvd., Box #1658Las Vegas, NV 89107, USAT: +1-702-430-1748 F: +1-928-832-4762www.cwgrp.comwww.cemweek.com

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After the successful launch – and very positive industry feedback – this second issue of the CemWeek Magazine follows our global research roots as a theme. Though not a “new” topic, we continued the trajectory and looked across some of the interesting growth markets globally to reflect and inform on some fundamental changes that are occurring. The story is not just about emerging market growth, but how they have in fact emerged to become global forces in their own right.

The world is undergoing transformational changes, in many ways unprecedented. We have largely continued to see resilient cement markets in the developing countries that broadly showed encouraging trading conditions in 2010. Though it remains to be seen if these economies can continue to grow without a recovery in the developed world (we elaborate on this topic in our viewpoint “Who’s Driving the World Economic Train” in this issue), it is clear that structurally the cement sector is changing in fundamental ways in markets that were long big cement importers with underdeveloped domestic production capacity.

The CW Group research unit and analysts around the world share their views on topics such as rising African cement production capacity and key markets such as Brazil, Russia, and others. It is not that we mistakenly left India out of this issue, but it will rather be the focus of a separate publication. We take a look at Eastern Europe through a conversation with industry veteran Mr. Mihai Rohan, Chairman of HeidelbergCement Romania, finding out about how the engineering-oriented sector in the country has evolved. And we visit Mongolia, a cement market that’s showing signs of joining the category of emerging.

While we cover a broad range of subjects, the insights provided in this issue about the different areas are not only intended for those that directly work in or with those regions. The different stories and briefs can help inform readers anywhere by stimulating comparative reflection and thinking on competitive advantages and the linkages between markets. While cement is a “local business”, ultimately it is increasingly one big world.

As executives and managers, our readers are responsible for determining their companies’ future actions and capital investments. This critical process requires the best available information and, as our article on page 12 points out, the best analytical and risk assessment skills.

As always, we welcome your comments and suggestions for topics you’d like to read about in future issues.

It’s a bIg World… really

EDITOR’S NOTE

Letter from the publisher and editor

Arthur Norwalkeditor

Robert Madeirapublisher and head of research

COTE D’IVOIRE GHANA

TOGO

BENINNIGERIA

NIGERMALIMAURITANIA

600’

150’

200’

200’

220’

30’

170’

CAMEROON

EQUATORIAL GUINEA

GABON

BURKINAFASO

LIBERIA

SIERRA LEONE

GUINEAGUINEA-BISSAU

THE GAMBIA

SENEGAL

SENEGAL:2400’ MALI:

1000’

BF:900’

IC:1500’

GHANA:3400’

BENIN:1350’

TOGO:700’

INTEGRATED PLANTGRINDERTERMINALMAIN FLOW (1000 TPY)

Lay of the landRegional demand and trade flows (’000 tons)

CoNteNts

4 COUPLED OR DECOUPLED?A CW Group analysis of the driving forces in today’s world economy

12 THE VALUE AND LIMITATIONS OF MANAGEMENT INFORMATIONToday’s sophisticated management infor-mation systems give executives much, but not all, of what they need for strong deci-sion-making

46 A CDM SUCCESS STORY FROM KENYANavigating technical and regulatory hur-dles requires care and skill

NUMbERS IN bRIEF2 To forecast the industry, track the economy

LEADERS COMMENT6 HeidelbergCement Romania Chairman Mihai Rohan reveals how his country’s proud history in the cement industry has prepared it for the future16 KHD Humboldt Wedag CEO Jouni Salo shares his thoughts on the industry and projects the benefits of his company’s venture with China’s AVIC

COUNTRY SNAPSHOTS10 AFRICA - New research report shows

continent’s capacity exceed 200 million tons20 bRAZIL - Latin America’s leader pulls farther ahead22 MONGOLIA - A new market seeks to emerge24 WEST AFRICA - Growing consumption attracts investment in new capacity30 DEMOCRATIC REPUbLIC OF CONGO - Wild price fluctuations resist government efforts32 RUSSIA - Costs, Capacity, Speculation – Nothing is simple in this giant country

REGIONAL REPORTS36 Americas

DEPARTMENTS38 Europe, Middle East & Africa40 South Asia42 Asia Pacific

FROM OUR INDUSTRY PARTNER44 Building materials update

PROjECTS & PEOPLE49 People on the move48 Notable projects

DATA SHARE PERFORMANCE50 Overview of stock performance for cement companies

FEATURES

We understand your requirements and will work with you as your partner to jointly implement new cement

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The cheaper, faster and safer way to a customised plant. A TEC _ WE KNOW HOW

CONNECTING PEOPLE, MARKETS & TECHNOLOGY

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vestment security | W

ide network

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ATEC_Inserat_consulting_EN.indd 1 17.02.2011 10:45:41 Uhr

-4%

-2%

0%

2%

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10%

Emerging and Developing Economies Advanced Economies World

2010

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1981

1980

WELL, WE KNEW THATREAL GDP GROWTH IN PERCENT

4432

24

26

BUILDING MATERIALS UPDATERUSSIA

WEST AFRICA

NUMBERS IN BRIEFMIHAI ROHAN

We understand your requirements and will work with you as your partner to jointly implement new cement

plants. A TEC is your independent consulting partner for the construction and modernisation of cement

plants. We’ll advise you throughout the entire planning and construction process, during commissioning

and staff training. How? With our extensive process engineering skills, our expertise in the

construction of plants and machinery, our branch offi ces worldwide and our experience.

The cheaper, faster and safer way to a customised plant. A TEC _ WE KNOW HOW

CONNECTING PEOPLE, MARKETS & TECHNOLOGY

A TEC CONSULTING _ WE KNOW HOW

E

PCM service | Branch offi ce in Beijing | Effi ciency gains | Cost optimisation | In

vestment security | W

ide network

w

ww.ate

c-ltd.c

om

ATEC_Inserat_consulting_EN.indd 1 17.02.2011 10:45:41 Uhr

NUMbers IN BRIEF

WATCH THEEconomic growth yEstErday and tomorrow

The correlation between real GDP and cement demand is no mystery. And while not a perfect predictor since demand is dependent on multiple factors and may have a stronger correlation to construction activity, fixed capital formation and others, a view of the cement sector’s future necessarily needs to be grounded in basic economics.

In 2010 the CW Group estimates that the global cement demand reached 3.28 billion tons. The volume was driven by divergent fortunes across regions. Looking at economic performance of advanced versus emerging economies over the past 30 years helps us see the trend more clearly and why certain cement markets are growing at the rate they are. It was not always the case that emerging markets performed better, but the last ten years have seen a dramatic acceleration in economic activity in the emerging markets.

While past is no certain predictor of the future, the pattern is largely expected to hold steady for the next five years. Developing Asia and Sub-Sahara are expected to see among the strongest growth as regions, reaching an average annual growth of 10.2 percent and 6.5 percent, respectively.

to ForEcast thE industry, ECONOMy

Source: IMF, Worldbank and CW Group research

You want to reduce production cost, lower maintenance spending,improve environmental impact and decrease energy consumption.We provide you with our expertise and with the upgrade solution

package for your plant.

Process design, electrical, mechanical & civil engineering, control system, gas analysis, emission control, fuel conversion.

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You want to reduce production cost, lower maintenance spending,improve environmental impact and decrease energy consumption.We provide you with our expertise and with the upgrade solution

package for your plant.

Process design, electrical, mechanical & civil engineering, control system, gas analysis, emission control, fuel conversion.

Supply, erection & commissioning

www.cement.snef.fr

Members of the SNEF Group Over 9’500 people in 3 continents

hat cement markets in many emerging countries around the world have demonstrated strong growth over the past

few years, while markets in the developed countries have languished, is no secret. Faced with long-term falling profit margins in more developed markets, global cement manufacturers such as Lafarge, Holcim, and HeidelbergCement, have for some time allocated resources increasingly in favor of emerging markets such as Africa, the Middle East and Russia. These strategic objectives have helped global providers to insulate their operations against the recent economic weaknesses noted in U.S. and European markets.

However it was not always true that emerging markets were able to grow as economies in the western consumer nations fell in economic cycles. And today the cement sector must ask whether emerging markets can continue to prosper irrespective of what happens to the developed economies.

old paradigm: “THE US SNEEZES AND THE WORLD CATCHES A COLD”

The resilience of the economies and cement markets in countries such as China, Brazil,

and India may have been surprising to some who had expected the emerging markets to slide downward coupled to the economies of the developing nations. For others, the divergence of the markets supported the belief that the developing markets had finally decoupled.

The debate over market coupling versus decoupling between emerging and developed periodically picks up steam as the developed markets respond differently to economic swings than the markets of developing nations. It has heated up once again as the economic recovery of the developed markets limps forward while emerging markets appear to be sprinting.

The concept that emerging economies were heavily dependent on the health of the markets in developed nations may have been true until recently. Historically, recessions had more deeply affected emerging rather than advanced countries. Their often commodity and export driven emerging economies saw exports evaporate as western consumer nations hit the economic skids, with hard currency reserves dwindling and unable to service external debt denominated in US dollars. The nascent domestic markets were unable to materially support the economies in the absence of the foreign

buyer-markets. Hence, the paradigm of market coupling.

new paradigm: ECONOMIC DECOUPLING

However, the last economic downturn showed that many emerging markets such as Brazil, India, and China had proven more resilient than U.S. and European markets. Several emerging markets experienced strong growth of 5 to 7 percent, while developed markets showed little to no growth.

Strong growth in these emerging countries in recent years is attributed to several factors. Generally, household incomes, particularly among the middle class, are rising. Many nations are more effectively utilizing their abundant natural resources, including larger, better-educated workforces. Governments are investing heavily in building infrastructure and developing their manufacturing and industry sectors, which has proven especially beneficial to the cement sector. Finally, several countries are moving away from the practice of the foreign financing of debt, choosing instead to focus on boosting national balance sheets through the accumulation of foreign exchange reserves.

VIeWPoINt

WHO’S DRIvING THEarE EmErging and dEvElopEd markEts couplEd or dEcouplEd?

WORLD ECONOMIC TRAIN?By Robert Madeira and Diana Heeb Bivona




CW Group Coal Week

Emerging markets are also taking steps to diversify their economies and expand trading. While in the past, emerging markets would have looked largely to establishing a relationship with a developed nation such as the U.S., Germany, France, or the United Kingdom, they are instead, forging extensive trading relationships with other emerging markets like China, India, Brazil, or Russia. This is evidenced by the increase in trade between developing nations, which has accounted for over 40 percent of exports and imports in recent years; more than double what it was just a decade ago.

These are definitely strong steps toward creating economic freedom, but does it suggest that emerging markets have truly decoupled from the developed world?

newer paradigm: INEVITAbLE RE-COUPLING?

There are several reasons to suggest that decoupling has not, and likely will not occur, for some time. Many emerging markets continue to struggle with a plethora of problems including political instability, corruption, poverty, exploding populations, rising inflation, and long-term sustainable economic growth. These significant obstacles imply that there are few, if any, emerging market contenders who have been able or willing at this time to completely decouple from developed nations.

Furthermore, and perhaps most important, despite efforts to build a stronger base of domestic consumer consumption, economies such as China, which remain heavily dependent on foreign exports, have struggled to do so. In the absence of self-sufficiency through consumption-driven demand substitution, suggesting that decoupling has occurred may be premature.

Decoupling also fails to take into account the move toward globalization and the multiple economic relationships that many countries have developed. Given that financial markets around the world are heavily entwined with each other, and that research and development, as well as communication continues to flow beyond defined borders, the idea of a decoupling is not so clear-cut.

SAME bUT DIFFERENT?

Emerging markets have gained more strength, and the gap in the rate of

growth between developing and advanced countries has widened. Countries such as Brazil, China, and India are becoming the locomotives of the world economy, fueling greater investment and trade. While on the receiving end of higher levels of foreign investment, companies within these countries are also investing heavily outside of sovereign borders. For example:

■ Brazil’s Votorantim and Camargo Correa’s investment in Portugal’s Cimpor

■ Mexico’s Cemex’ global operations in six regions including the USA, Northern Europe and Asia

■ China’s Sinoma becoming major exporters of Greenfield cement projects and related equipment, as well as technical assistance for cement manufacturers in emerging markets

■ Russia’s Eurocement expanding its operations to the neighboring states of the Ukraine and Uzbekistan

■ India’s Wacem and Sanghi expanding cement operations into West Africa and Kenya as well as Binani’s foray in to the UAE

The U.S. market may no longer be the sole driver of world economic growth, and

emerging markets may be “coming into their own” in terms of development and growth. However, in the age of increasing globalization, the idea that economies can completely decouple and thrive – not just exist – is unrealistic in the near term in the absence of robust domestic consumption.

There is no question that emerging markets are becoming more influential in the world economy. They will continue to account for a larger share of global output, trade, and financial flows in the years to come, but to suggest they are ready to stand independently, in an economic sense, at this stage is premature.

“For cement manufacturers in emerging markets, it will in the longer run not be sufficient to look at the business case in a vacuum – you have to consider how global economies affect developing economies, their fixed capital formation, construction sector and cement sector as it is all interlinked in the end,“ underscored Robert Madeira, Managing Director and Head of Research at the CW Group. He added: “While we think of cement as a decidedly local business, there are shades of gray if you include time-dimensions. In the long-run the fortune of a cement sector in an emerging market may have a correlation to markets thousands of miles away.”

The cement sector must ask whether

emerging markets can continue

to prosper irrespective of what happens

to the developed economies

VIEWPOINT

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AbOUT THE AUTHORS

Mr. Robert Madeira is the Head of Research at the CW Group Research and Publisher of the CemWeek Magazine, has an extensive background in international business, investment management and M&A. He is the founder of the CW Group and CemWeek and holds an MBA from the Harvard Business School and BAs from Brown University.

Ms. Diana Heeb Bivona is a business consultant and a contributing writer, specializing in emerging markets. She also teaches International Business at Benedictine University and holds an MBA from the New York Institute of Technology and a BA in International Relations from Drake University.

www.cemweek.comMARCH / APRIL 2011 5BMWeekBMWeek



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leaders COMMENT




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LEADERS COMMENT

Revolution + 22pErspEctivEs on romania, EuropE and thE world cEmEnt industry through thE ExpEriEncEd EyEs oF mihai rohan,

chairman oF hEidElbErgcEmEnt romania

Drawing on a strong engineering legacy and despite facing current challenges, the Romanian cement industry is well positioned to participate in future opportunities, largely thanks to the diligent efforts of the executives who drove a major modernization and reorganization in the years following the revolution of 1989. One of the visionary leaders, HeidelbergCement Romania chairman Mihai Rohan, reflects on the past, present and future in this exclusive conversation with the CemWeek Magazine.

CemWeek: You have had a long and successful career in the industry. Looking back on it, what are the events or decisions that stand out in your mind and why?

Mihai Rohan. The first major decision in 1989 was when, after 20 years of working in engineering, I accepted a management position in the industrial holding company comprising all the Romanian cement plants (former Centrala Cimentului). After the 1989 revolution, I succeeded in creating

the first industrial holding under free market conditions. That means

that in 1990, only by reading the literature, I practically created and organized

Romcim, which included four cement plants and a plaster plant.

The third major decision was to leave Romcim Group after its privatization for an independent consultant position and, subsequently, a manager position within the Austrian company Lasselsberg that had acquired the plant from Deva, in Romania. This enabled me to run a wide process including technological modernizing, functional reorganization, efficiency, gaining a new position and brand on the market.

Last but not least, the fourth major decision was to accept the country manager position

in HeidelbergCement Romania and to coordinate the merger process of the three cement plants into one single organization – Carpatcement Holding.

CW: If you compare the cement industry at the beginning of your career to where it is now, what are the top things that have improved? What have we lost in modernizing throughout the years and should remember that was done better in the past?

MR: In 1989, the Romanian cement industry was one of the strongest in Eastern Europe, developing its own dry system production technology by means of its own Research-




CW Group Coal Week

Design Institute (where I also worked for 20 years). Furthermore, the heavy machinery industry was able to manufacture the entire range of equipment specific to the cement industry (crushers, mills, clinker kilns with diameters up to 6 m and lengths of 100 m, filters and electrofilters, etc.). At that time, Romania was exporting not only cement (around 3.5 million tons/year), but also cement plants (to Yugoslavia, Korea, Vietnam, Syria, Egypt, China, Pakistan, Iraq, etc.). The industry had more than 100 years of experience in cement production, solid know-how, a renowned university and top-class specialists.

At the same time, however, the industry was characterized by simple automation and a lot of manual work; equipment was outdated and the technology far from appropriate to the industrial development period of the 1960s-1970s. This is the reason why the modernizing process focused on technological efficiency, replacing old and obsolete equipment with modern ones, replacing air-filtering systems with new

ones, resetting the cement loading and dispatch systems, with a special focus on scaling and registration systems of what comes in and out of the plant, as well as measuring energy consumption. The SAP management system was introduced, along

with a complete reorganization of the sales system and its adjustment to the market and to customers’ needs.

Last but not least, the managers at all levels were trained in order to change their mindset and management style according to the modern methods and market adjustment. The Romanian plants are now equipped at a similar level as in Germany, and Romanian management is equal to the developed countries.

CW: Will we see China at some point dominating the cement plant equipment business with much lower costs and improving product?

MR: Undoubtedly, the Chinese cement industry has developed significantly, ranking first in the world at the end of 2010 (CNBM – China National Building Material ranks first in the world with a production of 152.3 million tons, outrunning the major groups like Holcim, Lafarge, Heidelberg, Cemex). In parallel, the Chinese have developed their

Cement plants have been,

in addition to an industrial landmark, a

major employer and a social and cultural

landmark

LEADERS COMMENT

Some time ago. Rohan addresses the media.




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own equipment manufacturing industry, mostly under license, proving to be strong competitors on the market. If the equipment proves to be reliable in time, they will surely become a major supplier for European plants, as well as for the entire world. What they did well was to standardize the new plants, which leads to higher productivity. I think they will easily gain access to the markets, provided they are able to keep control of the quality.

CW: When and how did it become a necessity for the cement industry to emphasize Corporate Social Responsibility when other industries have not had the same emphasis? Has CSR in essence become a de facto tax for the cement industry?

MR: The cement industry used to be known as a visible polluter, particularly due to the dust emissions. The pollution issue has been researched for over 30 years and efficient methods have been found to mitigate it. The cement industry is largely connected with the local resources (limestone, clay) and, thus, with the local communities. Our industry has always been involved in the life of the local communities where it recruited its labor force, and has tried to understand and meet their needs. Cement plants have been, in addition to an industrial landmark, a major employer and a social and cultural landmark. The plants used to finance kindergartens and schools, hospitals, sports and cultural events, and were involved in education of the young generation

regarding the respect for the environment. The industry practiced ‘Corporate Social Responsibility’ long before it had a name.

CW. Do you think “alternative” or “green” cements pose a serious challenge to the existing clinker manufacturing base?

MR: Of course, technology is permanently evolving and that is absolutely natural. There are “alternative” products, as well as “green cement” technologies which, for the moment, provide highly expensive solutions compared to market purchasing power. I personally don’t think that classical cement will be replaced in construction over the next 50 years.

CW: One role the CEO has is a “risk manager”. How have you approached risk?

MR: There is no risk-free business and, as such, risk must be known, assessed and controlled. The first thing I did was “risk assessment.” I took every specific activity (production, sales, purchasing, finances, human resources, etc.) and, together with my team, we tried to identify the specific and predictable risks, assess them and establish an “Action Plan” for each and every one. In this way, I allocated the control over a part of the risk to each team member, who must monitor it, “sound the alarm” when the slightest sign appears and take the measures set out in the Action Plan. This Plan is meant to provide solutions that are to be adopted in various situations in order to mitigate or cancel the effects of the particular crisis.

CW. If you could instantly change any aspect of your business, what would it be?

MR: In any management activity there is, of course, room for improvement. I think I would improve the “change management,” to enable it to operate more quickly.

CW: Is there any person in your career that has been particularly pivotal in shaping your decisions or professional trajectory?

MR: There are obviously mentors and role-models in everyone’s career. At the beginning, when I worked for the Cement Designing Institute, my mentor was a colleague who was ten years older and had broad practical experience (he had worked on construction sites, in plants, across the country and abroad), as well as rich life experience. He taught me how to do my job, but also how to have an orderly, honest lifestyle, be ready to help people and, particularly, how important it is to keep your word.

Later on, when I moved to Centrala Cimentului, my role-model was my boss, the General Manager at that time, a person of strong character, an excellent professional and manager. From him I learned the management style, as well as the need to be concerned with details, how to work with people, and how to deliver a speech.

The Chinese have developed their own equipment manufacturing

industry, mostly under

license, proving to be strong

competitors on the market

LEADERS COMMENT

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More recent. Rohan speaks to the press.




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The CW Group recently released a research report – the Cement Facilities of Africa – the first comprehensive review of all types of cement plants on the African continent. The analysis shows that the total nameplate cement capacity in Africa reached 207 million tons in 2010.

Across the continent, there were over 190 qualified production units, about a quarter of which were grinding cement production units. The global cement majors, including Lafarge, Holcim, HeidelbergCement, and Italcementi, controlled about 45 percent of the installed nameplate capacity.

North Africa remains dominant in terms of production capacity, representing 55 percent of the total cement output potential. However, several new additions have been

seen in West Africa, which have raised its share to almost 20 percent. New additions and expansion in 2011 will further change the regional mix in the next few years. As the age and nature of the plant infrastructure varies significantly across Africa’s sub-regions, the average theoretical output capacity per cement production line also varies notably, ranging from 0.36 million tons per year per production line in Middle Africa to 1.10 million tons in West Africa.

Lafarge has the largest number of operations with presence in 14 countries and every region of Africa. Sixty percent, or about 25 million tons, of the company’s African manufacturing capacity is located in Egypt, Algeria and Morocco. In contrast to Lafarge,

This is the first single source research to detail all the integrated gray, integrated white, grinding stations and slag cement plants for all countries on the continent. It provides details on principal cement type produced, plant capacity, number of production lines, ownership structure, and affiliation with global groups.

The report and poster are available directly from CW Group, by contacting us at [email protected] or by visiting our website at www.cwgrp.com/research

afrICa COUNTRY SNAPSHOT

AFRICA CEMENT MANUFACTURING CAPACITy ExCEEDS 200 MILLION TONS

cw group rEsEarch:.

Holcim and HeidelbergCement, Italcementi and recent regional major, Dangote maintain the majority of their operations in only one or two regions.

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We know the cement industry well. Let us guide you. For more information please contact us at [email protected] or on +1-702-430-17 48848 N. Rainbow Blvd., Box #1658, Las Vegas NV, 89107, USA

he best managers in all industries – cement being no exception – know that their highest value to their organizations lies in

making the tough decisions, and getting those decisions right more often than not. These skilled managers rely on carefully structured systems to deliver as much accurate information as possible, but when the information does not point to a clear decision they must turn inward for the answers.

Some decisions are formal, often focused on internal operations. Some are structured analyses of market trends and competitor behavior. Others are more intuitive, based on information in the trade and business research, personal contacts and general information sources.

Major Decisions Always Involve RiskIn consequence, the process of integrating these varied sources, no matter the quality

of the underlying information systems, is dependent on the experience and knowledge of senior staff. Major long term, high cost investment decisions, such as new cement plant construction or expansion programs, are always a risk and the best that can be demanded of formal information systems is that risk-taking is as informed as possible.

In effect this emphasizes the need for two main sources of management information. One is focused on existing operations, cost flows, profits, variations in performance and so on. The other is based on interpreting the external environment in order to facilitate long term planning and anticipate major changes.

Even when the focus is on internal operations, formal Management Information Systems will only be delivering a portion of the information needed and even at this there is the risk that critical information can be obscured.

Is The Right Info Reaching The Top?The information you receive should be professionally delivered, accurate and well aligned to the operational and strategic goals of the firm. However, at senior levels, management information is often presented in an aggregated form structured around a number of key metrics and performance indicators. This focus on adopted strategy and aggregation to ensure key information is clear can become a source of potential problems. In effect, how useful is your management information at picking up signals that a major change or new problem is emerging? The fact it is so well structured and so well focused may mean it misses key emerging problems, or fails to focus on outcomes rather than processes.

A contemporary problem from a different industry perhaps exemplifies this issue.

The recent BP oil well disaster in the northern Caribbean happened at an oil well which,

Managers Make decisionsInformatIon SupportS DecISIon-makIng

tools & ANALYSIS

As a management magazine for the cement industry, CemWeek not only looks at specific cement sector concerns, but also at issues facing top managers across all industries to help our readers consider issues in different and new lights. For example, the following discussion of the value - and limitations - of “management information.”




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according to subsequent investigation, was well known to be problematic. However, information on a problem that came close to bankrupting the firm and has done long-term damage to its corporate reputation was not effectively reaching senior management. It was in effect, aggregated out of the figures being scrutinized, perhaps showing up as little more than a higher set of costs and a slower rate of exploitation.

Information on external trends and potential changes can also be usefully divided into two sub-categories. One part is the functional information needed when making major capital and investment decisions. Key in this is estimating future demand with a need to disentangle short-term increases in demand (say in connection with a major sporting event in a given country) from genuine fundamental changes driving sustained per capita materials usage. However, this is not all that is needed. There is a need to consider softer, more attitudinal information. Some can come from estimates of GDP but more fundamental is a judgment about stability and long term prospects.

Accuracy And Completeness Must be AssessedA different use for formal external information is when trying to benchmark

performance against that of competitors. Finding comprehensive competitive and market data is a major difficulty, leading to a need to make assumptions and use the data that is available rather than the utopian data that ideally would be needed. Overall the cement industry is highly competitive, meaning that more frequently than not, basic data such as pricing, production volumes, and operational performance are guarded jealously.

Even more complex to gather and quantify is information on political trends, changes to government policies and emerging opportunities and problems. In part these may be captured as due diligence phase of investment decision-making, but for a capital intensive, relatively geographically immobile industry such as cement, long term trends and changes become very important.

We are all watching as North Africa and the Middle East go through a period of potentially profound change. At the moment, no one is sure how far-reaching this will be, nor whether political change will lead to changes in economic policy and attitude towards existing contracts. However, quite clearly, the potential exists for major political and economic change

with lasting implications for cement demand. A common refrain is that no one saw this coming. It’s worth asking if this assumption is true.

Practical StepsAccepting all these weaknesses to any structured approach to management information, what, if any practical steps can be undertaken to reduce their impact?

One element is to acknowledge that formalized management information and planning systems are tools for solving relatively well-defined problems. In effect, where issues such as efficiency of production or matching capacity to expected demand need to be addressed they work very well. Where they can fall short is in identifying unexpected or ill-structured problems and in situations where external factors are changing quickly. Equally they can be challenging when information is partial such as when benchmarking performance against competitors. When faced with a new situation, we all tend to look at new information in the light of our previous experiences and to fit that information into expected patterns.

Most of the time this is effective, however sometimes it can lead to missing critical

iNTERNALFORMAL INFORMAL

EXTERNALFORMAL inFORMAL

WELL-ORDERED;STRUCTURED;

FOCUSED;CONSISTENT

aggregated;miss new trends;

inflexible

prejudice;single view

hard to gather;may focus on what can be

measured not whatshould be measured

may be wrong;may reflect

individual view;hard to evaluate

allows wider view;

allows greater focus

consistent;focused;relevant

qualitative;opinions;

wide rangeSTRENGthS

WEAKNESSES

TOOLS & ANALYSIS




CW Group Coal Week

managementmaking decision

informalinternal

management information

informalexternal


structuredexternal


structuredinternal

managementinformation

new information. The solution is to combine structured information with all the other information sources available. This can range from personal knowledge gathered outside work (news, research, opinions, conversations) as well as opening up means by which alternative explanations can be raised and be heard.

There are several parts to this. One is ensure openness to new ideas and new concepts and not to close off different explanations that might indicate different reasons for an observed event. In this, the leadership style adopted by senior decision makers is important. When dealing with unstructured information, a degree of risk taking and some error is almost inevitable. This may lie in how people look to construct links between the emerging information and a possible solution or it may lie in testing out various solutions till one is found. A key constraint here, of course, is just how much risk-taking can be tolerated: sooner or later something will go wrong that will have serious consequences for the company’s performance, reputation or viability.

Related to this is to consider how the company planning process is conducted.

Some large companies have found that planning on a scenario basis with a question such as ‘what happens if environmental legislation increases the cost of concrete production by 20 percent at the same time as demand falls by 10 percent’ (or what happens if the government in a major market falls and the new regime refuses to honor existing contracts)? The idea is not that this needs to be particularly realistic, but that it is unusual enough to shake up existing methods of data gathering and interpretation. In turn this may ensure that a wider set of contextual information is drawn upon.

So when focusing on long-term demand estimation, it is necessary to use conventional macro-economic measures and known relationships between changes in GDP and likely demand for cement. It is also essential to focus on less tangible relationships. What else could affect that particular market and how? In addressing this, additional valuable insights can be distilled.

A second partial solution is trust implicit judgments; “if something feels wrong it probably often is wrong.” Taken to extremes, this can be a badly flawed approach, but

with an emphasis on ‘rational’ decision making there is a danger of overlooking the advantages of tacit knowledge and expertise. We all gather information all the time from a wide range of sources and, especially in terms of understanding the external environment, this extra information can be critical.

Returning briefly to North Africa and the Middle East, the conventional wisdom from intelligence agencies and the business press is that the recent events were unexpected. In truth, however, they were seeing the region through the prism of a concern with terrorism and an assumption the regional autocracies were stable. Other journalists were pointing to the problems of unemployment among a mostly young, often well-educated, population leading to demands that had nothing to do with the agendas of radical Islamists.

In effect Management Information is an essential element for management decision-making. It will not, even at its best, ‘make’ the decision. The ability to interpret and combine disparate information sources will remain a major part of the skill set of senior decision makers.

TOOLS & ANALYSIS

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leaders COMMENT

khd humboldt wEdag cEo Jouni salo commEnts on nEw partnErship

and FuturE prospEcts

“THE BEST OF EAST AND WEST”khd and avic:

As CEO of KHD Humboldt Wedag, Jouni Salo played a pivotal role in one of the most significant corporate combinations seen in the cement industry in recent years. In this exclusive interview, Mr. Salo reveals his motivations in creating a partnership with China’s AVIC and, perhaps more importantly, his expectations

for its effects and benefits in the years ahead.

What prompted KHD to seek an external investment rather than try a ‘go-it-alone’ approach?

KHD’s long time core competency has been in process technology and environmentally friendly solutions with strong contract management, mainly with EP projects. Organic growth of adding a construction division would have required KHD to acquire new talent and undergo time-consuming setup. We were looking for an internationally established partner who could complement KHD’s 150 years of technology and bring a low cost sourcing model. The construction portion of any contract is the major cost of the project, so it was natural for us to look for a low cost solution, and the natural place for us to look was China.

What was the rationale for deciding that CATIC was the right partner?

Let me say first that the name CATIC has been changed to AVIC. The mother company AVIC – Aviation Industry

Corporation of China, has aligned all their daughter companies with the AVIC name, so the previous CATIC Beijing Co is now AVIC International Beijing Co Ltd., or AVIC for short.

We have been looking at several potential partners for KHD over the past several years. Many but not all were Chinese companies. What interested us most about AVIC is that their corporate culture includes strong export and international business knowledge. Represented in over 33 countries, AVIC brings a combination of low cost sourcing and a strong background in cement plant construction. Being one of the top 10 Chinese conglomerates, AVIC also opens up the Chinese market to KHD, especially to our energy efficient and environmentally friendly products. The combination of these facts made AVIC the perfect partner for KHD.

How is the partnership structured from a governance perspective?

Per our agreement, AVIC will appoint 1/3 of the members of the KHD Supervisory Board. AVIC will also have one member on the KHD Management Board. This position is in charge of Global EPC projects in addition to Business Development in Asia Pacific. This assures that our EPC work receives the highest level of company focus. I am pleased to inform you that we appointed Mr. Yizhen “Mario” Zhu to this position on April 2nd, 2011.

What role in KHD will AVIC have going forward?

As noted above, AVIC is an active part of KHD and KHD with AVIC. The agreement provides that core KHD equipment will be used in all projects. With the investment in KHD, there is really no need for any technology transfer as we have defined scopes in the agreement. In addition to our commitment to EPC projects, we have established a joint procurement center in China for both our EPC and EP projects worldwide. We have further plans to invest together in design institutes and




CW Group Coal Week

LEADERS COMMENT




CW Group Coal Week

manufacturing centers and potentially other technologies. These investments will lead to joint development of technologies going forward.

We have heard from many cement companies that they value the European equipment quality, especially over the life cycle, vis-a-vis Asian low-cost manufacturers. How are you planning on keeping the “German quality” in the new configuration?

This is exactly the basis of our agreement. By combining the 150 years of proven KHD technology and “German quality” with AVIC’s low cost sourcing, we bring together the best of “East and West”. A main objective of KHD over the last several years has been to reduce costs while maintaining quality. This partnership is just an extension of that focus.

What do you think the future looks like for European cement equipment manufacturing companies traditionally focusing on higher quality, but at a higher cost?

As mentioned before, we have been working hard on reducing costs but still maintaining quality. We are focused on what our customers want in terms of cost and quality and continually adjust our goals to meet those requirements. We have established an active Account Management program to make sure that we understand our customers’ focus and requirements. From this perspective, as long as we find new ways to reduce cost and maintain or even improve quality, we know that the European equipment manufacturers will continue to grow and prosper.

As the world’s second largest cement market, do you think India will develop its own competitive cement plant equipment industry that can compete internationally?

KHD is a very strong player in the Indian market. There are some Indian companies who we are already seeing in the marketplace outside of India. Our current agreement with AVIC does not include EPC in India.

That is not to say it couldn’t be included in the future if we saw the need. With that said, we could see options with some of our Indian partners outside of India where it makes sense to KHD and AVIC. We have seen new competition over the years from all areas of the globe. India will be no different in the future. Fair competition is never a bad thing. It makes all of us better companies in the end.

LEADERS COMMENT

We were looking for an internationally

established partner who could

complement KHD’s 150 years

of technology and bring a low cost sourcing model

KHD-AVIC signing ceremony

If you look five years into the future, what will the cement plant equipment industry segment look like?

We believe turnkey work will not be the rule all over the globe. Widely differing governmental laws and requirements will dictate many of the opportunities that can be done as true turnkey projects. Therefore there will still be an equal mix of EPC and EP projects. Much of this will depend on the customers.

We have seen over the years the changes in requirements by customers which are dictated by their risk/cost appetites and the state of the industry. With our AVIC partnership we are well positioned to compete at any level with anyone from any country of the world.

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■ Market and country research ■ Opportunity assessments

■ Forecast services ■ Customized surveys

■ Due diligence research ■ Business intelligence

■ Competitive benchmarking ■ Analysis support

Contact us at [email protected] to discuss further how we can support your market intelligence needs.

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braZIl COUNTRY SNAPSHOT

mEga-EvEnts, a surging Economy and govErnmEnt programs add up to hugE growth in brazil’s cEmEnt industry

The B in BRIC gets an A in growthbut how long can the beat go on?

As economy and construction accelerate, the country’s cement industry is working at full steam to keep up the pace. But will all good things last and is Brazil really one market or several distinct ones?

razil is the largest South American cement producer and the tenth largest producer worldwide. Not surprisingly,

the cement industry in Brazil is on fire as the country’s cement companies rise to the challenge brought on by the 2014 World Cup and 2016 Olympic Games and react to the strong growth of the domestic economy and mega-government infrastructure programs. In 2009, the construction sector represented just over five percent of Brazil’s GDP, and estimates show an increase to ten percent for 2010.

In recent years, the construction sector has been the principal engine of Brazil’s economy, fueled in part by government programs. For example, the “Minha

Casa, Minha Vida (My House, My Life)” initiative attempts to fill the country’s 5.8 million housing unit deficit by building three million subsidized homes by 2014. In addition, the PAC II initiative will pour R$959 billion into immediate infrastructure development and another R$632 billion beyond 2014.

These projects are in addition to construction and cement demand driven by the World Cup and Olympic Games buildups. A strong economy and rising wages have fueled private sector construction activities as well. All told, such projects contributed to an apparent cement demand of 60.2 million tons in 2010 and a five-year growth projection of 7.7 percent on average through 2015.

0

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40

60

80

100

Cement demand in mm tonsThat’s some demand you got there

2015E2010E2006




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COUNTRY SNAPSHOT: BRAZIL

While demand has risen over 16 percent in the last two years, pricing has remained fairly stable between R$360 and R$385 per ton. However, prices vary greatly by region due to transportation costs and even the need to import in areas of low production capacity relative to demand. For example, the inland market of Rondôna reached R$530/ton last year.

Seventy percent of cement sales in Brazil are bagged and 30 percent in bulk, with distribution almost exclusively by road transport. The distribution radius varies from 300 km in some southern markets to nearly 1000 km in the North, a factor greatly influencing regional pricing.

Important Regional VariationsBrazil is a large country with widely differing regional sub-markets, most notably the Southeast and Northeast, which have 32 and 17 cement factories respectively. Regional demand is dominated by the Southeast, where urban development

and infrastructure have exploded. Indeed, southeastern Brazil, which includes Rio de Janeiro, Sao Paulo and Minas Gerais, is the country’s economic engine and has led the construction industry for nearly a decade, representing over 50 percent of construction GDP. Largely due to a thriving housing sector, cement needs in the Southeast accounted for 47 percent of national consumption in 2009 at more than 24 million tons.

At present, 14 groups operate 73 cement plants throughout Brazil. The country’s three largest players—Votorantim, Nassau and Camargo Correa—control 62 percent of capacity. The country’s largest producer, Votorantim, represents 41 percent of national cement production alone. Cimentos Nassau, owned by the Joao Santos family and around which there have been constant interest in buying out, operates ten plants, mostly in the northeast. Brazilian construction giant Camargo Correa operates eight. In addition to these large producers, new independent players are emerging, including Supremo Cimento, Apodi and also steel-giant CSN.

Intensifying CompetitionCompetition in Brazil’s cement market will only intensify in the coming years as current lead players expand capacity and new entrants bring an additional 15 million tons to the table. In total, production capacity is set to grow from 67 to 102 million tons by 2015 due to this combination of expansion projects and new factories. As domestic demand rises, there has been little room in the market for exports—rather, imports have

grown 44.4 percent in the last half-decade—but new capacity will drop utilization rates from 98 to 86 percent.

Although the cement sector surged 15 percent in 2010, the story of Brazil’s cement market is not just its current strength but its future importance, both domestic and global. It would be foolish to discount Brazil after the Olympic torch is extinguished. In Brazil, cement demand is being driven by population growth and economic activity, which point to a sustainable growth trajectory.

While current growth levels cannot be indefinitely sustained, cement will continue to rise an average seven to eight percent annually through 2015. As mega-projects complete around 2014 or 2015, forecasts must necessarily dim, but Brazil’s infrastructure remains relatively underdeveloped, and investment in dams, highways and ports can spur cement consumption well beyond the World Cup and Olympic Games. Indeed, with 40 million tons of new capacity announced for the next five to six years, the Brazilian cement market is poised to ride this wave into the next decade.

Share of 2010 manufacturing capacity

Votorantim

Others

Cimento Nassau

Camargo Correa Cimento

Dividing the spoils

42%

39%

10%

9%

Cement manufacturing capacity in mm tonsThe big leap

0

60

120

2011-20152009-20102008

The construction sector has been

the principal engine of brazil’s

economy

More information about this and other CW Group research reports on cement markets can be found at www.cwgrp.com/research, or by contacting the CW Group at [email protected].

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The Mongolian cement market is still at a nascent stage. Compared to China, its development is about twenty years behind.

Cement production started in Mongolia with the Dharkan Cement plant in 1968. Today, there are two major cement factories in Mongolia: a state owned company called Hutuul Cement and the Dharkan Cement plant. The Dharkan plant was initially owned by the state, but later on privatized. It is now owned by the Erel Cement Company. Central Asian Cement started operating a grinding plant in 2004 and has aspirations to eventually add a clinker line.

The Dharkan plant was constructed under Czechoslovakian technical guidance. The Hutuul Cement plant was constructed with financial and technical assistance from the former Soviet Union. Both factories still use outdated wet process technology and cannot operate during the winter season.

State owned Hutuul Cement is planning to open another plant with Russian assistance in the near future. The Mongolian authorities are also considering privatization of Hutuul Cement – a plan that was to be addressed in the General Budget Prognosis of 2010. This may improve the much needed funding for upgrading technology in the plant.

In 2009, Yalguun International, a mineral processing company, signed a financing agreement with the US Trade and Development Agency (USTDA) for a feasibility study for a cement plant project

in Mongolia. The US$500,000 study to be conducted by FLSmidth focused on the company’s limestone deposit located in Urgun soum in the Dornogobi province.

With a population of 2.63 million, the country’s total consumption of cement is about one million tons, up about 10 percent in 2008 and 40 percent since 2006, following a demand crash in the 1980s.

DEMAND EXPECTED TO DOUbLE bY 2016

Since 2001 consumption has been increasing and the country’s production capacity has not able to meet the demand. Consumption is expected to increase further with the construction of gold mills, uranium mills and mining projects scheduled to come on-line in the next few years. Furthermore,

demand from Russia’s southern Siberian region is also significant for the country at 25 percent to 30 percent of domestic demand. Demand is expected to almost double by 2016.

Mongolia is faced with unpredictable production capacity and structural challenges. Traditionally, China has been the major supplier for Mongolia, and in 2008 Mongolia officially imported 643,000 tons of cement, or 68 percent of total demand.

Over the last three years the Chinese Yuan has appreciated against the dollar-linked togrog. Consequently, it has become increasingly expensive to import cement from China. Also, in order to reduce pollution, China has been consolidating and a number of factories have been shut down which further reduced exports to Mongolia. Severe delays due to logistical issues at the border with China affect product transshipment.

Furthermore, the cement factories have to-date had to be shut down during the extremely harsh winter months in Mongolia and effectively operate only for five months. As a result, actual cement production is estimated at less than 35 percent of capacity.

Fueled by a booming mining sector and economic growth, the Mongolian cement industry is expected to witness an increase in infrastructure spend. As a result, the demand for cement is expected to see strong growth, albeit still at relatively limited volumes in absolute terms.

MoNgolIa COUNTRY SNAPSHOT

SEEkING A PATH TO GROWTH DESPITE MULTIPLE CHALLENGESthE mongolian cEmEnt industry:

MANUFACTURER PLANT DETAILS

HUTUL CEMENT Hutuul Plant

EREL CEMENT Dharkan Cement Plant

CENTRAL ASIAN CEMENT Grinding Unit

INDUSTRIAL CORPORATION MONGOLIA

Dundgobi Province Plant

LIVE ENERGY GROUP Mizu Cement Plant

YALGUUN INTERNATIONAL

Urgun Soum of Dornogobi Province BMWeek

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2008 2009

POPULATION (MILLION) 2.63 2.67E

CEMENT CONSUMPTION 360kg 390kg

Macro overview

ceMent coMpanies and plants in Mongolia




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FEATUREfeatUre

For an on-the-ground view of the current status and future prospects of the cement industry in West Africa, CemWeek turned to Finn Arnoldsen, who has been involved with the cement sector – as

operator and investor - in Nigeria and West Africa more broadly, for over two decades

dEspitE ongoing challEngEs, continuEd growth is sEEn For

West AfricA’s cement industry




CW Group Coal Week

FEATUREement consumption in West Africa in 2010 was 33 million tons, representing 20 percent of the total consumption on the

continent. Nigeria was by far the biggest market along the coast with 17 million tons in 2010.

The West African cement markets vary significantly from country to country:

■ Consumption per capita varies from 200 kg per person in Senegal to 20 kg per person in Niger due to national economies and purchasing power.

■ Limestone deposits are generally not available along the coast from Guinea to Ghana.

■ Only Senegal and Togo have clinker surplus for export.

The economies in the West African countries are based on a mix of agriculture and mineral extraction. The main drivers in the regions are Nigeria, Ghana and Senegal. Over the last 7 years the average GDP growth has been close to 6 percent.

“We expect positive development to continue, to a large degree based on new discoveries of oil along the coast (Ghana, Nigeria, and Ivory Coast) and also development of solid mineral deposits (e.g. uranium and coal) in the land-locked countries.”

Due to lack of limestone in many West African countries, the region is a net importer of cement and clinker, representing

roughly 50 percent of the consumption (16 million tons). Despite quite aggressive plans for capacity expansions–in Nigeria in particular where Dangote will have 18-20 million tons capacity by 2012–West Africa as a whole will still remain a net importer of clinker. Cement is mainly imported into Nigeria. This volume will decline as new integrated capacity is commissioned and built.

West African cement consumption has been growing quite steadily over the last decade and we expect the trend to continue. The growth rate will probably be higher in the oil economies like Ghana and Nigeria than in the smaller and land-locked countries.

In the future, when the new Wacem plant in Mali is commissioned, it is assumed that the volumes will decrease, particularly from Senegal and Ivory Coast.

Below is a chart showing the present and expected future production capacities of the main cement suppliers in West Africa. The 2015-capacities are based on known new projects, which may not all be completed as planned.

As noted above, Dangote is preparing a massive expansion in Nigeria: 13 million tons additional integrated production capacity over the next few years. In addition, the company is in the process of investing in a new plant in Senegal. Lafarge is also expanding in Nigeria.

The WACEM-Group is expanding its clinker capacity by investments in integrated plants in Mali and northern Ghana, Niger (together with us) and in addition, new grinding capacity in Togo.

FEATURE

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Rising to the challenge

11e10e090807060504030201

3.8% 2.7% 8.4% 5.6% 4.9% 5.7% 5.3% 5.0% 1.1% 3.0% 5.0%

Average annual GDP growth in percent

continued on next page




CW Group Coal Week

How is Nigeria, especially northern Nigeria, different from other countries in the region?

Nigeria is Africa’s most populous country. A new constitution was adopted in 1999, and a peaceful transition to civilian government was completed. The country is currently experiencing its longest period of civilian rule since independence.

Nigeria is one of the world’s largest producers of oil, mainly from offshore wells in the southeast of the country. However, it is over-dependent on the oil sector, which provides 95 percent of foreign exchange earnings and about 80 percent of budgetary revenues. Attempts at diversifying the

economy have to a large degree failed and the potential for agricultural and industrial development remains under-utilized. However, the government is implementing policies to attract foreign investors with emphasis on local manufacturing to replace the import of commodities, as for instance cement.

Compared to other West African countries, Nigeria has a well developed and regulated stock exchange, which facilitates private investments and channeling of funds. The country also has a dynamic banking sector to support investment projects. Nigeria also has larger industrial groups with greater economic power than other countries in the region.

New infrastructure, particularly electrical generation and distribution, is required to promote further economic development. Lack of power capacity forces many new industrial facilities to provide their own electricity, driving up capital and operating costs.

Another limiting factor is port congestions in Lagos and Port Harcourt, which are both fully developed and have limited expansion possibilities.

Northern Nigeria is a pure agricultural area with few valuable natural resources (compared to the south). Consequently, there is very limited industrial activity and the area is fully dependent on financial support from federal & state governments to pursue sound economic development.

The demand for cement has increased by an average of 10 percent in recent years (22 percent in 2008), but still the consumption per capita is below most other West African countries. With Nigeria’s oil-driven economy and potential development in the industrial and agricultural sectors, it is expected that the growth will continue at the 10 percent-level. The domestic integrated capacity is rapidly expanding and the authorities have stated that import of cement will be banned when local capacity grows to satisfy market demand.

CCNN has an interesting corporate history. Tell us about how the company came to be what it is today and linkages to Niger and other markets.

CCNN was incorporated in 1962 and a production line with 100,000 tons capacity was commissioned in 1967. With the assistance of Cementa AB/Orenstein & Koppel, production line 2 with a capacity of 500,000 tons was erected in 1985.The company was listed on the Nigerian

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Cape V

erde

Sierra

Leone

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Maurit

ania

Burkina F

aso

Mali

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Camero

on

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Coast

Seneg

al

Ghana

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One large and many smallerCement demand by country in million tons

Logistical challenges

include huge transport

distances for any material needed

FEATURE

COUNTRY DATA 2009 2010 2011

Population (Mill.) 152,2 155,2 158,7

Annual Growth 2,1% 2,0% 2,2%

GDP (USD bill.) 357,200 375,060 393,813

GDP per Capita (USD) 2,347 2,416 2,482

CEMENT MARKET

Cement Cons. (1,000 t) 14,800 16,000 17,000

Cement Cons./Capita (kg)

97 103 107

Cement Price (USD/T) 200

CEMENT PRODUCERS/CAPACITY

Dangote - Integrated 7,100 7,100 7,100

Dangote - Import Term 4,000 4,000 4,000

Lafarge - Integrated 3,500 3,700 3,700

Lafarge - Import Term 700 700 700

CCNN 550 550 550

Unicem 1,200 2,500

Flour Mills - Import Term 1,600 1,600 1,600

Others - Import Term 1,500 1,500 1,500




CW Group Coal Week

COTE D’IVOIRE GHANA

TOGO

BENINNIGERIA

NIGERMALIMAURITANIA

600’

150’

200’

200’

220’

30’

170’

CAMEROON

EQUATORIAL GUINEA

GABON

BURKINAFASO

LIBERIA

SIERRA LEONE

GUINEAGUINEA-BISSAU

THE GAMBIA

SENEGAL

SENEGAL:2400’ MALI:

1000’

BF:900’

IC:1500’

GHANA:3400’

BENIN:1350’

TOGO:700’

INTEGRATED PLANTGRINDERTERMINALMAIN FLOW (1000 TPY)

Lay of the landRegional demand and trade flows (’000 tons)

Stock Exchange in 1993; fully privatized in 2000 with HeidelbergCement as the core investor. HeidelbergCement embarked on a comprehensive rehabilitation program with the goal of achieving the nominal capacity of the plant. However, in 2008, HeidelbergCement decided to divest their Nigeria & Niger portfolio, including CCNN and a local investor; Damnaz Cement Company Ltd acquired their shares in the operations. Damnaz required expertise to operate their assets and engaged the individuals behind Africa Consulting Services (ACS) through a management contract.

Damnaz Cement Company Ltd divested their shares in the Niger operation (SNC) in 2010; and West African Cement, Togo (WACEM) together with us, acquired the shares.

BUA International (a large Nigerian conglomerate) acquired Damnaz Cement Company Ltd in 2010, and has also communicated future expansion plans both at CCNN and Edo Cement (in the south).

CCNN, located close to the Niger border,

will continue exporting cement and clinker, provided there is surplus capacity in the domestic market.

Large amounts of new capacity are coming online in West Africa. Are the fundamentals in place to sustain the output growth?

As we observed earlier in the article, a lot of new capacity will be commissioned in the next couple of years; particularly

integrated capacity in Nigeria and Senegal. In addition, significant new grinding capacity will be erected in Ghana. Both Wacem & Ghacem have communicated plans to erect new grinding installations in the country. Together with Wacem, we are preparing for capacity increase in Niger as well as a grinding plant in Takoradi, Ghana. The West Africa market is around 33 million tons, and with a minimum 3 million tons annual increase in the years to come, there’s no reason for concern about long-term surplus capacity in the region. Due to significant logistic challenges (ports, roads, etc.), the new capacities are not a major threat across the region as supplies are not readily or economically transportable.

In our opinion, the basic fundamentals are in place in most of the countries to sustain significant growth: new oil discovery in Nigeria, Ghana & Ivory coast as well as high mineral prices. Export of gold, iron ore, bauxite, phosphate and manganese will also contribute significantly. Nigeria, representing 50 percent of the population as well as 50 percent of the cement consumption, will certainly be the main growth driver in the region.

We expect positive

development to continue

FEATURE

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FEATURE

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the market and pursues a pretty advanced market strategy with customer focus as the main element.

Can West Africa afford to adhere to global sustainable manufacturing and alternative fuel standards?

West Africa, as other developing regions, will gradually have to adhere to internationally agreed standards. However, there will probably be some special concessions for regions like ours. We also believe that there is likely to be a certain measure of protection for the industry in developing countries in order to make it possible to build up an industrial base. One important aspect is that the implementation should not distort the competitiveness from one country to another.

On the other hand, most of the integrated cement plants in the region are controlled by global operators or large independent groups who already have policies of adhering to the global manufacturing standards (emissions, safety, etc.)

What are your corporate plans for the next few years and what do you hope to achieve?

The corporate plans in the years to come are to complete the investment projects in Niger and Ghana as well as pursuing other investment opportunities in the region. We will not limit our focus to West Africa, but also assess opportunities in other regions where we see prospective growth potentials. We will continue to offer both management services as well as consultancy services to any cement company in Africa. With our decades of experience in the cement industry in Sub Sahara Africa, we feel that we could contribute and add value to existing companies as well as assist new entities to enter a relatively complex market.

Nigeria has historically struggled with adequate fuel supplies. What have these issues meant to you and do they persist? What will be the “next big issue” the industry will face in Nigeria?

CCNN, as along with many other industrial activities in Nigeria, is facing erratic supply of heavy fuel oil (LPFO). Our main challenge to obtain sustainable production is actually the consistency in the fuel supply. The refineries in Kaduna, Warri & Port Harcourt are in general in bad condition and are frequently closing down for maintenance. The alterative is import through Lagos that certainly creates unpredictably high cost as well as massive logistical challenges. We have embarked on an alternative fuel project with the objective of utilizing coal or petroleum coke within the next two years. This will be a combination of import and supply of local coal.

Nigeria will face increasing competition among local producers. Competitiveness will be the main issue, including relative advantages on logistics, particularly distance to markets and alternative suppliers.

Operating a plant in your location must have its logistical challenges and special considerations – what are they and how have you overcome them?

Logistical challenges include huge transport distances for any material needed (apart from limestone): it’s 1400 km from ports where we receive the imported goods such as equipment and spare parts. As mentioned,

2010 2015

PRODUCER CLINKER CEMENT CLINKER CEMENT

Dangote - Cement Production 6,000 7,100 18,000 21,800

Dangote - Terminals 5,000 1,000

Lafarge - Cement Production 3,650 6,050 4,950 8,150

Lafarge Terminals (Nigeria) 1,000

WACEM/Diamond Cement 1,800 3,100 3,550 6,200

HeidelbergCement Africa - Cement Production

3,840 1,000 5,290

Sococim - Cement Production 2,500 3,000 2,500 3,000

Ciments de Sahel - Cement Production 1,000 1,300 1,600 1,800

Amida (Excl. SCO) - Cement Production 1,475 1,475

Holcim - Cement Production 1,400 1,400

Our main challenge to

obtain sustainable production is actually the

consistency in the fuel supply

the fuel is also sourced either from the refineries far away or through import and requires a proper logistic system in place. We have established a highly professional purchasing section with skilled individuals to cope with the logistical challenges

What challenges are the current market conditions presenting your company and your clients?

Our main challenge in operating a relatively limited size activity in northern Nigeria is clearly competition from the large cement groups (Dangote & Lafarge) with state of the art equipment and lower production cost. All the operators in the south are utilizing gas as the energy source and consequently will have a competitive edge compared to operations as CCNN. Our advantage is the distance to competitors and a relatively fast growing home market. In addition, the company has an established brand in

Boosting capacityCapacity additions (‘000 tons)

The interview was performed with Finn Arnoldsen of Africa Consulting Services, Norway. You can reach them by telephone at +4791370595, or +4791832739, or their website at www.africonserv.com

FEATURE




CW Group Coal Week

caps. It set local cement prices at $14 a bag, and capped imported cement prices at $16.50 by late 2009. The government even went so far as to threaten heavy fines and the revocation of import licenses for those who failed to comply.

Yet once again, prices began to creep up. By June 2010, cement prices had increased 8.5 percent in just two weeks, climbing from US$13.20 to $14.30. Calls for the government to step in and stabilize prices before things got out of hand grew more urgent. The government once again intervened, capping prices at around $6.50 a bag in August 2010. However, price speculation brought on by the country’s thriving black market drove trading prices to as high as $11.

The stronger level of black market activities appears to have also created shortages in local markets. Reports of traders hoarding cement to artificially inflate prices have surfaced, and despite repeated government warnings to traders about violating price ceilings, prices continued to escalate. By March 2011, they had reached US$55.

The government finds itself once again at a crossroads, torn between importing even more to meet demand, and protecting and fostering its local industry. The recent sale of interests in CILU and Interlacs to HeidelbergCement, and the government’s pending sale of CINAT to Lafarge seem to suggest a stronger focus on developing local production capacity. However, this will take time, and will likely require that the government take stronger, immediate steps that go beyond just capping prices. That particular strategy appears to have little impact when pitted against a thriving black market.

foCUs

Cement prices in the Democratic Republic of the Congo (DRC) continue to fluctuate wildly, despite government efforts to control them. Nearing the end of the first quarter of 2011, prices had climbed to US$55 for a 50 kg bag of grey cement. The last time prices had hit the $50 threshold was at the end of 2008. Considering the government had capped prices in August 2010, the question is, what’s happening?

Like much of the country, the cement industry has struggled to rebuild after decades of war. Cement manufacturers have not been able to produce enough cement to meet the demand imposed by the push to rebuild the country’s largely destroyed infrastructure. Factories that survived the conflict have dealt with repeated interruptions in production. Reasons for the drop in production levels vary, ranging from repeated equipment failures like those experienced by Cimenterie de Lukala (CILU), to inadequate cash flow as seen at the state-owned Cimenterie Nationale (CINAT). Outdated equipment with limited capacity, rising raw material costs brought on by the deterioration of the Congonese franc against foreign currencies, transportation issues, and ongoing security concerns have threatened production levels.

After prices hit US$50 in December 2008, the government took steps to stabilize

them, in large part by opening the market to imports. With only two DRC factories producing by the end of 2008, the need to import was great. Imports from China, Turkey, Spain, Egypt, and South Africa began arriving and by April of 2009, prices had stabilized at US$13. However, as the country’s other facilities began to produce once again, the government took steps to promote local production by setting price

The government finds itself

once again at a crossroads, torn between

importing even more to meet demand, and

protecting and fostering its local

industry

DEMOCRATIC REPUBLIC OF THE CONGO STRUGGLES TO BALANCE PRICES AND PRODUCTION

DEMOCRATIC REPUBLIC

OF THE CONGO

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Unloading of bagged cement




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GLOBAL CEMENT INDUSTRY. KNOWLEDGE. DECEMBER 2010

RESEARCH

Foreword by Eng. Al RousanSecretary General

Arab Union for Cement and Building Materials

2010Middle east&

africa ceMentsector survey

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Latest cement market reports includeRussia • GhanaKenya • BrazilUAE • Sudan

featUre

Spanning eleven time zones with dozens of languages and cultures, Russia exerts tremendous influence on every aspect of life in Europe and Asia. The country’s cement industry is no exception, as Moscow-based consulting firm CMPRO explains.

The Russian cement market is going through a stage of fierce competition among producers, similar to what it faced between 1991 and 2005. The period from early 2005 to early 2008 can be characterized as the period of “managed cement deficit” and, in fact, were the best years for cement producers in the history of modern Russia. The current stage started in mid-2008 after the decline in cement consumption caused by global financial crisis.

Due to the distinct seasonality of construction activity in Russia, the near future short-term local cement shortages will likely appear and lead to annual

speculative price surges. However cement producers will be forced to share their margins with the owners of rail carriages since the shortage of carriages is an important aspect influencing final cement prices. Transportation by rail accounts for 65 percent of all cement shipments and the average shipment distance exceeds 700 km.

Today there are 49 cement plants in Russia, 45 of which have full-cycle production

table 1. average operating margins of cement plants in russia

* Estimate

process and three are grinding mills. Total capacity of these plants as of January 1, 2010 was 77.5 million tons. Output volume reached 50.4 million tons in 2010, which is 13.8 percent more than in 2009. The average price for one ton of cement was US$71 in 2010 and average operating margin in the industry was 10 percent. The three largest players account for 54 percent of the market.

YEARS 2003 2004 2005 2006 2007 2008 2009E 2010EOperating margin, % 12 14 11 44 82 61 28 10

Russian Cement industRy OutlOOk:New aNd moderNized capacity; higher costs




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FEATURE

The Government

The Russian government has been heavily involved in the sector and supported the creation of the company which controls over 50 percent of the cement market in the European part of Russia and about 40 percent of the whole Russian market. The skyrocketing price for cement in 2005-2008 is a direct consequence of consolidation of

assets in the cement industry. Currently a large government company is shaping a cement monopoly in Siberia.

Additionally, the government is shaping the industry through annual double digit price growth for gas, electricity and railway transportation. This trend will continue in the near future. Therefore, annual growth in cement cost by 10-15 percent is

inevitable, creating conditions favorable to modernization of the industry and shifting to energy efficient technologies.

On the other hand, infrastructure costs for Greenfield projects can reach up to 30 percent of the total project costs. Since there are no preferences, deferred payments or other government supportive measures in Russia payback period of new cement

MAP SYMbOLS

moscowOperating Cement PlantsOperating Grinding mills

Russian Cement industRy OutlOOk:




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FEATUREplants is more than ten years. With the cost of debt in Russia exceeding 10 percent, modernization is not that evident.

Infrastructure projects where Government acts as key investor coupled with government support of housing construction form the basis for shaping of demand for cement in Russia. Construction of facilities for the Olympic Games in 2014, APEC Summit in 2012 and FIFA World Cup in 2018 contributes to the increase of cement consumption in the short term.

Technological inefficiency

Comparatively low cost of energy sources and sharp decline in cement demand over the past decade of the 20th century are the main reasons for technological inefficiency of Russian cement plants.

table 2. operating cement plants in russia

* in 1990-2007 about 17mm tons of obsolete and physi-cally worn cement capacities were taken out of service.

technologies accounted for 81.2 percent, 16.5 percent and 2.3 percent of total cement capacities in Russia, respectively.

Nonetheless, today Russia’s cement industry is going through a renaissance period. For the past two years six manufacturing lines with total capacities of 7.1 million tons have been put into operation. By 2015 we expect about ten more lines with total capacity of up to 15 million tons of cement to be put into operation.

In 2007, cement shortages developed in several local areas which allowed leading companies to increase prices dramatically (by 2 times and more). Average annual cement price in 2007 was US$93.9 per ton. Many neighboring countries took advantage of this situation by offering comparatively cheap cement (US$70-80 per ton on CIF terms). Today some cement plants are planning to modernize by shifting from wet process technology to dry.

Import and export

Currently, there are 5 percent import and 0 percent export duties for cement in Russia. The amount of imported cement depends directly on the pricing policy of Russian cement producers. The dramatic increase of cement imports in 2008 was the result of a domestic price surge caused by Russian producers. The largest importers of cement to the Russian market are Turkey and China.

In the future we expect a gradual increase in imports is expected caused by increasing domestic cement prices resulting from installation of energy inefficient technologies.

Until recently export of cement was caused by shortages in some neighboring countries, primarily Kazakhstan and Azerbaidjan.

PARAMETERS 2003 2004 2005 2006 2007 2008 20092010 (jAN - NOV)

EXPORT OF CEMENT AND CLINKER, ‘000 TONS, INCL.:

2,051 2,291 3,050 3,207 1,869 803 3,004 4,418

Cement 1,680 1,696 2,305 2,787 1,658 771 1,542 1,397

Clinker 371 595 745 420 211 32 1,462 3,021

IMPORT OF CEMENT AND CLINKER, ‘000 TONS, INCL.:

132 191 367 671 2,445 8,070 1,452 1,331

Cement 83 126 195 556 2,212 7,331 1,123 1,084

Clinker 49 65 172 115 233 739 329 247

table 3. export and import of cement and clinker in 2003-2010

CONSTRUCTION PERIOD, YEARS

CAPACITIES PUT INTO OPERATION, M TONS

Before 1960 27

1960-1965 18

1966-1970 15

1971-1975 15

1976-1980 9

1981-1985 4

1986-1990 5

1991-2007* 2

2008-2010 9

However the situation has now changed. Today, clinker and cement can be exported at favorable prices to countries, such as Ukraine, where the price of gas for production is much higher than in Russia.

Corporate management

High quality of corporate management is maintained at Novoroscement, Mordovcement, Sebryakovcement and Sukholozhskcement. Top management of these companies is known for the flexible reaction to changes on the market and permanent work on technological improvement and modernization of their plants. Thanks to efficient management, these plants maintain a significant and nearly constant share of the Russian cement market.

Noteworthy is also the Eurocement Group, whose founder managed to consolidate a significant part of cement assets in Russia, Ukraine and Uzbekistan in a short time, turning Eurocement Group into the largest cement company in Russia and Eastern Europe.

Consolidation

Major consolidation activity was finished by 2007. Today in Russia there are some

Out of all of Russia’s production lines, 75 lines with the total capacity of 26.7 million tons have been in operation for at least 50 years and 95 manufacturing lines with total capacity of 65.8 million tons have been in operation for 30-50 years. As of January 1, 2011 wet, dry and semidry process

Annual growth in cement cost by 10-15% is

inevitable




CW Group Coal Week

international companies such as Lafarge, Holcim, Buzzi and HeidelbergCement. These companies do not have significant influence on the market – their total capacities are about 14.9 million tons, which accounts for 19.2 percent of the Russian cement capacities.

We think that The future asset flow will depend on the market situation. With the demand stabilization and growth rates not exceeding 5-7 percent per year, the largest players, especially those located in Siberia, may face difficulties. In any case, Eurocement Group represents the most attractive asset in Russia’s cement industry since the company controls the market of the European part of Russia, where about 80 percent of the cement is sold.

Industry outlook

Generally, cement companies are fairly

FEATUREGraph 1. Import of cement, import and domestic cement price in 2007-2009

table 4. top 10 russian cement companies (ranking parameter – cement capacities)

bREAKDOWN OF CAPACITIES’ AGE

GROUPCAPACITIES, MM TONS

OUTPUT IN 2010, MM TONS

UTILIZATION RATE, %

MORE THAN 50 YEARS

50-30 YEARS 30-20 YEARSLESS THAN 20 YEARS

EUROCEMENT 25.7 19.4 75% 21% 65% 14% -

SIbIRSKIY CEMENT 5.4 3.2 60% 11% 76% - 13%

MORDOVCEMENT 4.5 3.8 84% 25% 55% - 20%

HOLCIM 4.4 2.1 47% 30% 70% - -

LAFARGE 4.2 2.4 57% 67% 33% - -

NOVOROSCEMENT 4.1 4.0 98% 39% 29% 32% -

VOSTOKCEMENT 3.9 1.5 38% 41% 59% - -

bUZZI 3.8 1.9 50% - 66% - 34%

SEbRYAKOVCEMENT 3.6 3.3 94% 43% 43% - 14%

RATM 3.0 2.0 67% 21% 65% 14% -

successful in overcoming consequences of the crisis. New players are emerging in the market and constructing new cement plants. Equipment for new manufacturing lines is generally supplied from abroad and many new plants are backed by Chinese, Turkish and Russian companies.

Currently investments are being actively made in Greenfield cement projects, as well as necessary reconstruction and modernization of existing plants, in Russia. To this end, the international experience in reconstruction and modernization of wet process cement plants will be very useful in Russia.

The cement product mix will significantly change during this decade. Amount of additives used will be much higher with the share of clinker steadily going down. After 2015 alternative fuels are expected to become more popular, while the number

of plants using coal or mixed fuel may go up. Technologies allowing use of additives, industrial wastes and alternative fuels in cement production will become popular on the market.

K tons

0

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2007

FEB

2007

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2007

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2007

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2007

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2007

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2007

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2007

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2008

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2008

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200

8

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2008

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200

8

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2008

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2008

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2008

SEP

2008

OCT

2008

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2008

DEC

2008

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2009

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2009

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200

9

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200

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n)

‘000

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AbOUT THE AUTHORS

The authors are associates of CMPRO, a Moscow-based company specializing in investments in Russian and CIS construction materials industry. The company has experience in the management of industrial groups, individual companies and projects. Its partners are expert in various areas, including production and technologies, marketing and sales, corporate finance, and M&A.

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REGIONAL REPORT:

NORTH AMERICA

The U.S. and Canadian cement markets slowly continued to recover. A depressed housing market, slow growth in employment, and fewer construction projects contributed to lower cement consumption levels. While the industry was optimistic that recovery would gain momentum in 2011 and 2012, many manufacturers remained focused on improving cash flow and margins.

SRMG looked to cut costs by requesting a $60 million tax reduction for its Clarksdale Arizona plant, while Lafarge moved forward with measures to reduce fuel costs, such as instituting a program to burn waste fuel at its Oklahoma plant. Global manufacturer Holcim took more drastic action by shuttering its Catskills, New York plant.

Despite first quarter losses, Texas Instrument (TXI) moved forward with plans to acquire a ready mix operator, and is proceeding with the expansion of the Hunter Cement plant.

MAjOR MOVES bY MEXICAN COMPANIES

Mexican-based Grupo Cementos de Chihuahua (GCC) began ramping up production at its US facilities, as the company anticipated higher demand. The plants, with a combined capacity of 2.5 million tons, had seen production levels drop by as much as 50 percent in the past few years.

In Mexico, one manufacturer was thinking of global reorganization, and another reaffirming a commitment to expanding its operations. Cemex moved forward with its cost-saving reorganization plan. A management reshuffle and a new structure with fewer management levels was expected to yield Cemex a $400 million savings. Meanwhile, Holcim announced it would move forward with plans to expand its

operations in Mexico by investing $400 million, despite indications demand had dropped 10 percent.

Corporacion Moctezuma also remained optimistic about the recovery of the Mexican cement market. The company’s new Veracruz cement unit, which launched in November 2010, is expected to increase total production to 6.4 million tons.

Cimentos Chihuahua persisted in its arbitration efforts with the Bolivian government to obtain compensation for its sequestered shares in cement maker Francesa. The Bolivian government continued to drag its feet, suggesting it had yet to determine the proper amount of compensation for the stake in the now nationalized company. Meanwhile, the District Attorney of Chuquisaca in Bolivia pushed for the arrest of Francesa’s former majority shareholder, Samuel Doria Medina, in a move viewed largely as politically

motivated. The district attorney alleges Medina’s pursuit of its contract to acquire a portion of Francesa is “damaging the state,” a move that would allow the state to avoid compensating the owner of the cement company for the nationalized operation.

CENTRAL AMERICA

The Panamanian government signaled its support for the ongoing construction on the third set of locks at the Panama Canal when it waived the levy on cement products used for the project. The action was viewed as having a positive impact on reducing the costs associated with the project. Cemex, which had invested $300 million in expanding its Panama operations and been awarded the cement supply contract for the Panama Canal project, also delivered the first 500,000 tons in March.

Price hikes hit the construction sector of the Dominican Republic hard in April. Twelve




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REGIONAL REPORT: AMERICAS

COMPANY (LOCATION) PLANT COST OPERATIONAL

LA CRUZ AZUL (MEXICO) New cement grinding system with rated cement output of 175 tph installed by Polysius.

2012

TASSER (PARAGUAY) New factory with installed capacity of 30,000 bags/day

Est. $70 - $100 million Spring 2011

CEMENTOS YGUAZU (PARAGUAY)

New cement plant backed by Camargo Correa in Villa Hayes area in Lower Choca with installed annual capacity of 400,000 tons

$105 million 2012

OSHO GROUP (PARAGUAY)

Plans to build cement, steel plants and a river transport fleet.

$500 million total investment

MIZU GROUP (bRAZIL) Expansion of Barauna unit. Total annual capacity when complete will be 3.3 million tons

$330 million initial installation; $220 million second phase

Initial Phase – 2011; Second Phase - 2015

CIMPOR bRAZIL New waste to power generator at Paraiba

€160 million

CEMENT jAMAICA (CEMCORP)

New plant in St. Catherine; 1.5 million ton capacity; aluminous cement

$350 million 2013

LAFARGE (U.S.) New kiln scrubber at its Alpena Plant

2014

COMPANY (LOCATION)

TYPE STATUS

LIZ CEMENTOS (bRAZIL)

IPO Cancelled offering in April on low demand.

LAFARGE (bRAZIL)

IPO Short-listing banks that will be involved in the transaction. Time and size of the share sale TBD.

VOTORANTIM CIMENTOS (bRAZIL)

Fixed Rate Notes A $500 million fixed rate note offering is under consideration.

CEMENTOS LIMA (PERU)

20-Year Bonds Road shows regarding the proposed sale are ongoing.

CEMEX (MEXICO)

Convertible Notes $1.38 bn in convertible notes to raise funds to pay off debt.

construction-related products, including cement, saw a rise in prices that averaged between 17 and 30 percent. The costs of power, fuel, and freight also rose.

SOUTH AMERICA

Brazil’s cement market continued to expand, as manufacturers maneuvered to gain an even stronger foothold in the country. Cimpor, which finds the Brazilian market indispensable to its operations, indicated it would continue to add 2.3 million tons of production capacity through 2013, and announced plans in March to add another factory in either 2012 or 2013. This factory is in addition to the one publicized in November, 2010.

Votornatim’s plan to invest R$2.5 billion in Brazil over the next two years took another

step forward when it resumed production at its Sao Paulo unit. The company had invested $70 million to upgrade and recondition the plant, which had been shuttered since 1998. The 750,000-ton capacity factory is expected to partually supply also the Pernambuco market in the northeast of Brazil.

In March 2011, the Brazilian government recommended that either Camargo or Votorantim sell its cement plants to avoid problems with excessive market concentration, or create a separate company called Cimpor Brazil. The recommendation came after Brazil’s competition authorities had previously recommended the approval of the Camargo Corrêa and Votorantim purchase of 31.8 percent and 21.2 percent of Cimpor. Cimpor declined to comment.

CAPACITY ISSUES IN PARAGUAY AND VENEZUELA

Paraguay looked to increase its cement imports from Uruguay and Portugal, as its construction sector was hit hard by the lack of cement production at the state-owned cement maker, INC. It was estimated that 80 percent of all construction work had been affected by the shortage. INC promised to deliver 14 million bags, or 100 percent of current demand, by 2012. Currently, it is

only meeting 52 percent of market demand and has reported that expansion efforts will require a $40 million investment. New cement units to be built by Cementos Yguazu and Camargo Correa will likely help, but those facilities will not be ready until 2012.

In Venezuela, the government indicated in March it would develop a plan and budget within the coming year to expand the production of cement and concrete, as it continues to struggle with low production. While nationalization efforts have concluded, an operational crisis from a lack of investment and major health and safety issues are prominent. Cement production was weak, prompting the government to step up price speculation monitoring efforts.

Government complaints and court action dominated the news from Peru, as officials from the Environmental Ministry visited the Cementos Sur plant in Caraco after receiving complaints from the mayor regarding pollution. Cementos Otorongo, a subsidiary of Cimpor, lodged a complaint against Gloria SAC alleging an abuse of power related to a water use license. Finally, the Constitutional Court rejected Cementos Lima’s request to gradually reduce tariffs. The company had argued the reduction of the tariff on cement from 12 to 0 percent had been excessively abrupt and not gradual, but the court disagreed.

regional proJects in tHe worKs

Happenings in Finance

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REGIONAL REPORT:

AFRICA

African cement markets expanded, with total capacity on the continent reaching 207 million tons. Dangote leads one of the largest expansion efforts with plans to add 16.5 million tons and invest US$3.8 billion by 2013. The company recently signed a contract with Sinoma for new plant projects in Tanzania, Gabon and the Republic of Congo. Plans are also underway to add lines at existing facilities in South Africa and Nigeria.

POLITICAL UNREST AFFECTS PRODUCTION AND DEMAND

The political unrest which spread throughout much of North Africa left its mark on several of the region’s cement markets. In Egypt, labor unrest and wage disputes at ASEC and Helwan Cement added to the problem of low demand in March. As signs of politically stability began to appear in April, demand and prices started to climb.

The ongoing unrest in Libya halted operations at Austrian-based Asamer’s three cement units. However, the company remained hopeful the plants would resume production and that its investment of over EUR 125 million would not be lost.

A Singaporean company seeking to build a US$255.4 million cement plant in Sidi Bouzid, Tunisia received thumbs down from the government. With domestic consumption at 6.5 million tons, and total capacity expected to grow to 12 million tons by 2015, overcapacity remains a concern and licenses for new facilities are restricted. Meanwhile, the Sudanese government is looking to export more as a result of new cement units coming online.

NIGERIA SEEKS IMPORTS Cement production in Nigeria was at an all time high of 27 million tons, but this may not be enough to meet demand. Four local cement makers have sought permits to import 5 million tons over the next five years.

In East Africa, Ugandan cement manufacturers asked the East African Community to enforce the block’s market protocol laws to enable them to compete with products from other member states. Angola considers regulations for import quotas, and Nova Cimangola’s new $21 million cement mill in Luanda comes online providing an additional 600,000 tons.

MIDDLE EAST

Prices moved upward in April, prompting the Saudi Arabian government to open the market to more competition. Seven new limestone exploration licenses and five cement licenses were on offer. However, reports of fuel shortages at plants like Yanbu Cement, which have stalled production, are concerning. Jordan is experiencing similar fuel shortage problems as it considers allowing cement companies to import their own fuel. At least three manufacturers have petitioned the government to import heavy fuel oil despite Jordan Petroleum Refinery’s insistence that it can produce enough to satisfy current demand.

Mergers & acquisitions

ACqUIRING COMPANY

PURCHASED COMPANY

STATUS

ELECTRA Hanson Israel (Israel)

Deal finalized to purchase Heidelberg owned Hanson for NIS 425 million

CEMENT FRANCAIS (ITALCEMENTI GROUP)

Set Group (Turkey) Deal finalized with Limak Holdings; included EUR 270 million paid in cash at closing

CEMENTS MOZAMbIqUE (CIMPOR)

Cement Nacala (Mozambique)

Deal finalized with Camargo Correa to purchase a 51% stake

ITALCEMENTI CimFra (France) Purchases 1% stake

LAGAN CEMENT Healy Brothers (Ireland)

Purchase for €3 million

NUH CIMENTO Kudret Enerji Hydropower Company (Turkey)

Cement firm purchases 17 MW energy plant for $36 million

RAYSUT CEMENT

Pioneer Cement Industries (UAE)

Purchase for $175mm; financed by BankDhofar




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IRAN, LEbANON & SYRIA SEE GROWTH

While last year’s political crisis in Yemen resulted in cement output dropping 80 percent, production in Iran and Lebanon surged ahead. Lebanon saw its production surge from two million to six million tons between 2006 and 2011, and Iran set a lofty goal of reaching 110 million tons of production capacity by 2015, after production jumped 18 percent and exports climbed 54 percent between March 2010 and March 2011. Production in Syria is also on the rise, with the completion of the Al Badia Cement plant and interest expressed by Turkish and Lebanese firms to set up additional plants. Syria is on track to surpass the 5.65 million tons produced in 2010.

Optimistic that demand is on the upswing, modernization and expansion plans are on the agenda in the United Arab Emirates, Kuwait and Turkey, as manufacturers such as RAKWC, Kuwait Cement, and Akcansa announced multi-million dollar plans to boost capacity over the next few years.

EUROPE

Conditions in Europe were mixed. Spain, contending with one of the worst down markets to date, struggled with wage protests and labor unrest. Production and ultimately earnings were casualties for Cimpor, Molins and also Portland Valderrivas, which announced in February it was thinking of delisting.

Cementir saw volumes in Italy drop three percent in the first quarter of 2011, but pushed forward with plans to build its Taranto plant scheduled for commissioning in 2013. Despite a 36 percent drop in net profits in 2010, Italcementi remained optimistic, believing the cement market had finally bottomed out.

FOR OPTIMISM, LOOK EAST

In Eastern Europe, there were also some signs of optimism. Polish cement manufacturers projected a rise in sales of between 5 percent and 8 percent, citing economic improvement and reconstruction efforts post-floods. Cement Gorazdze finished its modernization efforts on its second kiln, making it the biggest investment by the company in the last 30 years. The market

outlook for Romania may not be as positive, as demand dropped 11 percent in 2010 due to a lack of infrastructure projects and a weakened real estate market. Regardless of the downturn, Holcim Romania announced plans to invest EUR 35 million to upgrade technologies at its plant in 2011. Lafarge Trbovlje halted production in Slovenia because of low demand and the loss of its environmental permit in March.

RUSSIA & UKRAINE

Cement markets in Russia picked up speed as the government continues to invest heavily in updating the country’s infrastructure in preparation for the 2014 Winter Olympics and the FIFA World Cup. Several

manufacturers including Dyckerhoff, Lafarge, Iskitcement, Baselcement, and HeidelbergCement were either expanding production lines or building new plants in anticipation of the continued increase in volumes.

The Ukraine also saw improvement in its production levels, up 40 percent in March. Poldosk announced plans to put in a new dry technology cement line for EUR 210 million which, when completed in the next two months, will produce 2.5 million tons. Eurocement also restarted two of its clinker production lines at the Balakleya District plant. Finally, as gas prices rose, Buzz Unicem successfully completed the conversion of two of its Ukrainian cement units from natural gas to coal.

REGIONAL REPORT: EUROPE, MIDDLE EAST AND AFRICA

new Builds/expansions

COMPANY (LOCATION) PLANT

NOVA CIMANGOLA (ANGOLA)

■ New facility with 2 million ton capacity at Cacuaco ■ Estimated investment: $255 million with expected completion 2013

WOPFINGER (AUSTRIA) ■ Filitration system ■ Estimated investment: $5 million with expected completion June 2011

GHANA CEMENT (GHANA) ■ Expansion of capacity at Tema unit from 1.2 to 2.2 million tons ■ Estimated investment: $26 million

LIMAK HOLDING (IRAq) ■ New 1.5 million capacity plant to be built in Arbil in northern Iraq. Would be largest in Iraq.

ARAbIAN CEMENT (jORDAN)

■ New Qatraneh facility with 1.5 million capacity ■ Estimated investment: $74 million with expected completion first quarter 2011

AKEMENES CEMENT (LITHUANIA)

■ New production line built by Panevezys ■ Estimated investment: $150 million with expected completion in 22 months

bOANE PLANT (MOZAMbIqUE)

■ New cement plant in the Maputo province; 550,000 ton capacity ■ Estimated investment: $100 million with expected completion in 2012

bRITISH GENERAL CONSOLIDATED MINERALS (MOZAMbIqUE)

■ New cement clinker factory at Port Bevia; capacity 110 tons/hr ■ Estimated investment: $24 million

MAGUDE PLANT (MOZAMbIqUE)


MAPUTO PLANT (MOZAMbIqUE)


PRETORIA PORTLAND CEMENT (MOZAMbIqUE)

■ New 600,000 ton production unit in the southern province ■ Estimated investment: $200 million

DANGOTE (NIGERIA) ■ Construction preparation of new cement factory in Douala; 1.0 million capacity ■ Estimated investment: TBA with expected completion in TBA

DANGOTE (NIGERIA) ■ New cement factory at Ibese with 6 million ton capacity built by Sinoma International ■ Estimated investment: $680 million with expected completion in summer 2011

OMAN CEMENT (OMAN) ■ Modernizing existing facilities using two Chinese firms: SPEC and CNBM ■ Estimated investment: $37.57 million with expected completion in Jan/Feb 2012

DYCKERHOFF (RUSSIA) ■ Plans for the Akbulak plant previously shelved in 2009 back on; 2 million ton capacity ■ Estimated investment: €450 million with expected completion in 2014

IMPULSE (RUSSIA) ■ 2 mm ton cement plant in the St. Petersburg area; construction to start first quarter of 2012 ■ Estimated investment: RUB 1 billion

CIMENTS DU SAHEL (SENEGAL)

■ Polysius finishing 3,600 tpd cement clinker production line

HOLCIM (SLOVAKIA) ■ Installation of environmental controls at its Rohoznik unit, which will allow the company to save between 40 and 60% in energy costs

■ Estimated investment: €11 million

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INDIA

India’s ACC, owned 49.3 percent by Holcim, may be looking into new acquisitions. The plans are still general and no targets have been identified, but ACC will consider units meeting its criteria. The company is focusing on finalizing the acquisitions of Lucky Minmat, National Limestone, and Encore Cement & Additives. Other companies are also considering inorganic growth strategies. The Anil Ambani Group, through Reliance Cementation, is eyeing the Jayajothi Cement plant located in Andhra Pradesh. Rain Commodities intends to boost its cement capacity to 10 million tons per year through plant acquisitions. It is considering opportunities in Andhra Pradesh, Tamil Nadu, and Karnataka.

As consumption is expected to increase by 5 percent in 2011, Indian cement players have continued to announce expansion projects (see table for notable projects). The proposed projects will add over 15 million tons of capacity across five Indian states and six companies. ACC will replace the recently

shut down Ghugus plant, while Grasim, JK Lakshmi, Cement Manufacturing Company Limited (CMCL), and Shree Cement will strengthen their positions by building new cement plants.

MINING IN MEGHALAYA

A special three-judge forest bench issued notice to the government and asked it to file a reply. On April 8, the apex court directed CEC to investigate whether members of Shella Village Action Committee (SVAC) were illegally mining limestone in the East Khasi hill area and were exporting to Bangladesh. The CEC report concluded that at least seven different mines were illegally mining limestone, but it did not provide the names of the companies behind the mining. The Supreme Court urged that the list of names be provided by May 11.

Lafarge submitted before the Supreme Court and the three-judge bench that it did not violate the law by mining its Meghalaya unit, as at the time of allotment the land was not identified as forest land and it required no forest clearance.

Cement companies raised their prices, leading to a retail level of Rs 305 in March. On a pan-India basis, the average increase in prices equaled Rs40 per bag in March 2011 compared to the third quarter average. The upward trend lasting since October 2010 is expected to soften somewhat in the next few months. But while current prices exceeded the peak level reached in FY 2008, regional differences still persist. The Union Budget release is also negatively impacting the price evolution. The new budget imposes higher duty cost of Rs 3-4 for every cement bag, which generated a domino effect within the market.

In response to the perceived high prices, India’s Builders Association announced plans to build four or five captive cement plants in order to assist its members with product availability at competitive prices. Andhra Pradesh, Rajasthan, Gujarat, and Chhattisgarh are considered potential locations for the plants.

INCREASING COAL PRICES THREATEN CEMENT PROFITS

The cement companies declared that the increasing prices are determined by higher prices of inputs, especially coal. The 12 percent increase in coal prices that took place on February 27, 2011, is greater than the initially estimated ten percent increase for 2011-2012. The steep rise in coal prices is likely to generate a 3.4 – 6.6 percent EBITDA reduction, while EPS may fall in the range of 2.7 – 12.2 percent in the current fiscal year. The most affected companies are estimated to be ACC, Ambuja, and Ultratech, which are the most dependent on coal usage.

PAKISTAN

After four plants were shut down following financial losses, decreasing the cement capacity to around 41 million tons, annual capacity is set to increase back to 44 million tons as the new 7,200 tpd Fauji unit is finalized by the end of April, 2011. On a different expansion note, a Pakistani company is also set to build its first cement unit in Tajikistan.

Cement demand has been below the industry’s output for several years, with consumption at 23 million tons. The

REGIONAL REPORT:




CW Group Coal Week

the Jaffna peninsula south of India, as a state venture instead of offering it to local or foreign private investors.

The Government in Bangladesh decided to introduce mandatory use of jute bags. The cement companies are opposing this regulation, as they fear that it will cause cement prices to increase. The price of a jute bag exceeds the current packaging price by Tk 60-70. India expanded its distribution into the country as the UltraTech brand was launched in Bangladesh in April.

REGIONAL REPORT: SOUTH ASIA

situation is about to improve somewhat for the domestic cement companies after domestic sales have increased and India’s BIS has renewed exporting certificates for the Pakistani companies. Due to ongoing logistic issues and the major capacity additions that will be implemented in India, cement exports are expected to reach 80,000 – 100,000 tons in FY2011, with prospects to increase up to 500,000 – 800,000 tons in FY2012.

REGULATIONS AND PRICES GENERATE TURMOIL

On the back of the multitude of duties imposed on cement manufacturers, including GST, Special Excise Duty, and Federal Excise Duty, the black market is thriving in Pakistan. The dual increase on entry tax imposed by the Afghan authorities also generated a protest of the exporters union by halting the cement trucks at the border between Pakistan and Afghanistan. However, the government’s move to re-impose the Supervised Clearance System at the Afghan border was well received, with domestic cement players asking the

india expansion proJects

COMPANY LOCATION CAPACITY DETAILS STATE

jK LAKSHMI Jhajhar district of Haryana

550,000 To be completed in 2011.

Haryana

jK LAKSHMI Durg (Chattisgarh) 2,700,000 To be completed in 2013.

Chattisgarh

SHREE CEMENT Raipur 2,000,000 This is the first time the company is setting foot outside Rajasthan.

Chattisgarh

RAIN COMMODITIES - OPTIMIZATION

Karnataka 400,000 The total production capacity of cement will increase through improved fly ash blend ratio.

Karnataka

CEMENT MANUFACTURING COMPANY LIMITED

Meghalaya 1,700,000 The expansion process is divided into two phases.

Meghalaya

CEMENT MANUFACTURING COMPANY LIMITED

Meghalaya 1,200,000 Phase 2 will begin once the 1.7 million tons project is deployed.

Meghalaya

GRASIM Malkhed Rajshree 4,250,000 Karnataka

ACC Ghugus 2,460,000 The cement plant will replace the Ghugus unit, which was closed on February 28 due to repeated pollution violations.

Maharashtra

PENNA CEMENT - PACKAGING PLANT

Panvel, Maharashtra NA The packaging plant will be operational from April, 2012.

Maharashtra

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government to intervene further by adding inland freight subsidies in order to facilitate the exports.

In terms of domestic prices, Pakistan witnessed a surge of 21 percent to Rs 395-400 per bag since the beginning of 2011. The Prime Minister was called by the Association of Builders and Developers to examine the recent increase in prices. However, All Pakistan Cement Manufacturers Association (ACPMA) insists that domestic cement is still sold at a loss due to the slack demand.

Pakistani cement companies are also negatively affected by the increase in coal prices, up an unprecedented 34 percent to average $117 per ton in April 2011 primarily due to the severe floods in Australia and the post-earthquake Japan crisis.

OTHER SOUTH ASIA

The Governments of Sri Lanka and Bangladesh have taken important decisions for their cement industries. In Sri Lanka, the government decided to develop the Kankesanthuraj cement plant, located on




CW Group Coal Week

CHINA

Annual Chinese cement demand is expected to increase by 550 million tons due to the large-scale housing construction schedule that will add 10 million units in the first five years and add an additional 36 million houses in the second five-year phase. Demand will also be driven by commercial and private home construction. China Cement Associated (CCA) attributes the demand growth to the increased investments in water projects, estimated at 4 trillion Yuan to be invested over the next decade.

Anhui Conch Cement intends to strengthen its position by investing 10 billion Yuan in

expanding operations, reducing emissions, and undertaking acquisitions, leading to a 10 percent higher cement output by the end of 2011. Also, what are said to be the world’s largest capacity kilns will be put into production starting this September by Wuhu Conch in Anhui Province. The two lines will posses a daily installed capacity of 12,000 tons of clinker, and will support a 36 MW waste heat power generation project.

LAFARGE PICKS UP SHUI ON ASSETS

On the flip-side, Shui On construction is planning to focus on the real estate sector, and looking to phase out cement production by selling its stake in the cement joint venture to its partner, Lafarge. Shui On is disappointed by the under-performing

REGIONAL REPORT:cement unit that led to an 80 percent fall in 2010 net profit of the company despite the strong recovery of the cement industry.

Pressure on margins at the Chinese companies will further expand, as the government will impose a 20 Yuan increased high energy usage tax for the eight top consumers of the country, including the cement industry. The climbing demand and higher input prices led to a 25 percent year-on-year cement price increase in the first quarter of 2011. China plans to lower its carbon intensity by 20 percent in 2020 compared to the 2005 levels, with an ambitious milestone set for a 17 percent decrease between 2011 and 2015.

TAIWAN

Mainland China has become an attractive investment environment for Taiwan’s top cement manufacturers. Taiwan Cement intends to acquire 65 percent of Gangan Cement, becoming the leader in Guizhou Province. Additional cement plant construction projects implemented in Guizhou, Sichuan, Chongqing, and Liaoning will drive the total output of Taiwan Cement to 52 million tons by 2012. Asia Cement is speeding its Jiangxi Province construction projects scheduled by 2014, which will take the company’s total cement output to 30 million tons. The Far Eastern Group is also looking into the opportunity to acquire three cement plants in China.

jAPAN

Japan is recovering from the March 11 earthquake, which damaged the cement plants located in affected areas. Four cement units that represent 30 percent of the country’s production level are still out of action due to damages and unstable power. Taiheiyo Cement Oohunato, one of the shut down plants, is the main supplier of the Northeast Oohunato (Ofunato, Iwata Prefecture). Due to its temporary inability to provide needed cement production, Taehiyo Cement asked competitors Sumitomo Osaka and Ube-Mitsubishi to supply it with low heat cement.

While the government has not yet released official estimates of the earthquake damages, other sources have estimated reconstruction cement demand at 10 million tons to be used

Taipei, Taiwan




CW Group Coal Week

within four years, while the reconstruction costs have been estimated at US$180 billion. The effects of the earthquake are expected to boost cement prices internationally. Taiwan prices will increase in the first half of the year by at least 10 percent due to a comparable increase in sales as Japan’s reconstruction efforts are seen to boost exports.

OTHER ASIA PACIFIC

Cement consumption in Indonesia showed move upward in the first quarter of 2011, increasing by 6 percent to 10.3 million tons from 9.7 million tons registered in the first quarter of 2010. In Philippines, demand decreased from 4.1 million tons in Q1 of 2010 to 3.9 million tons in the first three months of 2011. The country will need to revise its optimistic 4 percent growth projection for 2011.

In terms of supply, the Indonesian market is going to receive a major lift in 2011, with two cement plants still on track to completion. In total 5 million tons will be deployed by Semen Tonasa, with its South Sulawesi cement plant, and Semen Gresik with the Tuban cement plant. Addititionally, in 2012 HeidelbergCement-controlled Indocement plans to open a new cement plant in Indonesia with an annual capacity of 2 million tons, and by the end of 2013,

Holcim Indonesia will finalize its 1.7 million ton Tuban cement plant. Holcim also announced that it will invest US$8 million to build three cement silos in Sumatra by the end of 2011, each storing up to 2,000 tons.

THREE NEW PLANTS FOR SIAM CEMENT

The Siam Cement Group will lift the cement capacity of the region by 8 million tons by 2015 through the construction of its cement plants in Indonesia, Vietnam, and Cambodia. Chinese companies in the Yunnan region are also increasingly targeting Myanmar as an export destination.Holcim Philippines is considering investing up to US$500 million to increase cement capacity. The company will decide this year whether to activate more idle assets or to build a new greenfield cement plant in the country.

Australia’s Adelaide Brighton (AdBri) is focusing on organic growth and is set to invest US$94 million in lime and cement over the next two years. Infrastructure projects of South Australia and mining demand in Western Australia are considered to be the company’s major contributors for outperforming its peers, coupled with its decision to focus mainly on lime and cement instead of diversifying its industries.The Australian market is expected to suffer

from an increased carbon tax, currently boycotted by the Cement Industry Federation. The Federation believes the tax increase may be detrimental to its members.

RAW MATERIALS AFFECT CEMENT PRICES

The Asia Pacific area is affected by increasing raw material prices. Cement producers within the region have already announced price increases or expect decreased margins due to the combination of raw material price increases and decreased cement prices.

South Korea’s Ssangyong Cement announced a 30 percent price increase, while the Vietnam Cement Association declared that its members will increase prices by between 12 percent and 15 percent. Vietnam has been dealing with regional price differences, however that situation is expected to change as prices increase in the Northern region, where they are currently the lowest in the country.

Philippines companies are precluded from increasing prices due to higher costs of coal and fuel by declining demand and stiff competition. In April 2011, the cement prices in Philippines were below P200, declining from P215 – P220 per 40-kg cement bag in November 2010.

REGIONAL REPORT: ASIA PACIFIC

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CONSTRUCTION MARKETS

LONG ROAD TO RECOVERY

As the world emerges from the global economic slowdown, the construction industry is exhibiting signs of being on a gradual path to recovery, albeit in varying degrees. Indeed, the future of construction may even outpace GDP growth according to a study by PriceWaterhouseCoopers.

China’s construction sector will more than double in size to $2.5 trillion by 2020, accounting for a fifth of world construction. Emerging markets are also seen driving construction activity in the coming years.

The UK construction industry is still sluggish, as the Purchasing Manager’s Index (PMI) there slid to 56.4% in March, compared to 56.5% for February, which was considered an eight-month high. Ireland’s construction sector also continues to slide,

as the construction purchasing managers index declined to 46.1% in March from 47.8% in February.

France has experienced a slight uptick in construction activity, as its CC rose by 1.73 during the previous quarter. Germany’s construction orders in January increased from last year, as new orders in the country’s construction industry increased 8.6% annually, while orders for building construction climbed 21.2%.

US construction spending shrank month on month last February, hitting a seasonally adjusted annual rate of $760.6 billion. Analysts note that small gains may be seen in 2011 and 2012 on growing demand in residential and non-residential sectors.

Despite the threat of political turmoil, the Middle East construction market is still drawing interest from both local and foreign investors. Saudi Arabia is at the forefront of

that interest, as its government is embarking on a massive infrastructure development program, and it has set aside at least $400 billion over the next few years.

The UAE is expected to grow as much as 20% annually between 2010 and 2013 because of renewed interest in the building materials industry. This is as it emerges from a construction slump brought about by the global financial crisis.

INDIA

The first joint project by French cement major Lafarge Group’s research arm and the Indian Institute of Technology-Madras (IIT-M) is expected to start soon. The research project will test the durability of concrete as a building material in different climatic conditions.

India has banned stone crushing activities

SECTOR COVERAGE:

SECTOR COVERAGE: CONSTRUCTION & M

ATERIALS




CW Group Coal Week

SECTOR COVERAGE: CONSTRUCTION & M

ATERIALS

in residential areas, and has come out with an eight point formula to control these activities. According to its High Court, stone crushing poses a severe health hazard, and the government has decided to shut down all stone crushing units in unsafe zones.

According to the law, crushing units should be situated at least half a kilometer away from state and national highways, and three kilometers away from the district headquarters.

Builders in the country are also adopting green building concepts, especially in Kerala state, where energy efficient greenhouses are being built. Keralan architects and builders say there has been an unprecedented increase in the number of people opting for eco-friendly methods in home construction. This in turn has led to the establishment of several ‘green’ builder groups in the state. Among the companies leading the way is the Habitat Technology Group, which has been promoting green architecture for the last two decades in Kerala.

GYPSUM

Lafarge’s plaster unit has reportedly drawn interest from private equity funds. But the funds are said not to be interested in making an offer for the whole plaster division, only its European operations. The plaster division is the smallest in the group, and is estimated to be worth between 1 and 2 billion euros. Last year, the unit generated about 9 percent of the group’s total sales.

In other news, Saint-Gobain Gyproc recently celebrated the first anniversary of its Abu Dhabi facility. The $60 million plasterboard facility was the first of its kind in the region, and was built to improve the firm’s position in the market.

CONCRETE

In the US, TXI bought the ready-mix operations of Transit Mix Concrete in Central Texas. TXI transferred to Trinity Materials two existing aggregate operations serving the Texas and Louisiana markets.

Meanwhile, Spain’s Essentium has gained a foothold in the Brazilian market with its acquisition of a 50 percent stake in WTorreEngenharia for 120 mm euros. It plans to invest 250 million euros over the next few years in the fast-growing Brazilian market. In Costa Rica, Cemex has launched its retail franchise called Construrama to promote and distribute Cemex products. It hopes to recruit local distributors by offering technical and other assistance to the vendors.

In France, Cemex upgraded a concrete plant in Macon, investing 560,000 euros. According to the firm, the upgrades will allow it to double production capacity from 35 m3 to 60 m3 per hour.

In Australia, Boral paid $173 million for the concrete division, as well as the cement grinding unit, of the Wagner Group. This

could also pave the way for a multi-million-dollar listing of the building material group.

Grace has also opened new manufacturing facilities in Cartagena, Colombia and Panama City, Panama. The facilities will manufacture cement additives and concrete admixtures to serve customers in Colombia, Panama and throughout Central America and the Caribbean.

Cemex has launched its first global brand of ready-mix concrete, Promptis. The firm says the rapid-hardening, fast-formwork removal concrete technology is already being sold in France, UK, Ireland, Israel, Spain, and Croatia and will be made available in Austria, Poland, Latvia, UAE, and Hungary starting in the second half of 2011.

LIME

Metso secured an EUR 11 million deal to supply a 900 TPD lime calcining system to Martin Marrieta Specialties in Ohio, USA. In Slovakia, Baum and Calmit will spend 1.4 million euros to reduce environmental impact and improve its limestone production units there.

Meanwhile, Lhoist has renewed its lime transport contract with France Europorte for another five years. The contract renewal secures lime supplies for the company’s units in France and Germany.

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leaders COMMENT

The Nairobi, Kenya, office of JPMorgan ClimateCare has recently begun a major CDM based cement blending project. Mr. Tom Owino, company vice president, spoke with CemWeek and Prescon about the process in advance of his speaking engagement on Clean Development Mechanisms in Africa’s Cement Industry at the upcoming Precon conference.

CW Tell us about the CDM project you did with East African Portland Cement Company (EAPCC) and what new ground you broke in the process?

TO The Clean Development Mechanism (CDM) project (“Increasing the Blend in Cement Production at East African Portland Cement Company Limited) entails increasing the Pozzolana content of the Portland Pozzolanic Cement (PPC) blend in cement production to 35% from the current level of 25.30%, with a corresponding decrease in clinker content and energy consumed per ton of cement produced. In

order to meet projected cement demand, the proposed project will raise the annual production rate from the current 700,000 tons to 1,300,000 tons. EAPCC has opted to increase the Pozzolana blend in the cement as a means of overcoming clinker production capacity constraints while at the same time reducing the carbon intensity of the production process.

The project aims to reduce fuel costs and greenhouse gas emissions per ton of cement produced while responding to the ever-increasing cement demand in Kenya by

replacing clinker with Pozzolana (volcanic rocks) in the cement blend.

The proposed project involves the addition of a Closed Circuit Ball Mill System with a classifier to the existing Open Circuit Cement Mill. The milling technology, which is mature and well tested elsewhere, has never been applied at EAPCC before.

Through the project, greenhouse gas emission reductions will be realized through the following means:

■ On-site emission reductions as a result of reduced clinkerization and therefore, amount of carbonates calcined in the clinker making process.

■ On-site emission reductions due to reduced thermal energy consumption per ton of PPC produced

■ Off-site emission reductions resulting at the electricity generating plants that feed the national grid due to reduced electric energy consumed per metric ton of PPC produced

ClimateCare started development of the carbon asset of the project in the third quarter of 2008 when technical development was at an advanced stage, with design and

SAvING ENERGy THROUGH ADvANCED CEMENT BLENDING

an aFrican ExpEriEncE:

The project aims to reduce fuel costs and

greenhouse gas emissions per ton of cement

produced

Mr. Tom Owino




CW Group Coal Week

procurement completed and civil works at the final stages. The Project Design Document (PDD) was ready by February, 2009 and validation started in March, 2009.

Our experience has been that getting a cement project through validation is a frustrating and slow process. It is particularly difficult because EAPCC made decisions about the project starting in 2006 without a carbon asset developer to advise them on which documents to prepare and keep. However we feel we have broken significant ground with the project since it is the first such cement blending project in Africa to get to validation and hopefully get CDM registration. We have learned many lessons in the process, a key one being the engagement of a carbon asset developer as early as possible in the project development.

CW Is this a model for other projects across Africa or even worldwide, or how does it need to be adapted?

TO I do not think it is a model from a technical view since the technology is in wide use. It is, however, a potential model for carbon asset development in the cement industry in Africa with amendments to avoid some of the problems experienced during the carbon asset development and achieving CDM registration. Generally, CDM rules are complex and keep changing,

and getting expert advice very early in the process is critical in ensuring the right process is followed from the start and that the appropriate documents are prepared and maintained. Any situation that causes delays must be avoided at all costs.

CW What does the cement industry need to do better for us to see more projects of this nature?

TO The first thing is that the cement blending project must go beyond the regional prevailing practice levels. This kind of project is capital intensive and the required underlying capital investment must be available, especially to acquire the technology. Secondly, the industry needs to understand the CDM process well enough to have an appreciation of what taking some decisions and preparing some documents would mean.

CW With the loss of momentum behind the Kyoto protocol and the failure of the Copenhagen conference, how do you see the future of carbon credits shaping up? Will there still be a global market?

TO Climate change and the need to find solutions is a permanent global issue. The need for effective climate change mitigation is becoming increasingly urgent. I do believe that this momentum will sustain

LEADERS COMMENT

CDM rules are complex

and keep changing,

and getting expert advice very early in

the process is critical

the carbon market, but the form of the market will continue to evolve. I do not believe that the Kyoto Protocol offered fair opportunities for all developed countries with particular emphasis on Africa. The Kyoto Protocol, and specifically CDM which is project based, favored countries which could attract investment. Africa has only recently started to attract capital and is increasingly becoming an attractive investment destination.

Also the CDM EB has recently made some decisions which make certain countries (LDC) attractive for carbon projects. Unfortunately, cement industry projects are not likely to be the most attractive carbon projects in these countries.

Mr. Tom Owino will give a full presentation on the issues raised in his interview during the 2nd Environmental Cement Africa Conference 2011, which will take place in Nairobi, Kenya, on the 11th and 12th of May. The conference, which also features an exhibition, a Gala Dinner and a cement plant visit, is a prestigious gathering of various stakeholders in Africa’s cement industry. For information on participation, the programme and exhibition bookings, please visit the website atwww.prescon-int.com

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Maintenance work at the EAPCC production unit




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ProJeCts

Greco Reinforces European Commitment With A TECGRECO Combustion Systems has recently established a new office in Austria beside the main headquarter in Brazil and the offices in Spain and China. The recent fusion between A TEC and GRECO Combustion Systems helped the innovative burner producer establish a new engineering office in Austria as well as use the existing workshop facilities of A TEC in Austria.

Additionally, A TEC GRECO was recently hired by Brazil’s CSN Cimentos to provide engineering services and technical assistance for the commissioning of a 2,500 tpd kiln line in Arcos (MG), Brazil. The project started on March 8, 2011, with the complete plant supplied by China’s CDI.

With these new opportunities, A TEC and GRECO are operating together nine different worldwide locations offering cement and lime industry products, engineering and site services close to customer installations.

Record-High Elevators For One Of Asia’s biggest Cement PlantsNew bucket elevators ordered for Vietnam’s

Cong Thanh Cement plant will reach a record-breaking height of 150 meters. The lifting system from Aumund forms part of the 12,000 tpd cement plant’s two produc-tion lines in the Vietnamese province of Thanh Hoa.

The conveying capacities of the Aumund bucket-elevators achieve up to 450t/h and will be supplied and installed this summer. Four belt conveyors, also being supplied then, will handle clinker transport from the silos to the mill (1500t/h) or to the export silos.

Almost all of the core components for the new line come from Germany.

Polysius And Vecoplan Form joint VentureThe two groups will focus on bringing en-vironmental technology to the cement and lime industry through a joint venture to be called FuelTrack Vecoplan. It will offer a complete chain from the preparation to the use of alternative fuels in the rotary kiln and calciner. Within the Polysius Group, the joint venture is the new competence center for “alternative fuels”. It is headquar-tered in Bad Marienberg, Germany.

La Unión Orders Packing System For Valencia Plant The Spain-based cement company will take its old packing unit from 1997 and move it to new cement plant it is establishing in Point Noire, Congo.. In its place, a new Haver Type 16 Rotoclassic has been ordered for the company’s plant in Valencia, Spain.

The new system, which was put into operation at the start of October, is characterized by its unique high performance. With 25-kg bags, a continuous speed of 5700 bags/hr is reached, and 4700 bags/hr with 35-kg bags.

notaBle proJect awards MarcH - april 2011

VENDOR COMPANY / LOCATION TERMS

FLSMIDTH FosAgro & St. Petersburg State Mining Institute (Russia)

Modernization of equipment and technological design at the Pikalevo industrial complex. The estimated value of the project EUR 270 million (April)

KHD HUMbOLDT WEDAG

Impulse (Russia) Installation of dry cement production line which is part of the construction of a 2 mm ton cement plant in the St. Petersburg area (April)

SINOMA ENGINEERING

HeidelbergCement (Togo) Contract to build a 5000 tpd dry process cement production line for unit Togo Scantogo Mines (April)

GEbR PFEIFFER Mass Jordan Company (Iraq) Ordered placed by General Contractor, Sinoma (Suzhou) Construction, for a MPS 5000 B vertical roller mill. (April)

THYSSENKRUPP POLYSIUS

Spassk Cement (Russia) Modernize kiln plant 1 at the Spassk-Dalny factory (March)

CbMI CONSTRUCTION/SINOMA

Lafarge (Russia) Contract to build a new cement plant called Kaluga Cement (March)

THYSSENKRUPP POLYSIUS

La Cruz Azul (Mexico) New cement grinding system at the Lagunas plant in the state of Oaxaca (March)

SINOMA INTERNATIONAL

Dangote Group (Nigeria) Signed a US $1.4 billion contract for the engineering, procurement and construction (EPC) of seven cement production lines and a cement grinding mill in West Africa. (March)

FLSMIDTH Gulf Cement (UAE) Upgrade of production capacity (March)

KHD HUMbOLDT WEDAG

Askale Cimento (Turkey) Contract for a 3,500 tpd kiln line at the Van cement plant (March)

EXPANSION UPDATESIn Russia, FLSmidth, KHD, CBMI Construction, and Polysius received contracts to modernize outdated equipment and install new production lines. Mexican-based La Cruz Azul tapped Polysius to install a new grinding system at its Lagunas plant, and the UAE’s Gulf Cement announced it would collaborate with FLSmidth to upgrade current production capacity.

Sinoma signed a sizeable contract with Nigerian-based Dangote to expand its current operations in West Africa. Sinoma’s US$1.4 billion portion of a US $3.9 billion contract has the company building seven production lines and a cement-grinding mill in several African states including Nigeria, Senegal, Ghana, Ethiopia, Tanzania, Republic of Congo, and Gabon. Sinoma will handle the design and provide the labor, while all equipment will be procured from Germany. Dangote indicated it had selected Sinoma because of its competitive pricing and familiarity with the African business environment.




CW Group Coal Week

PeoPle MoVesbuzzi Converts Ukraine Plants To Use Coal Instead Of Gas Plants at Yug and Volyn were converted starting two years ago, as gas prices in-creased. Buzzi Unicem approved a large investment to convert the plants to use coal as the main fuel rather than gas.

A Pfeiffer MPS 200 K coal mill from the Neubeckum (Germany) plant was installed at Yug, and a Pfeiffer MPS 280 raw mill from Lengerich (Germany), which was converted to grind coal, was installed at Volyn.

The two mills were placed into operation in exactly the same manner. Within a few days from starting production, the Yug cement plant was able to replace 70% of the methane used with petcoke, while at Volyn petcoke replaced 75% of the methane used, also within a few days.

Spassk Cement Asks Polysius To Upgrade Line The Spassk Cement plant north of Vladivostock, Russia, contracts Polysius to upgrade production line at the Spassk-Dalny factory. The modernization program includes a number of different measures to reduce fuel consumption and increase output.

Polysius is supplying a Polytrack clinker cooler with a throughput of 3,300 tpd to replace the first and second grates of the existing cooler. The new cooler will be integrated into the housing of the old one, allowing the clinker conveying equipment to be retained in its present form.

The modernization is expected to raise the production capacity of the entire kiln line at the plant. Polysius is also supplying a Polcid cooler control system, the electrical equipment and the basic engineering.

Mass Orders Grinding Unit For Iraq A second order has been issues for a Gebr Pfeiffer grinding unit intended for Mass Jordan Company’s second 5,000 tpd cement production line. The plant is located in the province of Sulaymaniyah in northern Iraq.

Sinoma (Suzhou) Construction, acting as general contractor, placed the repeat order for a MPS 5000 B vertical roller mill designed for grinding raw material and achieving a capacity of 450 t/h. The first Pfeiffer MPS raw mill will be commissioned shortly.

CEMEX ANNOUNCES CHANGES TO SENIOR LEVEL ORGANIZATION

Cemex' operations will be reorganized under six regions:Juan Romero will be the president of Cemex Mexico and he will also oversee Global Technology. Karl Watson, Jr. will be president of Cemex USA, and Jaime Muguiro will be president of Cemex Mediterranean.

Jaime Elizondo has been named president of Cemex South America and Caribbean, and will also oversee Global Procurement. Ignacio Madridejos will be president of Cemex Northern Europe and will also oversee Global Energy and Sustainability. Joaquin Estrada has been named president of Cemex Asia and will also oversee Global Trading.

In other corporate staff appointments, Fernando Gonzalez is named executive vice president of finance and administration, and will also assume the role of Chief Financial Officer. The company also appointed Juan Pablo San Agustin as executive vice president for strategic planning and business development, as well as Luis Hernandez as executive vice president for organization and human resources.

PERU: CEMENTOS PACASMAYO APPOINTS NEW CEO

Humberto Nadal replaces outgoing CEO Lino Abraham as the new CEO. Before becoming the CEO, Mr. Nadal worked in Cementos Pacasmayo as the Manager of Corporate Development since 2007 and the director of the firm since 2008..

Mr. Abraham had been CEO for the group since 2004 and is currently serving the company as vice chairman. He has also been a director of Pacasmayo Investments since 1989.

LOMA NEGRA bUILDS IR FUNCTION

Argentinian firm Loma Negra has appointed Juan Roza Alconada as head of the company’s new Management of Institutional Relations unit. Mr. Alconada will be responsible for conducting corporate affairs related to government agencies, chambers and business associations, and coordinating media relations, a report posted at Mercado said.

Mr. Alconada is a lawyer with master's degree in communications management. He will report directly to the CEO of the cement firm.

NEW bOARD MEMbER jOINS KHD

Yizhen “Mario” Zhu will also take on responsibility as AsiaPac COO and head of the global EPC business, following AVIC's (formerly CATIC) investment in KHD. He will also joint the management board of KHD Humboldt Wedag International in the role of COO Asia Pacific. Zhu will be in charge of KHD’s global EPC business as well as developing KHD’s new customer service center for the Asia Pacific region.

Mr. Zhu is 39 years old and has both an MBA and an engineering degree. He has held a variety of senior management positions at AVIC and has been a strong driver in developing AVIC’s cement plant construction business

DYCKERHOFF'S VOLYN CEMENT HAS NEW DIRECTOR GENERAL

Sergei Dudzyana has been named Director General at Dyckerhoff 's Volyn Cement, replacing a director who is retiring after spending the majority of his professional life with the company. Mr. Dudzyana is currently the deputy manager, and will be promoted to Director General. The former CEO will be retained in a consultant's capacity. [ Final sentence is unclear as there is no prior reference to a former CEO]

INDIA: MANAGALAM CEMENT APPOINTS NEW DIRECTORS

The board of directors of India's Managalam Cement announced new appointees for its board of directors. Anshuman Vikram Jalan and Vidula Jalan were appointed as fulltime directors and executive directors of the company effective April 1, 2011. The appointments will be confirmed after the approval by the shareholders.

LAFARGE SLOVENIA APPOINTS NEW HEAD

Lafarge has appointed Janusz Miluch as the new Director General for its Slovenian operations, reports Siol.

Mr. Miluch will succeed Iztok Virant in the position. He is a company veteran with 13 years tenure. Prior to his appointment as Director General, he was the company’s Commercial Director in Poland.

BMWeekBMWeek



CW Group Coal Weekwww.cemweek.comMARCH / APRIL 2011 49

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CW Group Coal Week

Company (ExCh) 52 WEEK hIGh 52 WEEK loW % from 52hI % from 52lo 50d mov avG 200d mov avG

% from 50d mov avG

% from 2000d mov avG

ADEL BRTN FPO (ASX) 3.72 2.51 -15.05% 25.90% 3.23 3.31 -2.30% -4.52%

BORAL LTD FPO (ASX) 5.98 4.15 -17.73% 18.55% 5.06 4.87 -2.70% 1.12%

TITAN CEMENT (Athens) 20.10 13.16 -10.45% 36.78% - - N/A N/A

DHAR CEMENT (Bombay) 1.00 1.00 0.00% 0.00% 1.00 1.00 0.00% 0.00%

INDIA CEMENT (Bombay) 129.40 81.00 -23.30% 22.53% 96.80 102.73 2.53% -3.38%

JK CEMENT (Bombay) 214.30 114.00 -40.64% 11.58% 133.12 146.58 -4.45% -13.22%

PRISM CEMENT LTD. (Bombay) 65.90 44.85 -15.33% 24.41% 54.65 54.00 2.11% 3.34%

SAGAR CEMENT(BSE (Bombay) 198.65 113.00 -26.00% 30.09% 141.86 134.75 3.63% 9.09%

SHIVA CEMENT (Bombay) 11.49 5.50 -42.91% 19.27% 6.61 7.79 -0.82% -15.79%

FLSMIDTH & CO. (Copenhagen) 549.00 328.80 -19.03% 35.19% 445.81 467.10 -0.29% -4.84%

WEST CHINA CEMENT (Frankfurt) 0.34 0.10 -17.20% 178.27% 0.29 0.28 -0.64% 2.32%

SHANSHUI CEMENT (HKSE) 8.77 3.15 -1.03% 175.56% 7.18 6.18 20.97% 40.55%

ASIA CEMENT CH (HKSE) 6.68 3.15 -5.24% 100.95% 4.95 4.11 27.93% 53.96%

ANHUI CONCH (HKSE) 56.90 21.50 -35.76% 70.00% 46.80 37.97 -21.90% -3.74%

INDOCEMENT TUNGGA (Jakarta) 19,400.00 12,750.00 -12.37% 33.33% 16,108.60 16,098.50 5.53% 5.60%

HOLCIM INDONESIA (Jakarta) 2,575.00 1,800.00 -12.62% 25.00% 2,043.57 2,154.82 10.10% 4.42%

SEMEN GRESIK (PER (Jakarta) 10,350.00 7,250.00 -8.21% 31.03% 9,220.00 9,150.00 3.04% 3.83%

TONGYANG CEMENT & (KOSDAQ) 3,885.00 1,675.00 -56.63% 0.60% 2,057.36 2,057.84 -18.10% -18.12%

ASIA CEMENT (KSE) 51,100.00 41,350.00 -8.71% 12.82% 45,731.90 44,896.40 2.01% 3.91%

LAFARGE MALAYAN C (Kuala Lumpur) 8.11 6.06 -10.73% 19.47% 7.75 7.52 -6.59% -3.77%

YTL CEMENT BHD (Kuala Lumpur) 4.85 3.80 1.24% 29.21% 4.76 4.40 3.13% 11.47%

CIMPOR R (Lisbon) 5.48 3.91 -14.87% 19.31% 4.95 5.00 -5.78% -6.62%

STEPPE CEMENT (London) 70.00 39.00 -38.57% 10.26% 44.53 47.30 -3.43% -9.08%

CEMENTOS PORTLAND (MCE) 17.91 11.06 -14.01% 39.24% 14.94 13.90 3.07% 10.83%

GRUPO CEMENTOS (Mexico) 56.50 38.00 -22.48% 15.26% 41.47 43.63 5.61% 0.38%

BUZZI UNICEM (Milan) 11.37 7.00 -8.09% 49.29% 10.07 9.10 3.80% 14.78%

CEMENTIR HOLDING (Milan) 3.05 1.78 -28.74% 21.84% 2.15 2.20 1.13% -1.58%

ITALCEMENTI RSP (Milan) 4.88 2.96 -21.72% 29.05% 3.74 3.56 2.15% 7.20%

data SHARE PERFORMANCE

As of April 29, 2011. All share prices in local currency




CW Group Coal Week

DATA

COMPANY (EXCH) 52 WEEK HIGH 52 WEEK LOW % FROM 52HI % FROM 52LO 50D MOV AVG 200D MOV AVG

% FROM 50D MOV AVG

% FROM 2000D MOV AVG

As of April 29, 2011. All share prices in local currency

ANDHRA CEMENTS LI (NSE) 23.70 8.60 -38.19% 70.35% 13.78 14.08 6.32% 4.08%

BINANI CEMENT LIM (NSE) 96.60 72.50 -8.07% 22.48% 87.65 88.13 1.31% 0.76%

BURNPUR CEMENT LI (NSE) 13.95 7.75 -37.99% 11.61% 8.36 9.65 3.42% -10.33%

DALMIA CEMENT (BH (NSE) 284.80 134.00 -76.70% -50.49% 216.64 225.53 -69.37% -70.58%

DECCAN CEMENTS LI (NSE) 198.90 122.05 -23.00% 25.48% 144.24 149.91 6.18% 2.16%

ITD CEMENTATION I (NSE) 292.40 174.25 -28.61% 19.80% 203.55 221.63 2.55% -5.81%

MADRAS CEMENTS LT (NSE) 136.70 90.10 -27.58% 9.88% 100.60 104.36 -1.59% -5.13%

MANGALAM CEMENT L (NSE) 128.00 46.25 -4.84% 163.35% 112.25 73.90 8.50% 64.82%

SHREE CEMENTS LTD (NSE) 2,360.00 1,500.00 -14.83% 34.01% 1,917.54 1,926.94 4.83% 4.32%

CRH PLC AMERICAN (NYSE) 29.31 14.76 -14.88% 69.04% 23.04 20.83 8.31% 19.76%

CEMEX, S.A.B. DE (NYSE) 12.39 7.46 -29.94% 16.35% 8.79 9.34 -1.27% -7.09%

EAGLE MATERIALS I (NYSE) 33.22 15.91 -12.43% 82.84% 30.04 28.13 -3.18% 3.42%

TEXAS INDUSTRIES, (NYSE) 47.42 27.28 -11.07% 54.58% 42.86 40.51 -1.62% 4.10%

CIMENTS FRANCAIS- (Paris) 77.62 57.85 -8.06% 23.35% 70.70 68.64 0.93% 3.97%

LAFARGE (Paris) 55.87 35.57 -14.49% 34.31% 44.37 44.74 7.68% 6.78%

ANHUI CONCH CEMEN (Shanghai) 43.05 14.50 -12.24% 160.55% 38.98 31.04 -3.07% 21.72%

FUJIAN CEMENT CO. (Shanghai) 12.67 6.35 -12.15% 75.28% 10.40 8.55 7.02% 30.14%

CHINA SINOMA INTL (Shanghai) 50.50 16.81 -22.08% 134.09% 43.67 40.00 -9.90% -1.63%

HUAXIN CEMENT CO (Shanghai) 5.48 1.93 -11.48% 151.40% 4.31 3.13 12.54% 54.99%

SIAM CEMENT -F- (Stuttgart) 9.70 5.85 -1.54% 63.25% 8.66 8.48 10.23% 12.64%

TAIWAN CEMENT TWD (Taiwan) 42.90 24.60 -2.21% 70.53% 35.81 33.07 17.13% 26.84%

ASIA CEMENT CORP (Taiwan) 37.80 25.65 1.32% 49.32% 33.90 32.01 12.98% 19.64%

CHIA HSIN CEMENT (Taiwan) 18.70 12.45 -3.74% 44.58% 16.98 16.50 6.04% 9.06%

LUCKY CEMENT TWD1 (Taiwan) 8.30 6.81 -8.92% 11.01% 7.39 7.61 2.35% -0.60%

HOLCIM N (VTX) 84.20 59.65 -10.57% 26.24% 70.43 68.01 6.91% 10.72%

HEIDELBERGCEMENT (XETRA) 54.00 30.86 -4.39% 67.30% 49.21 46.02 4.92% 12.18%

KHD HUMBOLDT WEDA (XETRA) 8.24 3.52 -12.85% 104.09% 7.24 7.01 -0.83% 2.47%

ASSOCIATED CEMENT (NSE) 903.60 415.05 23.15% 168.11% 786.51 618.19 41.49% 80.01%




CW Group Coal Week

EMERGING MARkETS LIvE UP TO THE TITLE, DRIvING WORLD CEMENT GROWTH IN 2010

dEmand tracking univErsE yEar-ovEr-yEar rEport:

lobal demand for cement rose in 2010, despite many of the developing markets seeing tough trading conditions.

The CW Group and CemWeek demand tracking universe of cement volumes, which represents 85 percent of global demand, indicated year-over-year (YoY) global volumes increased just over 12 percent from 2009 to 2010.

Emerging markets, particularly Brazil, China, India and Russia, reported some of the largest increases in cement volumes, pushing overall regional averages higher. China (treated here as a region due to its size) showed the largest YoY increase in cement volumes at 15.5 percent, followed by South America at 13 percent. Nations in the Asian, African and Middle Eastern regional universe tied with a YoY annual increase of 8.3 percent. The North American and European set experienced the weakest growth in cement volumes, as slower than expected economic recovery dampened demand. Overall, YoY growth in the North American region averaged 1.4 percent, and in the European set, YoY growth was only 0.7 percent.

China’s strong performance was fueled by continued growth in infrastructure spending

and real estate investments. Production continued to grow, as the top sixty-five cement producers boasted individual capacity of over 5 million tons per year, with the top twenty having a capacity of over 10 million tons per year. Demand for cement is projected to rise further in 2011, as a new

round of government housing projects and an increased investment in water projects are set to get underway.

After the global economic slowdown of 2008 and 2009, cement producers in South America had reason to celebrate in

2010, as signs of economic recovery were found in several countries. For instance, Peruvian cement consumption increased as the country continued to enjoy a strong economic recovery. The construction sector appeared to be resilient and business confidence improved, leading to a 15.8 percent YoY growth in cement volumes.

Brazil saw ongoing construction on large-scale projects related to its hosting of the 2014 World Cup and the 2016 Olympics, contributing to the 14.3 percent YoY increase in cement volumes. Economic recovery also had a positive influence on the demand for cement in Colombia and Argentina. However, not all South American countries experienced increased demand. For instance, efforts by the Chilean government to provide grants for the construction of 70,000 housing units following the country’s devastating earthquake failed to revitalize the construction sector.

Regionally, Asian cement volumes in the CemWeek demand-tracking universe showed a YoY increase of 8.3 percent in 2010. Vietnam experienced strong growth coming in at 21.8 percent, and India rounded off the top three with volumes increasing an average of 14 percent. India’s cement volumes, adjusted in the tracking

The Chinese market

accounted for approximately 67 percent of total global cement

volumes in 2010

MarKet UPDATE




CW Group Coal Week

0%

5%

10%

15%

20%

Middle East & AfricaChinaAsia ex-ChinaEuropeSouth AmericaNorth America

2009-2010 CEMWEEK DEMAND TRACKING UNIVERSE VOLUME CHANGE (% CHANGE IN TONS)

universe for comparison purposes, trended higher in 2010, showing a 14 percent increase over 2009. This occurred despite a winding down of construction activities related to the Commonwealth Games, a slower pace of infrastructure development, and the withdrawal of stimulus money from the government. A different scenario unfolded in Japan, where volumes declined as cuts in capital spending, declining public works spending, and a rise in export stocks pushed cement volumes down.

The African and Middle Eastern region averaged a YoY increase of 8.3 percent in 2010 as well. Heavy investment by the government in infrastructure projects and private investment in the real estate and housing markets fueled demand in Kenya. Additionally, market recovery resulting from improving economic conditions and higher public spending helped to boost cement volumes in Saudi Arabia and Turkey. Conversely, a slower than expected recovery in the residential building market helps explain the decline in YoY cement volumes noted in South Africa.

Demand for cement in the North American

and European regions was noticeably lower in 2010. Despite a modest YoY growth seen in Mexican cement volumes, the U.S. market struggled to recover, showing a slight 0.7 percent decline in volumes.

The European region exhibited the smallest increase for 2010, averaging only 0.7 percent YoY. While declines in demand volumes were noted in several individual markets such as Spain and Italy, a few countries such as Switzerland, France and the United Kingdom showed YoY growth in cement volumes.

Russia showed the largest annual gain, averaging a 14.5 percent YoY increase in cement volumes in 2010. Although the residential and non-residential construction sectors remained depressed throughout much of the country, infrastructure spending on roadways, railways, airports, and facilities related to the country’s hosting of world events including the 2012 APEC Summit, the 2014 Winter Olympics and the 2018 World Cup Games likely drove the demand for cement.

Overall, in 2010, global cement volumes trended higher, boosted in particular by the strong performance of the Chinese market, which according to the CW Group’s and CemWeek demand tracking universe, accounted for approximately 67 percent of total global cement volumes in 2010. Other emerging markets delivering above average performances included Russia, Brazil, India, Peru, Kyrgyzstan, and Vietnam. Finally, even though the economic recovery in much of North America and Europe failed to gain significant momentum, these regions were still able to demonstrate increases, albeit modest ones, in cement volumes.

BMWeekBMWeek



CW Group Coal Week

The European region

exhibited the smallest increase for

2010

MARKET UPDATE

-2%

PERU VIETNAMUK TURKEY MEXICO

USSOUTH AFRICASAUDI ARABIAMOROCCO

LEBANONKENYAISRAEL

SWITZERLANDSPAINRUSSIAPOLANDCYPRUS

POLANDITALYGERMANYFRANCECZECH REP

THAILANDKOREA

PAKISTAN

KYRGYZSTAN

INDIAJAPAN

COLUMBIA BOLIVIA

ARGENTINACHILE

BRAZIL

0%

2%

4%

6%

8%

10%

12%

14%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

09 VOLUME WEIGHTED CONSTRIBUTION


-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-2%

-1%

0

10%

20%

30%

40%

50%

60%



SOUTH AMERICA ASIA EX-CHINA EUROPE MIDDLE EAST & AFRICA

-1%

0%

10%

20%

30%

40%

50%

60%


NORTH AMERICA




CW Group Coal Week


FABRICATION &INSTALLATION

� Medium and light metal construction to specification � erection of industrial facilities � General industrial maintenance and corrosion control � Manufacture and assembly of industrial tubing and pipelines

(+34) 917.231.502(+34) 917.952.529


28021 Madrid, Spain

worldwide service

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flasHbaCK

IN tHe Next IssUe

In addition to perennial hotspots USA, China and India, CemWeek.com readers kept up with important industry developments in Russia, Brazil, Egypt, Nigeria and Mexico during March and April. The Middle East and Sub-Saharan Africa saw specific topics drive the information flow (e.g., pricing, competition and expansions).

SOUTH AMERICA PRODUCTION UNITS

IT'S NOT NAGGING:WHy PERSISTENT, REDUNDANT COMMUNICATION WORkS

WHy IT IS NOT ‘CHEAP-SOURCING’

STRATEGIC SOURCINGWhy it is not 'cheap-sourcing'

IT'S NOT NAGGING: Why persistent, redundant communication works

WHITE CEMENTMovers and shakers

CEMWEEK INDIA SURVEY Second annual survey of the cement sector

PULSE ON SUSTAINAbLE DEVELOPMENT Highlights from recent CemWeek - WBCSD research

MARKET ANALYSISSouth America cement production facilities




CW Group Coal Week


FABRICATION &INSTALLATION

� Medium and light metal construction to specification � erection of industrial facilities � General industrial maintenance and corrosion control � Manufacture and assembly of industrial tubing and pipelines

(+34) 917.231.502(+34) 917.952.529


28021 Madrid, Spain

worldwide service

www.blancon.net

T: +1-702-430-1748 F: +1-928-832-4762

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Documents

CemWeek Magazine, Issue 2