International Cement Review Editor's Blog

Turkish cement – little delight for local producers

DavidHargreaves — Tue, 27 Oct 2009 11:12:00 GMT

The prospects for the Turkish cement market are looking increasingly dim, at least over the next 2-3 years. Domestic demand for 2009 is expected to have fallen by around 10 per cent to approximately 38Mt, while capacity on the other hand, shows now sign...(read more)

Turning up the heat on old US plants

DavidHargreaves — Thu, 10 Sep 2009 15:33:00 GMT

The opening, at the end of last month, of Holcim's new 4.0mt per annum cement works at Ste. Genevieve, Missouri, on the Mississippi river is further increasing the pressure on the remaining wet process plants that are becoming increasingly less competitive....(read more)

The ghost of the Mary Nour

DavidHargreaves — Wed, 10 Jun 2009 13:58:00 GMT

The impending publication of a 300-page report by Mexican competition authorities is expected to shed new light on the saga of a 26,219t shipment of cement aboard the Mary Nour, refused entry into the Mexican cement market back in July 2004. The Mexican...(read more)

Global warning - cement growth slowdown?

DavidHargreaves — Fri, 01 May 2009 11:19:00 GMT

The recently published Global Cement Report Eighth Edition contains a wealth of very useful cement industry data, with analysis and statistical summaries of over 170 countries. This new publication should form an essential reference source for all those...(read more)

Don't try this at home

DavidHargreaves — Mon, 09 Mar 2009 14:15:00 GMT

The UK papers are full of news and debate about quantitative easing. At first sight one might be forgiven for thinking this was a new type of laxative but the reality is that this is pure financial jargon for printing money – except in todays hi-tech...(read more)

UAE cement producers face unsettled future

DavidHargreaves — Tue, 03 Feb 2009 09:26:00 GMT

With eye-catching newspaper headlines indicating that much of the UAE is now facing a boom to bust scenario, a stream of daily news highlighting the wholesale cancellation, or at least a halt to, various major building contracts and, not least, with Dubai’s...(read more)

Truth, dare or consequences

DavidHargreaves — Wed, 17 Dec 2008 20:27:00 GMT

It’s perhaps the sign of a simple mind, but I never fail to smile at the recollection of the Woody Allen quotation that the definition of a financial advisor is someone who you pay to invest your money …until it's all gone. Its resonance...(read more)

A Belgian, a Canadian and an Egyptian walk into a cement company...

DavidHargreaves — Sun, 12 Oct 2008 19:05:00 GMT

The Lafarge ownership saga continues. Last month saw Albert Freres - Group Bruxelles Lambert - seemingly spend close to Euro 100m mopping up Lafarge shares on the French stock exchange, according to official filings, at prices ranging between Euro 70-80...(read more)

Time for a rethink on East-West détente?

DavidHargreaves — Thu, 04 Sep 2008 15:48:00 GMT

The recent brief conflict in Georgia still has some way to run with the Russian’s apparently in no hurry to return to the former status quo. There are two sides to every story, of course, but the Russian view that the Georgian president should be...(read more)

Spend an evening with John and Jane

DavidHargreaves — Sat, 07 Jun 2008 04:29:00 GMT

“That’s where John McCain was shot down in 1967”, my taxi driver said rather nonchalantly as we weaved our way through Hanoi’s heavy traffic back to the airport. I looked over at the city park and the placid lake into which the...(read more)

Financials under the spotlight

DavidHargreaves — Thu, 24 Apr 2008 14:38:00 GMT

At the end of March 08, Cemex had a net debt US$18,813m disclosed, and a further undisclosed amount of debt in the form of perpetual notes that were lumped together with minorities. Cemex has not yet published its accounts for 2007, but at the end of 2006, perpetual debt amounted to US$1250m. Assuming that in assessing the perpetual debt, this accounted for a similar portion of what is described as 'minorities' at the end of 2006, the actual net debt at the end of March 08 would read US$21,326m, suggesting a gearing level of 124.8%. This is, in fact, now a higher gearing level than the 120.6% seen three years earlier in the wake of the acquisition of RMC. Since then, Cemex has raised the equivalent of some US$257m through its sale of 9.5% financial stake in Axtel a Mexican telecommunications company.

The fall in US interest rates has helpfully reduced the cost of financing the acquisition of Rinker that became effective last July. The failure to conclude the proposed major sale of assets in Catalonia, Austria and Hungary; as well as two US cement plants and a large number of downstream businesses in the United States to CRH, has left Cemex with a stretched balance sheet, with only the sale of the assets that Cemex was under an obligation to sell to satisfy the US anti-trust authorities actually concluded. It could be argued that the assets that Cemex failed to sell are worth less now than they were at the time, at least as far as the US and Spanish operations are concerned.

The net result of buying RMC and now, Rinker, has been to reduce Cemex' dependence on developing markets, which, from an investment point of view at least, had been seen as the Mexican group's main point of attraction. While the other four of the five top global cement producers have been, and are, investing heavily in the two largest cement markets in the world, China and India, Cemex has tended to avoid these. While Russia, another major growing cement market, is now apparently off the radar, which must be disappointing to some Cemex insiders.

On a brighter note, the proposed nationalisation of the Venezuelan cement market, where Cemex is the largest operator, may be helpful to Cemex from a simple cash inflow point of view, but will leave the group increasingly dependent on its three largest markets of Mexico, the United States and Spain for its main cash generation. Returns from Great Britain and Germany still leave much to be desired and this is also not a good time to review Spain’s construction outlook, but the signs from Madrid are not favourable, at least over the short term.

Will Cemex run out of cash? Most certainly not! But if the US recession begins to deepen, with neighbouring Mexico then getting sucked in, plus some heavy clouds becoming more visible in southern Europe, it might need a bit more than the continuing sale of various financial instruments to keep this cement major in tip-top condition.

Bulls, bears and stags

DavidHargreaves — Thu, 20 Mar 2008 17:07:00 GMT

I am not a successful investor. I classify myself as one who would, at times, buy high and sell low. One who would finally take the plunge to buy tech stocks the day before the market crashed back in 2000 or whenever, and one, when offered Cemex stock at giveaway prices back in 1996, thought that they were over-valued. (Anyway, my defense at the time - and still today - was that it would have been unethical to purchase).

So when people talk about markets in the light of the recent US and UK banking upsets I tread a cautious path, nodding wisely at some erudite analyst in full flow, tut-tutting at the latest financial shenanigans and hoping that the people who manage my pension pot are not, as I write, hot-footing it to the Cayman Islands with the remnants of my fund in a sack.

Are we heading for melt-down? And what does this mean for our own industry. A slow-down or perhaps even an end to continued pronounced globalisation trends? Global economic growth over the past few years has undoubtedly been strong. More importantly India and China have both contributed significantly to narrowing the divide between the developing and developed world, but today, the underlying global tensions look to be rising. The ill-conceived war in Iraq has helped fuel a quadrupling of fuel prices since 2003, Asia now has a massive stockpile of dollars - and America is now in hock to the world. The myth of a strong dollar has also been put to rest.

As Josef Stiglitz, a Nobel Laurate in Economics wrote recently: The game is up. China is now facing inflationary pressures, and if it revalues its currency as it is being pressed to do by the US, this will translate into much higher costs worldwide. At the same time, the rise of bio-fuels as a means of reducing global warming, has meant that food and energy markets are becoming inter-linked, a lethal threat to many developing countries.

The real threat of runaway inflation is apparently returning to an economy near you, says Stiglitz, and unless we see through the need to raise interest rates relentlessly to meet requisite inflation targets, we should prepare for the worst. Another episode of stagflation - and a reminder to some – me included – of the mid-1970s when stags ruled the world.

Thinking of investing in the UAE? – wait for the new US president

DavidHargreaves — Fri, 22 Feb 2008 09:30:00 GMT

The recent Cemtech Conference in Dubai highlighted some interesting topics, many of which centred upon the current supply patterns for cement in the Middle East and, not least, intense debate over the continuing strength of the UAE market. Many analysts, have for some time been predicting an eventual melt-down in the local UAE construction sector, but this mix of oil, gas and service economies still remains very buoyant, and some local UAE cement producers we talked to were still virtually sold out for several months ahead. Reinforcing this pattern, Dubai city still has very much the feel of a gigantic, ever-expanding, construction site.

On the downside, more new cement capacity is still under construction or in planning throughout the UAE, in effect, pushing up potential local supply to over 25Mt in the near term, possibly even higher and one could be forgiven for thinking that this huge bubble will eventually burst. But quite when, nobody knows. Any views anyone?

A timely report from the World Economic Forum (WEF), the Swiss-based think-tank that attracts a wide variety of celebrity politicians, well-heeled industrialists and pop-stars with attitude, has recently published its outlook for the UAE region in the form of three distinct time-sensitive scenarios stretching to 2025, under the sub-titles: ‘The fertile gulf’, ‘oasis’ and ‘sandstorm’. All scenarios are possible, according to the authors.

Presently, local sentiment in the UAE is generally positive. Enhanced financial liquidity will continue to allow expansion of the private sector, investment in productive assets and upgrading public infrastructure. At the same time, the UAE also faces a range of challenges which could potentially threaten a stable and prosperous future for the country. Even without the threat of external disruption or lower oil prices, the continuing build-up of financial reserves will not last forever.

In fact, says the WEF report, the next five years will be crucial for the UAE and decisions made today could contribute towards building a sustainable and innovation economy, with a more balanced, integrated social structure. Alternatively, a reluctance to engage with controversial issues, coinciding with negative external events could create a future where the UAE enters a negative cycle of conflict and economic decline.

For example, in the WEF ‘sandstorm’ scenario, the current global slowdown causes a fall in oil prices which dramatically reverses when the US bombs Iran in 2009, when oil prices then rocket to US$125 per barrel. The resulting regional instability and oil price shock combined with an economic weakness in the US market then precipitates a further global slow-down, and massive fall in oil revenues …then…well you get the general on-going picture.

Given such a possible outlook, let’s hope the US public votes in the seemingly moderate Barack Obama for president in November . The Republican alternative: John McCain, might well be turn out to be something of an obamanation (ouch!). And before you plunge into UAE markets, download the full UAE scenario report at the WEF website (www. Weforum.org ) it makes for some interesting reading.

Leveraged deals

DavidHargreaves — Fri, 01 Feb 2008 09:28:00 GMT

It looks like the fall in stock market valuations over the past couple of weeks may cause problems for some borrowers (but not all) in our sector in a number of debt financed deals. Higher margin payments may have to be made as valuations decline. Recent large debt financed deals (or where the outstanding amounts have been substantially raised in the sector) include French investment firm Wendel's investment in Saint Gobain, where it now has an appreciable 17% stake, and the recently increased holdings in Cimpor by Teixeira Duarte (20.5%) and Manuel Fino (20.0%).

The Wendel investment in Saint Gobain has the makings of a long term investment, so there should not be any problems in any re-financing deal, although that said, Standard & Poor recently downgraded Wendel¹s credit rating to a BBB-minus from BBB, citing a decline in the share price of most of this investment companies assets, including a steady 30 per slide in Saint Gobain, one of its prized possessions.

Whether the two Portuguese investors in the above Cimpor deal are prepared to refinance their increased holdings over the longer term, is perhaps more doubtful, particularly as the Portuguese construction market is showing no signs of any recovery. At the same time, with Lafarge heavily committed financially to the Orascom deal, it is also unlikely to be willing to spend any substantial amounts on increasing its own stake in Cimpor in the short term. So don't expect any seizmic shifts there for the time being.

Meanwhile, recent pronouncements by Cemex over its own funding status, in particular the recent Rinker deal indicates that its net debt, on the company's definition, more than trebled from US$5,811m to US$18,904m to give a gearing level of 101.19%, but if one includes the perpetual debt, it gives a true gearing ratio of more like 116%. High but not critical.

While the weaker US market has made Cemex lower the expected returns on its Rinker acquisition, this has now been partly compensated for by the recent sharp fall in US interest rates. Interesting to see how this balancing act will pan out.

Lafarge and Orascom

DavidHargreaves — Wed, 23 Jan 2008 09:05:00 GMT

Having seen what some of my editor colleagues write when they put pen to paper one is reminded of the old adage: silence is golden, but let's throw caution to the winds and see what is stirring in the cement mix this week.

I remain puzzled by the speed at which the Lafarge - Orascom deal has been concluded. As I write this blog on the 23rd January, another news release from Lafarge drops on my desk to announce that Lafarge now owns 100 per cent of Egyptian-based Orascom Cement; while only last week, Lafarge shareholders were falling over themselves to vote for a new shareholding structure that gives Nassef Sawaris, one of the Orascom family brothers, a sizeable 11.4 per cent stake in what is now the world's largest cement and building materials group in return for a spend of Euro 2.8 billion.

In fact, this purchase is really a hand-back of part of the Euro 8.8 billion that Lafarge has just gifted Orascom shareholders, 60 per cent of which was owned by the Sawaris family. How do they get these valuations? If one takes into account the minority interests in Orascom, particularly the Holcim holdings, Lafarge seems to have paid well over US$350 per tonne of capacity, and some of it still only half built. Quite steep even in today's buoyant markets.

But on the plus side Lafarge has clearly scored a triumph in Algeria, with Orascom's upgraded 5Mta works in the south, plus a new coastal plant of about 2.5Mta just about to come on-stream (most likely an excellent export facility into Europe) and extremely low cash costs of production, estimated at no more than US$15 per tonne. This is indeed a prize. Add to this production base a brand new 0.5Mta white cement facility close to the coast, and Lafarge clearly reigns supreme in Algeria.

At the Lafarge boardroom level, are newcomers Paul Desmarais Jr and Thierry de Rudder, both executives with Groupe Bruxelles Lambert. To some, this comes over as a rather aggressive financial group, with its Belgium and Canadian backers, and one that has steadily built up an appreciable stake in Lafarge in recent years. Whether they were amused to see their stake diluted down to about 14.9 per cent with the latest Lafarge rights offer is debatable however, they are now reported to want to increase their shareholding up to between 20-30 per cent mark which perhaps gives a good indication of their own intentions for Lafarge.

The unknown of course is what happens if Orascom and Group Bruxelles decide to act in unison. The combined entity already represents a stake of over 25 per cent. Where will it all lead? A bid for the whole Lafarge group? One can only but speculate but it looks to have some credence.