Outlook on the global cement and clinker trade

Joachim Harder OneStone Consulting Group GmbH, Buxtetehude/Germany

1 Introduction Cement producers who had thought that they could in future sell a large part of their excess capacities in Africa, may have made a big mistake. One company alone, Dangote Cement, is planning to expand its production capacity in the Sub-Saharan region by 23.8 million tonnes (Mta) of clinker or around 27 Mta of cement between 2009 and 2012. In March 2008 Dangote signed a corresponding contract with the Chinese plant supplier Sinoma, who will construct the new cement production lines on a turnkey basis. The contract initially provides for a capital investment of US$ 1.6 billion for 7 new 6000 tpd lines at a purchase price of 115 US$/t of clinker. Six lines will be constructed in Nigeria and one in Senegal. An option contains the construction of four further 6000 tpd lines and 2 x 3000 tpd lines for a price of 119 US$/t in the Dem. Rep. of Congo, Equatorial Guinea,

Ethiopia, Tanzania and Zambia. This will drastically reduce or even minimize the possibilities for exporting cement to Africa in the foreseeable future. Africa is, however, not the only problem facing the worldwide trade in cement and clinker. The sales crisis of 2007 in the USA made it clear that if cement consumption declines; the first thing that happens is a throttling of cement imports. In 2007, imports of Portland Cement slumped by 34% in the USA compared to the preceding year, while the domes tic production rate fell by less than 2% [1]. One associated phenomenon is that the import prices for cement in the USA rose last year from about 67 US$/t to 79 US$It. This was greatly influenced by a jump in freight charges to a new record level. Record-breaking FOB prices, triggered by export restrictions and export tariffs e.g. in China, India, Venezuela and 1

Egypt, added to the difficulties. On a worldwide scale the rising demand for cement in e.g. India and Russia could not prevent the decline in trade. On the other hand, trade with clinker increased particularly in Western Europe. All in all, 2007 was the first time in 10 years that world trade figures for cement and clinker decreased. 2 Worldwide cement and clinker trade International trade with cement and cement clinker currently only accounts for about 5.4% of worldwide cement production. Nevertheless, this trade has the important function of balancing excess capacities and inadequate capacities in worldwide manufacturing and consumption and therefore is an important price correction factor on the world's markets. However, as already indicated in the introduction, national regulations are already playing an increasing role. On the one hand, import duties are imposed to hinder dumping of cement by foreign vendors and thus protect the domestic cement industry and on the other hand import restrictions are lifted to facilitate the import of cheaper cement when governments want to curb excessive domestic prices. There are corresponding regulations governing the export of cement, for example in order to limit exports if domes tic prices are at an undesirably high level. Figure 1 provides an overview of the worldwide cement and clinker trade. The total volume of trade is 149 Mta, of which cement makes up 62% or 92 Mta and clinker makes up 38% or 57 Mta. 119 Mta, which is 80% of the total quantity, is transported by sea, which is not surprising given the great difference in transport costs between sea freight and overland freight. However, in 20% of all cases a water trade route was not used or no harbour import or export terminal is available for overseas vessels. At present, 71 Mta of cement or 77% of the world's cement trade are transported by ship. In contrast, only 48 Mta of cement clinker are

transported by ship, but this makes up 84% of the clinker trade. The significance of the individual cement regions and the difference in their import and export figures is made plain by Figure 2. This shows that North America, Western Europe and the Middle East (incl. Turkey and Iran) are the leading importing regions. These three regions are responsible for 58% of all imports. In the case of exports, the three most important regions, the Far East, Western Europe and Eastern Europe/CIS even reach a share of 67% or 2/3. The figure only provides limited information on the main flows of trade, as it does not depict intraregional transportation. The most important trade flows come from the Far East (including China and Thailand) and mainly go to North America (USA), Western Europe, the Middle East and Africa. The bulk of trade from Western Europe goes to North America (USA) and Africa. A high proportion of the trade in Western Europe is intraregional and thus restricted to the region. This is also the case in the other regions, even though significant amounts flow, for example, to the Middle East and East Africa, for instance from South West Asia (India, Pakistan). In South West Asia the greatest trade quantities are supplied to Afghanistan, Sri Lanka and India (from Pakistan), which all belong to that region. For the clinker trade the import and export amounts of the regions are shown in Figure 3. For reasons of simplicity, this and the previous figure are based on a balanced situation, i.e. that imports are exactly as high as exports. In reality, one must assume that there is a difference of 2-3% in the balance, i.e. that exports of, for example, 57 Mta in one year would mean imports of 55.9 Mta. Correspondingly, the clinker trade figures present a relatively simple picture. The Far East region alone, with its 33.7 Mta is responsible for 59% of exports. Correspondingly, all other 2

regions with the exception of North America are significantly affected by these exports. The greatest quantities are delivered to Western Europe (Spain, Italy), South West Asia (Bangladesh and Sri Lanka) and the Middle East (including UAE, Qatar).Africa obtains a high proportion of its clinker from Western Europe and the Middle East. In North America, as in the case of cement, there are deliveries from Canada to the USA. 3 Import and export countries for cement and clinker The previous chapter already mentioned various cement and clinker import and export countries. In this connection it must be noted that very few reports distinguish between the cement trade and the clinker trade and that, unfortunately, all too often clinker exports are represented as cement exports. Figure 4 presents an overview of the ten most important countries for cement and clinker exports in 2006. Within just a few years, China has become the most important exporting country with a total quantity of 36.1 Mta, of which 19.4 Mta or 54% concern cement and 16.7 Mta or 46 % relate to clinker. Thailand follows in place 2 with a total of 14.7 Mta, before Japan with 10.1 Mta, so that the three most important exporting countries are located in the Far East region. India, Egypt, Germany, Indonesia and Turkey occupy the next rankings with quantities ranging from 7.2 Mta up to 8.8 Mta (India). Of the above countries, Germany has the largest proportion of cement its her exports with 90% and Indonesia the lowest proportion with 31%. This suggests that Germany has a high surplus cement grinding capacity and that Indonesia has a considerable overcapacity in clinker production, assumptions which are gene rally regarded as correct. However, a more precise consideration of the TOP 10 exporting countries also reveals that China, India, Egypt and Turkey are restricting exports because of

their increasing domestic demand and for some time to come will not be exporting larger quantities. There are also countries like Japan, Germany, Korea and Canada which are experiencing stagnating sales figures on their domestic markets and which, due to high price levels and the resultant high FOB prices, cannot necessarily be expected to achieve significantly larger sales volumes. Figure 5 illustrates how the situation has changed in the largest cement importing countries. In 2006, the TOP 10 countries had total cement imports of 66.9 Mta. In 2007 these countries only imported 52.5 Mta of cement, which represents a reduction of 21.5 %. After 32.6 Mta in 2006, the USA only imported 21.7 Mta the following year. For the USA, this represents a decrease of 33.4%. Nigeria (39.0%) and the Nethherlands (-36.8%) have even greater percentage decreases in imports. Spain's cement imports also slumped by 12.5%. At the other end of the scale, the biggest percentage increases occurred in France with 28.6% before Afghanistan with 8.7% and the United Arab Emirates with 5.7%. The list of the TOP 10 is rounded off by Iraq, Singapore and South Korea. The subsequent places with imports in the order of magnitude of 2 Mta each are taken by Kazakhstan, Kuwait, Sri Lanka, Syria, Ethiopia and Angola. Most of these are also the countries in which the cement exporters place their hopes for the future. To these can be added Russia and India, who will have a growing demand for cement, before planned new production capacities are ready for operation in 2-3 years. The most important importing countries for clinker are shown in Figure 6. In 2006, the TOP 10 imported a total of 34.5 Mta. In 2007, these countries' import figures dropped slightly by 2.6% to 33.6 Mta. On a worldwide scale, the TOP 10 have a share of 59%. Spain is number 1 with imports of 9.6 Mta in 2006 and 10.7% in 3

2007, followed by Bangladesh with 6.0 Mta and Vietnam with 3.8 Mta. The USA, which was still in 4th place in 2006 with 3.3 Mta only imported 1.0 Mta of clinker in 2007. This represents a plunge of almost 70%. Turkey's figure also plummeted by almost 44% from 2006 to 2007. All other countries maintained or increased their import levels. With Spain and Italy, two Western European countries are represented in the TOP 10. In Western Europe (EU15), imports from sources outside the EU (EU27) have strongly increased in recent years (Fig. 7). This shows that EU imports from non-member countries jumped from approx. 6.0 Mta in 2006 to 18.2 Mta in 2007. However, the proportion of cement imports has decreased significantly and is now only 11.5% after exceeding 51% in 1999. The absolute figures of cement imports have also declined since 2002 and are currently below the level of the year 2000. Figure 8 depicts the import development for Spain. This shows parallels to the EU15 figures and also reveals that Spain dorninates imports in Western Europe. In total, Spain's share of cement imports into Western Europe is 16%, while its share of clinker imports is 66%.

4 The biggest trading firms and their transshipment facilities The influence exerted by the TOP trading firms on the worldwide cement and clinker trade is generally over estimated. Various analysts have estimated their share as 50-60%. In fact, the TOP 5 only had a share of 37% in 2007. The development of the TOP 5 is presented in Figure 9. This shows that these companies sold 62.3 Mta of cement and clinker in 2006 and 55.3 Mta in 2007. That is a reduction of 11.2% compared to the preceding year. Comparisons of the two years have to take into account that in the case of the Holcim Group the basis of consolidation has changed and that their takeover of ACL (Ambuja Cements) in India with a trade volume of around 1.8 Mta has also changed the group's accounting grid. If ACL's figures are not included in Holcim's, then Holcim would have a trade volume of approx. 15.0 Mta and the TOP 5 would reach a total of 53.8 Mta, which represents a decline of 13.6% compared to 2006. However, in the current analysis Holcim has further expanded its position as market leader with a trade volume of 16.5 Mta, thus achieving an increase of 3.1% compared to 2007. In comparison, all other companies fell back perceptibly. Cemex showed the biggest losses

(possibly as a result of the USA slump) with a minus of 27%, so that the firm's trade volume in 2007 was only 11.6 Mta. Lafarge booked a minus of 17.1% with its trading firm Cementia and thus also suffered an above-average decrease. The trade figures of HC Trading (HeidelbergCement) and Italcementi showed a below-average decline, so that these firms slightly increased their market shares in the trading business. It must be remembered that these trading figures for the TOP 5 only relate to their data for cement and clinker. The total trading figures of the 5 companies are considerably higher. In the case of Holcim, for instance, trade in cement and clinker makes up approx. 70% of their business. The fuels coal and petroleum coke are responsible for a further approx. 20% and the rest is divided between slag products and gypsum. At present, Cemex has a trade volume of 13.4 Mta. In their case, slag products make up 1.8 Mta or 7.5%. Furthermore, one should not forget that these companies' figures for the maritime transportation of cement and clinker include a certain amount that remains within the respective domestic market. One such example is Holcim, or its member company ACL, which ships about 3.6 Mta of cement and clinker via its harbour in Muldwarka (GujaratlIndia). However, 50 % of that annual quantity remains in India.

Modern and high-capacity harbour terminals play a very important role for trading performance. Only a few cement factories have such a good infrastructure as the Canakkale Plant/Turkey (Fig. 10) of Akcansa (HeidelbergCement, Sabanci Holding). For cement and clinker shipment, this is strategically located on the Dardanelles, the link between the Aegean and the Sea of Marmara. In 2007, a second production line representing a capital investment of US$ 135 million was put into operation, doubling the plant's capacity to 3.8 Mta of clinker. On the other hand, many cement purchasing countries have an inferior infrastructure, which stands in the way of economical cement importation. For instance, Nigeria imports its cement via the two harbours of Port Harcourt (Fig. 11) and Lagos, where the road infrastructure in not in a good condition and no effective rail connections exist. Maritime transportation of cement takes place both by so-called self-unloading cement transport ships, which are equipped with pneumatic discharge systems, and by conventional bulk carriers, which are discharged by mechanical or pneumatic ship unloadders installed at the ports. In the case of self dischargers, most cement is transported by ships of the Handysize Class with 5000 to

20000 dwt or less. Conventional bulk carriers are mainly of the Handymax Class with 40000 to 60000 dwt. Figure 12 shows a cement export terminal for the loading of a self-unloading ship. The important thing is to achieve the highest possible loading capacities and thus to minimize the ships' loading and demurrage times [2]. The same applies to clinker transshipment. For this purpose, conventional grab cranes are mainly used, together with storage hoppers (Fig. 13) which load the clinker onto a conveyor belt and thus practically eliminate dust emissions [3]. 5 Trade development, supply of cement and clinker and price situation A decrease in worldwide trade in cement and clinker to 97 Mta is forecast for the period up to 2010 (Fig. 14).This corresponds to an average annual decrease of 6.4%, although the rate of decrease will increase from year to year. The reason for this is that the trade quantities for cement will fall from 71 Mta in 2007 to around 50 Mta in 2010, while the trade quantities for clinker will drop to 47 Mta after an interim peak of 51 Mta in 2008. Correspondingly, clinker will account for approx. 48.5% of the trade quantity in 2010, while cement will only account for 51.5%. Cement and clinker are expected to particularly suffer under reduced import demand, because most of the previously importing countries are implementing a massive expansion of their own production capacities. The prospects for the period 2010 to 2012 are even bleaker. The scenarios for future flows of trade generally include forecasts for the possible surplus cement production capacity [4, 5]. In a global analysis, HoIcim for example anticipates a surplus of 4.4 Mta for maritime trade in the year 2007. This surplus will increase to 27.4 Mta by 2010.The analysis expects a. decrease of 17.2 Mta in possible export quantities in the AsianPacific area but an increase of17.9 Mta in the Middle East. Onestone's own evaluation

additionally considered the question of how future capacity utilization figures will affect the supply of cement and clinker for export. The model takes account of the global cement consumption, the available cement and clinker production capacities and the capacity utilization in 2007 and forecasts the development of these figures up to 2010. This study only takes cement and clinker from rotary kilns into consideration. The input data for the scenario in 2010 (Table 1) are the planned new clinker production capacities, which are estimated as 610 Mta from 2007 to 2010 [6]. With an average worldwide clinker factor of 0.85 the forecast cement production capacity is 2710 Mta, under the precondition that sufficient grinding capacity is available. With the forecast cement consumption of 2810 Mta in 2010 (or 3310 Mta if all cement from rotary kilns and shaft kilns is taken into account), the forecast cement production figure would result in a utilization factor of 82% (column 2010a). The further considerations (columns 2010b to 2010e) are based on a reduced clinker factor of 0.82 [7]. This results in a cement production capacity of 3550 Mta. The corresponding column 2010b thus contains utilization factor of 79.2% at the cement production figure of 2810 Mta. Columns 2010c to 2010e consider various higher possible utilization factors of 80% to 90%. With all other parameters remaining the same, surplus capacities of 30 Mta to 385 Mta per year result. However, it is not only the regional surplus and undercapacity situations that are decisive for the future development of trade, but also the price levels in the importing countries. An analysis of the situation shows that the massive expansion of production capacity, particularly in the former importing countries, leaves no leeway for additional imports. The expectations of cement and clinker exporters therefore rest practically alone on new national markets and government interventions. An analysis should also take into 6

Tab 1 Scenario of surplus capacity (OneStone Research)

Parameter Clinker capacity [Mta] Clinker factor, global [kg cl./kg cem] Cement capacity [Mta] Capacity utilization [%] Variation in the production [Mta] Cement consumption [Mta] Excess capacity [Mta] 2007 2300 0.85 2710 79.2 2145 2145 0 2010a 2910 0.85 3425 82.0 2810 2810 0 2010b 2910 0.82 3550 79.2 2810 2810 0 2010c 2910 0.82 3550 80.0 2840 2810 30 2010d 2910 0.82 3550 85.0 3018 2810 208 2010e 2910 0.82 3550 90.0 3195 2810 385

account measures such as CO2 levies. The result is that if the trade quantities continue to fall while greater amounts of cement and clinker come onto the market, both the freight prices and the FOB and CFR prices for cement and clinker will decrease from their present record levels. Countries like Australia will in future have to consider taking stronger antidumping measures. 6 Conclusion It is difficult to forecast future cement and clinker trade flows. There are too many parameters that can have a significant effect on further developments. However, one fact appears to. be certain. The year 2007 already predetermined the general future trend, even though the coming years up to 2010 should take a somewhat les s dramatic course. The consequence of the massive expansion of capacity in the most important importing countries will be a contraction in the future flows of trade. Losses in the hitherto most significant importing countries cannot be compensated by profits in new national markets. Trading firms can only hope that the high number of plant extensions will be delayed by delays in equipment delivery, so that a relatively high trade volume can be maintained. However, a change in trend will only occur if new capacity expansions are suddenly abandoned while the high growth in cement consumption continues.

Literature (1) Harder, J.: Downturn in US cement sales. ZKG International 61 (2008), No. 4, pp. 69-79. (2) Schuldt, C.; Bostelmann,J.: Case Study: Export terminal installation. World Cement, January 2007, pp. 95-99. (3) Woodbine, B.: Clinker handling, storage, import and export. Conference Proceedings, lntercem Dubai, 27.02.-28.02.2007, Jumeirah Emirates Towers, Dubai. (4) Cantillana, J.: Cement trading globally & India's export capability. Holcim lnvestor/Analyst Capital Market Event 2007, 26th -27th September 2007, Mumbai, India. (5) Adigzel, E.: Recent trends in the cement industry and global cement flows. 2008 European Dry Bulk Shipping Market Outlook Conference. Lloyd's List, Conference Proceedings, 27th-28th February 2008, Istanbul, Turkey. (6) Harder, J.: Impact of the cement boom on the equipment supply. ZKG International 61 (2008), No. 2, pp. 50-60. (7) Harder, J.: Development of clinker substitutes in the cement industry. ZKG International 59 (2006), No. 2, pp. 58-64.
Fuente: ZKG International Jun., 2008, p26-46