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A year of mergers and acquisitions
December, 25th 2017

The year began with discussions of the proposed merger of the leading South African cement producers, AfriSam and PPC, in a plan to create a new African cement champion. After significant opposition to the merger, PPC then explored opportunities with Fairfax Financial Holdings, Dangote, CRH and LafargeHolcim all taking more than a passing interest, but by December all deals were off.

Cemex, through its subsidiary, Sierra Holdings, completed its takeover of Trinidad Cement Ltd for US$101m, strengthening its operations throughout the Caribbean. The deal is a signal that Cemex is regaining its financial strength and is back in expansion mode after many quiet years on the sidelines following the financial crisis. One to watch in 2018.

The US market has been intriguing with HeidelbergCement completing Lehigh Cement's full acquisition of Essroc's Nazareth plant in Pennsylvania in February, while divesting its Martinsburg plant (WV) to Argos USA LLC. Further shock waves arrived when CRH successfully agreed a US$3.5bn takeover of Ash Grove Cement in September, despite a late effort by Summit Materials to snatch it away.

The acquisition signals CRH’s continuing commitment to expand its cement base, rather than lightside building materials that has made up the majority of its portfolio prior to 2015, when it purchased EUR6.5bn of cement assets from Lafarge and Holcim.

Ripples began for mergers in the Indian market with JSW Cement Ltd taking a controlling stake in Shiva Cement. By May UltraTech had virtually completed the formal acquisition of Jaiprakash Cement, adding 21Mta to its portfolio, and further changes seemed imminent after ACC Ltd directors announced they would evaluate a possible merger with fellow LafargeHolcim subsidiary Ambuja Cement.

Italy’s market also saw further change in 2017 with Buzzi Unicem acquiring the Zillo Group in July 2017. By September Cementir had pulled out of the Italian market completely, selling its Italian assets to HeidelbergCement, and finally opening the way to well overdue consolidation in this oversupplied market.

South Asia also succumbed to market forces as Hanil Cement acquired Hyundai Cement of South Korea in July. The landscape would further change by November when Asia Cement agreed to acquire Halla Cement Corp in South Korea.

ICR also awaits further news on the companies that have not yet found buyers, such as Dewan Cement in Pakistan, Binani Cements Ltd in India and Suwannee American Cement in which Votorantim is offering to sell a 50 per cent share to CRH.?? Last, but not least, the ongoing merger between CNBM and Sinoma was in full swing as the Chinese state-owned entities prepared for the future as the largest cement producer in the world, albeit almost entirely located in China (for the time being).

Markets: winners and losers
Argentina bucked the trend in Latin America, posting 12.5 per cent annual YtD cement consumption by November. The positive outlook has encouraged Cementos Avellaneda, Loma Negra and LafargeHolcim to invest in new capacity.

Pakistan and Vietnam also posted superb double-digit growth in 2017, with both countries also seeing a flurry of investment in new production capacity, including Xuan Thanh’s 12,500tpd plant in Vietnam - the country’s largest.

Indonesian producers could also be pleased with the market turnaround, with monthly growth now trending in double-digits.

The year proved less fortuitous Egyptian companies, which resorted to growing exports to hold up sales after the challenges of devaluation in the Egyptian pound and new capacity waiting to come on-stream. Sales also fell sharply in Saudi Arabia with an 18 per cent drop in the first eight months.

Prospects for 2018?
Developments in China will remain of great interest in 2018. A key test is whether annual consumption will gradually decrease as expected and therefore how successful the industry will be in balancing supply. The plan is for the sector to eliminate 390Mta clinker capacity over the next five years to address oversupply, which is a huge and unprecedented adjustment.

ICR’s January issue includes HSBC's global market overview of what lies ahead for cement producers in 2018. Global growth, ex-China, is expected to accelerate to 2.2 per cent in 2018, based on expectations of a continued upturn in the US, broadening recovery in Europe, and improved demand in emerging markets.

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