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The cement industry in emerging countries

Published by , Editorial Assistant
World Cement,

Recent trends

Since the beginning of the 21st Century, the vast majority of new cement plants have been built in developing and emerging countries, where cement consumption has been growing at high rates. This has been driven by increasing urbanisation and rapid infrastructure development. At the same time, local production was often short of supplying local needs.

This new capacity spree has attracted a variety of large international cement groups, regional and local investors, and, in some cases, government owned enterprises. The new business model developed by cement equipment manufacturers proved to be a strong enabler for all kind of investors, offering not only turnkey plants, but also operations and maintenance services.

Stricter legislation

During that same period, the pressure of public opinion and international organisations caused local governments to develop more stringent regulations. These have impacted industrial activities from access to energy and raw materials, to environmental protection and taxes, etc.

The cement industry is commonly perceived as a strategic activity, with high profitability and a significant (visible) impact on the environment through its carbon emissions, quarries, dust emissions, and high energy consumption. It has gradually become a target for regulators from developing and emerging countries.

This trend was reinforced by the recent Paris Agreement on Climate Change, which will cause governments to focus on CO2 emissions from energy utilisation and industrial processes, with a bias towards large emitters which are easier to regulate. The cement industry contributes an estimated 6% to 8% of global carbon emissions, providing fertile ground for the legislators seeking to address climate change as per the Paris agreement requirements.

In order to address the increasingly tight and costly environmental requirements that will impact the industry, cement companies must become a credible and reliable interlocutor to local governments, administrations, and agencies. This will facilitate the understanding and evaluation of future legislation in the industry. The norm of individual cement companies lobbying local government and authorities, although valuable for certain activities, has become ineffective in communicating a facts-based understanding of changes in legislation, which would impact the industry as a whole. All market participants, be they large multinationals or regional and local players, are now required to create a common position on the critical issues affecting the sector.

The establishment and organisation of a national cement industry trade association is now a compelling argument. Such an organisation would defend and promote the interests of the industry, not only through contacts and discussions with public authorities, but also through communicating to the general public, whose perceptions will also influence regulations. Such actions may be both direct, through communicating with elected representatives and local administration, and indirect, by communicating to the general public as often public perception is shared by officials.

What is at stake?

In the experience of the Cement Business Advisory (CBA) from different geographies, several critical cement cost items are highly sensitive to public policies and regulations. These may include CAPEX requirements for environmental projects (for example for dedusting filtering systems), energy price, mining or quarrying fees and many others. To these costs, carbon reduction related expenses are very likely to be added in the near future. On the basis of an average 700 kg of CO2 directly emitted by the production of every tonne of cement, a US$10 carbon tax would increase cement costs by US$7 per tonne, resulting in a charge of more than US$10 million per year for an average 5000 tpd production line (the US$10 is an assumption for this calculation).

In Europe, the price for carbon credits has now reached a level of more than €20 (around US$23) and many observers anticipate a continuous increase, which might result in much higher levels. It is not uncommon to see in related literature that carbon credits must increase to between US$50 and US$100, in order to implement climate change commitments and support a low carbon path.

To further develop the case of carbon tax, the role of an industry association is not to oppose it, but to make regulators and the general public aware of its economic impact, to facilitate implementing actions needed to lower carbon emissions from cement (the overall purpose of the carbon tax), and to ensure fair competition, particularly with imported cement.

How to get started?

While it may sound easy to gather all companies in the industry, some critical steps must be followed to achieve efficient organisation. These include inviting all cement producing companies to participate, getting their highest level executives involved, respecting local antitrust regulations and international antitrust guidelines, clearly defining missions and governance, and targeting a limited number of priority issues.

In countries where cement industry associations have been active, measurable results have been achieved to protect the industry’s competitive position, ensuring a fair competitive environment and leading to competitive cement pricing, which is critical for construction activities and maintaining healthy employment levels in cement companies. Other positive outcomes include improving job safety by sharing best practices, as well as lowering environmental impact by sharing and implementing best available technologies. National industry associations can also greatly benefit from the experiences of their peers through direct cooperation or international organisations, such as the recently established World Cement Association and Global Cement and Concrete Association.

CBA is an expert in designing and implementing local cement associations based on international standards, as well as in cement sustainability issues and solutions.

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Cement news 2018