Chinese cement advance starts in Bali
For those lucky enough to have attended the Cemtech Asia in Bali last week, the presence of a high-ranking delegation from Conch Cement, China may have set some thoughts in motion as to the future direction of China's No 1 cement producer. And it appears you wouldn't have to wait long, for just seven days later Conch looks to be on the point of signing a US$2.3bn deal with the Indonesian Ministry of Industry to build four new Indonesian works in South Kalimantan, East Kalimantan, West Kalimantan and West Papua, according to reports from the Ministry.
This is not the first foreign investment Conch has made outside its domestic market, indeed the group has established a number of projects overseas, but these have been mainly related to developing and building a large number of waste heat recovery systems with Japanese partner Kawasaki.
For someone who has followed and visited Conch since the mid-1990s when the company and its visionary leader Guo Wensan started to expand its single plant facility close to Wuhu City on the Yangtze river some 300km upstream from Shanghai, there has always been a recognition that this domestic producer would set its sights high. This is now proven from a brief review of its production statistics that indicates for year 2010 production of cement reached 146Mt from a total of 79 kilns and 225 cement mills dotted throughout China's many provinces. In fact this put Conch virtually on a similar output level with the two global leaders Lafarge and Holcim last year and potentially on target to take the No 1 cement spot in 2011. Its profitability is also excellent with net profits surging by 74% year on year to RMB6.17bn (US$954m) in 2010, driven by increases in both local cement prices and sales volume.
News that Conch is set to enter Indonesia may not be good news for everyone. HeidelbergCement's Indocement operation which booked a net profit of Rp867.5bn (US$101m) in just the first quarter of 2011, representing a 10.3% increase from the same period last year may have something to say. Its earlier move to reduce its stake in Indocement significantly in June 2009 as part of its de-leveraging process, in effect reducing its holding by 14.1% to 51% (for a price of some US$350m) - the minimum level needed to retain its controlling stake was somewhat unexpected and this latest development may also bring about a rethink on its own local 2Mta capacity expansion plans, although an alternative scenario may see this German group now keen to buy back Indocement shares as markets remain buoyant over the short-to-medium term.
As an aside, those with longer memories may also remember the local fire-sale back in 1997-98 when the Indonesian government eventually realised just US$98m for its 13 per cent stake in the then financially troubled Indocement group. Who knows, perhaps Conch's possible arrival might soon start to breathe some new life into the local Indonesian market.
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