Lafarge re-assesses priorities in China

Lafarge re-assesses priorities in China
Published: 07 March 2006

For Lafarge, integration has become a top priority in China, says Asia Pulse. Last year it saw a rapid expansion through mergers and acquisitions. In November, Lafarge and Shui On Construction and Materials Ltd, a top cement factory in southwest China, formed a joint venture.
Lafarge has a 55 per cent stake, while its partner has the rest. Lafarge has taken on the management, while Vincent Lo, chairman of the Shui On Group, acts as chairman of the joint venture.

Later on, Lafarge Shui On bought a controlling stake in Sichuan Shuangma Cement Co Ltd. Lafarge Shui On quickly became one of the top three cement producers nationwide. Now the company has 14 cement plants and seven grinding stations in China. Its production capacity is noted at 17.4Mta.

"What we are trying to do today is to digest and integrate what we already had in the country," Cyrille Ragoucy of Lafarge told China Daily.

Ragoucy was appointed as the chief executive officer of Lafarge Shui On Cement in September. Before coming to China, he was president of Lafarge, eastern Canada. He led Lafarge’s largest acquisition in Canada - the purchase of Warren Paving & Materials Group in 2000.

According to Ragoucy, the current priority is to use Lafarge’s technical knowledge to improve Chinese plants and upgrade production facilities. This is aimed at increasing product value and reducing costs.

He said his goal was to make China the biggest region for Lafarge’s cement business and also ensure it is a profitable market. He added that the country is already one of the biggest markets for Lafarge.

Apart from Beijing, Lafarge’s cement production facilities are mainly located in the country’s southwest region, including Chongqing, Sichuan and Guizhou.

"With a population of over 200m, the region represents a huge market," Ragoucy said, adding: "The country’s ’Go West’ policy will help boost market demand for cement in the region."

Statistics show average per capita cement consumption in the region is around 300 to 400kg a year, compared with 700 kilograms for the rest of the country.

Lafarge plans to pour US$150m into the region "for business integration and facility expansion during the next two years," said Ragoucy.

Lafarge is now in talks to buy three cement plants in China’s southwestern Yunnan Province. If the deal goes smoothly, production capacity will reach 21Mta, further consolidating the firm’s leading position in the region.

However, "focusing on business integration in the southwest does not mean Lafarge will not do anything else," Ragoucy said. "We are always looking for opportunities here.’

He said China represents 25 per cent of the world’s cement market in terms of sales value, but 45 per cent in sales volume. The country’s cement market has been growing by eight per cent a year on average. Thus, "we have to grow at least nine per cent," Ragoucy said.

China now has more than 5000 cement producers, with most of them being small or middle-scale plants. Meanwhile, shrinking industry profit margins offer mergers and acquisition opportunities for foreign investors like Lafarge. Kong Xiangzhong, secretary-general of China Cement Industry Association, predicted small and middle-sized cement producers with an annual production capacity of less than 300,000t will be gradually forced out of the market.