Cementir’s strategic options

Cementir’s strategic options
Published: 13 August 2004

The announcement that Cementir is to take over Aalborg Portland in Denmark and the Danish Unicon ready-mix business, might provide some refreshing news for the independent cement sector, although this acquisitive Italian cement group may have to tread carefully if it wants to think about longer-term advancement and profitability.

Cementir has for many years provided a steady stream of exports from its Italian operations to independent buyers into both southern and northern European markets and this new Danish export source could enhance such trade flows at a time when worldwide cement and clinker supply availability is getting tighter.

The Aalborg plant currently produces some 2.1Mt of grey cement of which around 1.4Mt is sold on the Danish domestic market and the balance, some 0.7Mt sold for export. In most recent times such exports have found their way into the UK (mainly Lafarge), Ireland and other Northern European destinations.

With respect to its white cement facilities, the Aalborg plant currently has the capacity to produce about 0.6Mt of white cement annually with actual sales last year put at 0.5Mt, virtually all of which is exported worldwide, but with the majority going into the US, some 300,000tpa, where Aalborg has a sizeable stake in Lehigh White Cement, along with Cemex and HeidelbergCement. Much of the balance sold into Europe.

Cementir, Italy’s fourth largest cement maker, said it will finance the acquisition with €200m in cash and use debt to pay for the remainder. But what happens now with Cementir in charge at Aalborg could prove interesting.

In terms of revenues, the Danish market with some 1.5Mta of annual sales remains vitally important for its grey cement business (and also for Unicon) and it could soon come under threat from neighbouring suppliers in Germany and the Baltic, particularly if it starts to rock the boat with higher regional export sales to the European independent sector.

The white cement sector is also more than a little ’stressed’ at present with Aalborg, Cemex and Cimsa jostling for market share in the southern European arena and Aalborg very much dependent upon its supply contracts into the US with both HeidelbergCement and Cemex.

Cementir has also inherited some useful grey cement capacity in Iceland and a captive market there, while further afield it is a majority shareholder in Sinai White Cement, Egypt and the smaller Aalborg RCI White facilities in Malaysia. Whether Cementir will shortly dispose of this latter facility to a local Malaysian player is one option, although the new Sinai white facility, with its ability to export into both the Mediterranean basin, Africa and the Middle East would seem too valuable to trade for a quick cash return.

While Cementir has, on the surface, more sales and profitability options open to it, in opting for a US$725m purchase of Aalborg it may have little room to manoeuvre if it wants to realise its investment returns as quickly as possible.

With added stature in the industry comes greater responsibilities. Independent cement buyers looking for new Danish longer-term cement deliveries might be advised to put their orders in now.