The FINANCIAL - Cement Market Narrows

Cement Market Narrows

Cement Market Narrows

The FINANCIAL -- Leader Cement, a new company in the cement industry, has entered into technical partnership with French company Lafarge, world leader in building materials, specializing in cement, construction and aggregates. Leader Cement is expected to become the main competitor of HeidelbergCement Georgia, which currently holds the leading position in the Georgian cement market.

“Lafarge is an international group that is managed professionally and is bound by the same capital market requirements regarding returns as any other international company,” said Michael Hampel, General Director of Heidelberg Cement in Georgia. “We see competition as a normal challenge. We are used to competing with foreign companies and we are convinced that with our high quality, and most of all with our experienced Georgian management, we have answers to every possible scenario,” Hampel added.

Whether or not Leader Cement will be the main competitor for HeidelbergCement will depend on Leader Cement’s ability to deliver quality cement for a reasonable price together with high service quality, says Hampel. “However, we are ready to defend our market share and safeguard our volumes and the jobs of our clinker workers and of our Georgian suppliers,” he said.

Prime Minister Irakli Garibashvili met different investors including Lafarge’s CEO Bruno Lafont, who is now leading the world’s biggest cement-maker after the merger of Holcim and Lafarge, in Davos on 22-25 January, 2014. The conversation touched on the topic of entrepreneurship development. Significant activity in the construction sector in the last decade has led to an increased rise in the building materials industry, including the sales of building materials. According to the Prime Minister, construction of large hydro-electric projects is planned, which, in turn, will lead to a rapid growth of cement and concrete consumption levels.

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“In the coming years, Georgia expects strong economic growth and heavy investment in the construction sector, especially in the development of infrastructure, to bring about a significant increase in cement and concrete consumption.”
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Representatives of the Lafarge company visited Georgia for the first time in 2006. In January 2014 Lafarge expressed its interest in investing in Georgia.

A world leader in building materials, Lafarge employs 64,000 people in 62 countries, and posted sales of EUR 15.2 billion in 2013. HeidelbergCement Group revenue reached EUR 14 billion in 2013. It employs around 52,500 people in 40 countries.

Now Lafarge has joined with Holcim, which is another big cement-maker company by revenues and has become a giant in the world’s cement producing business. The union of Lafarge of France and Holcim of Switzerland will create a giant firm worth around EUR 43 billion with operations in 90 countries and 20 percent of the global market outside China. At least four billionaires own shares in Holcim or Lafarge, including Egypt’s richest person, Nassef Sawiris, Belgium’s Albert Frere, Switzerland’s fourth-richest individual, Thomas Schmidheiny, and Georgia-born Filaret Galchev, according to data compiled by Bloomberg.

HeidelbergCement runs 9 concrete plants in Georgia. HeidelbergCement invested USD 160 million when it entered the Georgian market in 2006. The investment process continued for the plants’ modernization and expansion in West Georgia. The total investment so far is USD 374 million.

HeidelbergCement Georgia will continue to improve its operations and product offerings for the benefit of Georgian customers, according to Michael Hampel. “The key impact of the market entrance might be on the value chain of the cement industry in Georgia. As only the construction of a mill is planned, the new company will have to buy the pre-product clinker from another source. The production of clinker requires 90% of the workforce needed in the cement value added chain - for the cement milling itself only 10% of the workers are needed. If we now assume that the new company imports clinker from abroad then it is clear that this investment replaces clinker produced in Georgia and therefore endangers jobs in our country. This not only relates to the clinker production itself but also to suppliers of fuel and energy for the clinker production,” he said.

In July 2010 HeidelbergCement Georgia was facing serious problems with Azerbaijan, as the company exported the majority of its production to this neighbour country, which, after the opening of the Larsi checkpoint, banned production from HeidelbergCement. After the Azerbaijan market was closed the company experienced losses and consequently there is a high probability of plants having to be closed.

HeidelbergCement Georgia operates 4 cement plants in the Kaspi, Rustavi (2) and Poti regions. The company employs more than 1,200 people in its production companies in Georgia: HeidelbergCement Georgia (former SaqCementi) and Kartuli Cementi. Besides the cement companies, HeidelbergCement successfully operates in the concrete business line and owns the production company HeidelbergBeton Georgia.

“It is very difficult to predict price development in our market as this depends on the future pricing strategy of the new player. However, it is clear that Lafarge as an international group is bound by capital market requirements like generating an adequate return on invested capital. We have a good and sustainable cost structure in Georgia and as part of the HeidelbergCement Group we have access to a very strong network in neighbouring countries like Turkey,” Hampel added.

 

Author: The FINANCIAL

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