Cement industry in Germany, an industrial powerhouse

Germany has a large and efficient cement industry. In addition to major multinational cement producers, there are a large number of successful independent cement producers in Germany. Since the 2008 financial crisis, German cement production has been maintained at a low level of the "new normal", which is also a typical performance of the developed economies in Europe. This article will show the latest format of the German cement industry.

First, the demand for cement in Germany is stable .

From the trend chart of cement shipments in Germany from 1996 to the present, we can see that the total cement shipments in Germany have declined significantly since the beginning of the 21st century. Over the past 17 years, German cement industry shipments have fallen by 28%, from 35.8 million tons per year in 2000 to 25.6 million tons per year in 2016. In East Germany, where demand for cement has fallen sharply since the 1990s, the adverse impact of population and taxation on the housing construction industry, as well as the limited government infrastructure expenditure so far, are the main reasons for the decline in cement demand in Germany.

Figure 1: Cement shipments of German VDZ members, 1996-2016 (million tons)

Source: German Association for Cement Engineering (Verein Deutscher Zementwerke, VDZ)

Figure 2: Monthly cement shipments (million tons) Figure 3: Year-on-year and cumulative 2015-2016 (%)

Data source: German Cement Engineering Association

Figures 2 and 3 show the monthly cement shipments of German VDZ members in 2015 and 2016 and the changes. We can see that German cement shipments have obvious seasonality, which varies with temperature.

Such low levels of demand have barely budged since 2002. German cement shipments fell from 25.3 million tons in 2014 to 24.8 million tons in 2015, and rose slightly again to 25.6 million tons in 2016, mainly due to a slight recovery in the German construction industry in 2016.

Two, giants gather together, and independent manufacturers also have market positions .

2.1 HeidelbergCement

Heidelberg Cement is the largest cement producer in Germany and the third largest cement enterprise in the world. At present, Heidelberg operates eight integrated cement plants in Germany, with a total capacity of 7.6 million tons per year. Heidelberg's cement production capacity in Germany accounts for 24% of the total production capacity in Germany.

In 2016, Heidelberg expanded by acquiring Italian Cement, another multinational cement company, which also enabled Heidelberg Cement to acquire nearly one third of its total cement production capacity of 193 million tons per year. The integration of the two companies is still at an early stage, and although their global sales and profits have improved according to the current performance report, there are still challenges in the merger process.

The effect of the acquisition is obvious. In 2016, Heidelberg Cement's operating income increased by 13% to 15.2 billion euros compared with 13.5 billion euros in 2015. Its cement sales rose 28% year-on-year to 104 million tons from 81.1 million tons in 2015, and its operating profit rose 7% year-on-year to 2 billion euros from 1.85 billion euros. However, if we consider the two companies, in fact, the total operating income of the two companies is slightly lower, in addition, the growth of sales volume and operating profit is not so obvious. It is reported that Heidelberg's situation in Germany has improved slightly, but its position in Germany has not changed because of the acquisition, because the Italian cement acquired by Heidelberg has no assets in Germany.

Figure 4: Production capacity of main cement enterprises in Germany

Source: GlobalCement Directory 2017, China Cement Research Institute

In November 2016, the rating agency Standard & Poor's adjusted Heidelberg's rating to BBB-/A-3, and Heidelberg's long-term operating conditions improved. Improved creditworthiness and strong business performance after Heidelberg's acquisition of Italcementi are the main reasons for S & P's change in its investment rating. The acquisition also strengthened Heidelberg Cement's position in the international market, and its market expanded to more regions. Bernd Scheifele, chairman of HeidelbergCement, said: We are very pleased with the positive rating change from S & P. This is a Testament to Heidelberg's current strong business performance, coupled with continued recapitalization in recent years, which has resulted in continued improvement in cash flow.

According to the first quarter report of 2017, Heidelberg continues to integrate the assets of Italian Cement into the group company, and the sales performance of Asian and African markets is still poor, such as Thailand, Bangladesh and Egypt. Sales revenue in the first quarter remained stagnant at 3.78 billion euros, and its cement sales remained unchanged at 27.8 million tons.

In July 2017, Bernd Scheifele, chairman of Heidelberg Cement, acknowledged that the company needed to take action to improve its overall sustainable development after the acquisition of Italian Cement. At present, the CO2 emissions per ton of cement produced in Heidelberg and the use of blended fuels have decreased. During the reporting period, the emissions of nitrogen oxides and sulfur oxides have also decreased, but the dust emissions have increased. In addition, although the number of employees in HeidelbergCement has increased from 9560 in 2015 to 15781, the frequency of accidents has improved.

Figure 5: Contribution ratio of alternative fuels in Germany (%) Figure 6: Proportion of cement kiln fuels in Germany

Data source: German Cement Engineering Association, China Cement Research Institute

As a result of the oil crisis of the 1970s, Germany became a pioneer in the use of alternative fuels in the cement industry. Since the 1990s, there has been a significant increase in the use of alternative fuels. In 2005, the utilization rate of alternative fuels in Germany was as high as 50%, and by 2015, the utilization rate of alternative fuels in Germany increased by 14.6 percentage points to 64.4%.

  2.2 Dyckerhoff

Dyckerhoff is a part of Buzzi Unicem in Italy and the second largest cement producer in Germany. At present, it has five integrated cement plants in Germany, with a total capacity of 4.5 million tons per year, accounting for about 14% of the total national capacity. In addition, the company has three grinding plants in Germany.

As a whole, the annual report of Buzzi Unicem in 2016 shows that the overall net income of Buzzi Unicem in 2016 was 21 million euros, an increase of 0.3% over the same period in 2015. Its earnings before interest, water, depreciation and amortization (EBITDA) were 551 million euros, up 16.4% year-on-year, an increase of about 77 million euros.

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Due to the growth in German cement demand in the second half of 2016, Dyckerhoff's cement shipments increased by 3.4% compared with the same period in 2015. Its overall sales fell slightly from 573.6 million euros to 572.4 million euros, a slight decrease of 0.2%, but EBITDA increased by 6.6% to 76.8 million euros from 72.1 million euros in 2015.

Figure 6: Distribution of cement manufacturers in Germany

Source: GlobalCement Directory 2017, China Cement Research Institute

2.3 LafargeHolcim

LafargeHolcim is the third largest cement company in Germany. It has four integrated cement plants in Germany with a total capacity of 4.3 million tons per year, plus a grinding plant in Bremen in the north, accounting for 13% of Germany's total capacity.

Globally, Lafarge's net sales fell 8.7% to 24.4 billion euros in 2016 from 26.7 billion euros in 2015. Its EBITDA rose 12.9% to 4.76 billion euros, with a net profit of 1.74 billion euros. The group reported that its sales in Germany remained "stable" in 2016, with EBITD improving due to lower costs, mainly due to increased orders for housing, commercial and public businesses.

2.4 Schwenk cement (Schwenk Zement)

Schwenk Cement has four integrated cement plants in Germany, with a total capacity of 4.1 million tons, accounting for 13% of the total capacity in Germany. As the company will acquire a 1.4 million tons/year integrated cement plant of CRH in Karlsdorf, Ireland, in September, its capacity will be expanded by 34%, and the total capacity will increase to 5.5 million tons/year. As far as the current market is concerned, if there is no change, Schwenk Cement will replace Dyckerhoff in the second place in the German cement industry, following Heidelberg Cement. However, the deal will still be subject to German market regulations, pending approval by the relevant authorities.

Local media reported that after the announcement of the deal, many factory workers were worried that their job prospects would be affected. Schwenk Cement already operates an integrated cement plant in Saxony-Anhalt, the Bernburg Cement Plant, and the company is likely to close one of the plants after the deal is completed. Globally, we have seen many similar transactions in the cement industry. This uncertainty is inevitable, and the workers in Karlsdorf have already experienced similar events. When Lafarge and Holcim merged in 2015, they sold their factory in Karlsdorf to Ireland's CRH to meet regulatory requirements.

2.5 Ireland CRH

CRH operates Opterra, a local cement brand in Germany, with two integrated cement plants with an annual capacity of 3.1 million tons per year, accounting for 10% of the total capacity in Germany, and also operates the grinding station in Sotenich, North Rhine-Westphalia. As previously mentioned, following Schwenk Cement's purchase of the Karlsdorf plant in September 2017, CRH's capacity in Germany will be reduced by 1.4 million tonnes per year to 1.7 million tonnes per year.

2.6 Cemex , Mexico