Central Asia. The Cement Industry of Kazakhstan
With 25 years of presidency, Nursultan Nazarbaev is one of the most long standing nation leaders in the world. Kazakhstan is one of the largest countries in the world behind only 8 other countries like China, Russia, Canada, USA, Australia, India, Brazil, and Argentina. The demographic density is low with the population of 18 million being scattered over 2.8 million square kilometers. The economy of Kazakhstan is largely dependent on oil and gas with a steady growth of GDP in the range of 1.5-4% since 2014. The country has a respectable $24 thousand of GPD per capita surpassing other countries in the Central Asia region. At the same time, this country demonstrates the slowest growth of GDP. Financially, the country is also dependent on Russian and the condition of Ruble. Despite trying desperately to sustain their national economy, the weakened Russian Ruble is still affecting the way Kazakhstan manages its budget and economy.
The Kazakhstan’s Cement Industry
As seen in the figure, Kazakhstan has a capacity of producing up to 11.85Mt of cement per year. One of the most notable facilities is SAS-tobe of BaselCement group. This plant has a capacity of 350 thousand tons per year and focuses of manufacturing white cement. In 2015, Kazakhstan announced their plans to expand their cement production industry adding 8.1Mt tons per year from three additional cement manufacturing facilities.
Kazakhstan is an open country when it comes to collaborating with international business. World’s most well-known cement manufacturers are presented in this country. ItalCementi (Italy), HeidelbergCement (Germany), and Huaxin Cement (China) have all found home in Kazakhstan. At the same time, Huaxin Cement is partially owned by LafargeHolcim group which controls nearly 40% of the company. The domestic powerhouse in the industry is Kazakhstan’s United Cement Group often abbreviated to UCG. One of the biggest UCG’s cement plants in Semey is capable of producing 1.2Mt per year.
2 years ago, Nursultan Nazarbaev started a new governmental initiative known as “The Bright Path”. This new program includes massive investments to sustain the domestic industry and ensure the growth of the economy in the nearest future. The cement industry is also one of the pivotal focuses of the program. Kazakhstan plans to improve the industry in a variety of ways.
The domestic demand for cement is not yet fully covered, but Kazakhstan is more than determined to change this in the nearest future. With their plans to expand the industry with modern facilities, this expectation can be easily achieved. For example, one of the plants is to be launched in Rudny with the installed capacity of 500 thousand tons per year. The list of upcoming plants includes a very powerful facility by Kokshe Cement with a planned capacity of 2Mt per year. At the same time, the government is determined to ensure that other plants are modernized according to the contemporary standards.
Another considerable issue is that the allocation of manufacturing facilities is not even across the country. The majority of plants are situated in the eastern part of Kazakhstan leaving other regions dependent on imported construction materials.
Due to the lack of financing, the cement plant in Rudny is not yet operable with the increase of initial budget to $55.8 million. It is hard to predict whether the facility will be ready to join the industry by the end of 2016. Other plants are also only in plans. The goals of the government are clear. The only question is whether the government is capable of living up to expectations.
Note that the country is steadily increasing its cement consumption by at least 4% per year. The expected annual growth of the domestic cement demand is near 3% per year. At the same time, over 25% of cement used in Kazakhstan is imported (1.1. million tons) and only 500 thousand tons is being exported. Interestingly, the export grew by a whooping 150% margin compared to 2012.
Both 2014 and 2015 were rough for cement manufacturers in Kazakhstan. For example, Steppe Cement announced that their production volumes increased by over 18% (1.6 million ton) and the revenue increased by 7% ($114 million). However, due to the weakening of the Russian Ruble and Kazakh Tenge, the company has lost over 13$ million. There are multiple factors that make operations in the country less profitable. Namely, oil prices are dropping and cement prices also do not go up. Despite being in the negative zone, the company is still quite satisfied with the results as the increase in production allowed them to take a bigger market share. A troubling report from ItalCementi showed that their operations are not expanding and that they suffered heavy losses dropping the revenue to $41 million in 2014. The company is not in the negative zone due to tax cuts and administrative expense management, but their perspectives are not the brightest either.
While the volumes of production are growing steadily, the sales are leaving a lot to desire. Steppe Cement reported that during the first half of 2015, they managed to sell 1.16% more cement, but it is less than in the same period in 2014 by more than 9.2%. The company suffered a severe revenue drop in 2015 reporting a 4.27% decrease in their numbers.
The Future of the Cement Industry
In 2014, Kazakhstan announced their desire to expand the industry and install several new facilities all over the country.
ItalCementi started its upgrade program regarding the facility in Shymkent. After receiving a sizeable loan from the European Bank for Reconstruction and Development ($21 million), ItalCementi immediately started renovating their facilities in Kazakhstan. The company plans to increase the output of the factory to 1.6MT per year. In order to gather more finances, the company sold 21% share in the facility to EBRD. The project will finally substitute multiple wet-production line with a more efficient in terms of energy dry-process.
During the spring of 2015, Semey Cement showed a respectable growth of production reporting that the facility reached the capacity of 1Mt per year. This plant is more than safe as it is the main contractor for the road construction program within the limits of the “Bright Path” initiative.
A new cement plant is planned in Almaty. The initiators are Nurzhan Shakirov and Singapore Compact Metal. The agreement is still vague and does not go beyond planning as of right now.
One of the biggest announcements that happened in 2015 was that Kazakhstan and the famous Vicat group will collaborate to modernize and expand the facility in Zhambyl. It is possible for the plant to double its output and produce over 2.2Mt per year. One of the biggest focus points will be the technology as the facility needs new equipment and better management methods in order to return the investments. At the same time, Vicat plans to cooperate with the government of Kazakhstan on a new terminal in Astana. The terminal will act as a packing and distributing center as well as a research facility. The estimated cost of the terminal is $10 million.
Huaxin Cement also announced their plans to further expand their presence in the region and build an impressive cement plant with an installed capacity of 5Mt per year. However, no details were added.
Later in 2015, Gezhouba Cement Group announced that the company plans to collaborate with Dan Ake corp. in order to build a new cement facility with an expected capacity of 1Mt per year. The construction of the facility has started and we will have to wait for further updated on the process. Gezhouba Cement believes that the conditions in the region are perfect for the business.
HeidelbergCement Acquires ItalCementi
In July 2016, HeidelbergCement acquired 45% share in ItalCementi. This made the German company the biggest cement manufacturer in the world and allowed it to seamlessly enter new markets including Canada, USA, France, and many others. Note that HeidelbergCement is a big player on the international arena and had to relocate a lot of their financial and infrastructural resources in order to avoid further restructuration.
The shares of ItalCementi will be bought by Heidelberg from external investors for the same price. Nothing will change for other shareholders.
Note that Kazakhstan has both Heidelberg Cement and ItalCementi facilities which are responsible for over 4Mt of cement production per year and over 37.5% market share. At the same time, 4MT per year is roughly 44% of the overall cement production in the country.
Kazakhstan may interfere with the operations of the company in the country due to their anti-monopoly policies. However, no actions have been made against HeidelbergCement so far.
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