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- Title: Emission trading and the cement sector
- Author(s): Last month we presented the first article dealing with the impact of emission trading as seen by leading analysts. This month, emission broker James Emanuel of Evolution Markets, London, discusses the impact that emission allowance trading will have on the European industry, and offers advice to companies preparing to deal with the new legislation.
- Synopsis:
- On 25 October 2003, a European Directive designed to reduce greenhouse gas emissions came into force. The Directive will see the establishment of a pan-European trading scheme that has been designed as the most flexible means of reducing the greenhouse gas emissions that are blamed for climate change.
In the cement manufacturing process, pyroprocessing accounts for 81% of the CO2 emissions associated with the use of cement and concrete. Pyroprocessing currently generates nearly 0.97 t of CO2 for each tonne of cement produced.
The new legislation will result in the emission of each tonne of CO2 bearing a cost for industry. This cost will be an added production cost for the cement sector. The exact price of a tonne of CO2 will not be fixed. Instead it will fluctuate depending on where the best opportunities for emission abatement exist and if those opportunities are being taken. Current estimates fall within a wide range of E5 to E25. However, for the purpose of forward planning, a cement company will be able to utilise market mechanisms to synthetically fix the price of a carbon allowance several years into the future (further explained under the section ‘How to use a market’). Given that cement production currently generates high levels of greenhouse gas emissions, this is an issue that the industry will want to address as soon as is practicable.
- Title: Freight market: burden or opportunity?
- Author(s): Robin Thomas, Simpson, Spence & Young Ltd, UK, looks at the various factors that have resulted in the recent unprecedented rise in freight rates.
- Synopsis:
- Any company relying, even to a limited extent, on sea freight to move their commodities around the world within the last 6 - 12 months has been seriously affected by the jump in rates. The daily Baltic Handymax Index, for example, averaged US$14 810/day in 2003 compared to US$7978/day in 2002 (+86%), although this masks the fact that timecharter rates at the end of the year bore no relation to those at the beginning. The Index was consistently over US$20 000/day from mid-October 2003 onwards and peaked at US$35 000/day in mid-March 2004.
This article will look at the various factors that have resulted in this unprecedented rise in freight rates. Before doing so it should be stated that according to simplistic economics, the freight market is very easy to understand; rates are a pure function of supply on the one hand and demand on the other. In practical terms, this can be translated into the availability of ships, both in the existing world fleet and on order at shipyards, and in the demand for basic commodities such as electricity, steel and grain.
However, the analysis becomes considerably more complicated by the sheer number of factors that influence the shipping market. These comprise the full range of commodities carried by ships; the number of countries and companies engaged in freight business; and economic factors that have a regional impact on the supply of raw materials or the demand for finished goods.
- Title: Cement trading in Asia
- Author(s): At the 6th Asia Cement Markets Conference, held in Bangkok in March, Taiji Ohta, Vice President of the CTI Group, presented a paper on trends in international cement trading in Asia. The following is a slightly abridged version.
- Synopsis:
- In the years following the 1997 Asian crisis, Thailand became the main cement exporter in Asia, followed by Indonesia. This was due to the large excess capacity created in these countries as a result of the economic slowdown. Since then, domestic demand has been gradually improving in these countries, and producers are now reducing production by shutting down certain kilns according to local demand. This new wave of adjusting supply by reducing production capacity may have been influenced by the appearance of global cement producers in Asia after the Asian crisis.
In the past, Asian cement producers, particularly Japanese producers, thought it better to maximise their production in order to increase their operation ratio. To this end, they believed export to be a good tool for maximising operation ratios, as even if they could only achieve a low FOB price it might be sufficient to cover direct production costs. However, this scenario does not harmonise with the current market. The author has heard from many people involved in the export market asking why Japanese producers were selfishly dumping cement at their discretion, even though it was destroying the market.
- Title: Global economic trends
- Author(s): Dr. Norbert Walter, Chief Economist Deutsche Bank Group, Germany, discusses the current macroeconomic environment and prospects for the building industry.
- Synopsis:
- After three dismal years the global economy is back on track, producing growth rates last seen in the heyday of the New Economy boom. Since mid-2003, industrialised countries have been expanding at an average annual rate of close to 4%. World trade was up by nearly 7% in Q1 2004. In the G3 economies, investment in machinery and equipment increased by 8.5% yoy in Q1.
The synchronous global upswing was led by the US and China with positive effects on Japan as well as many emerging markets, while continental Europe continued to lag behind. However, the world economy has achieved enough momentum to start pulling European economies out of their domestic anaemia. The majority of the Central Eastern European Countries, some economies in Latin America and the OPEC-countries in the Near East continue to benefit from the improvement in their terms of trade generated by increases in international commodity prices.
Looking forward, a key question is the sustainability of the recovery in the near term and beyond. With oil prices rising and monetary and fiscal stimuli fading, the pace of world economic activity has shown some signs of slowing down recently. However, all in all, global economic prospects remain favourable.
- Title: China surges on
- Author(s): Paul Maxwell-Cook, Managing Editor, World Cement, spent a few days in Beijing for the launch of the new magazine WORLD CEMENT CHINA and collected some local information on some of the developments that are shaping the country’s future.
- Synopsis:
- Last month the National Bureau of Statistics declared that China’s economy grew by 9.5% last year. The Chinese government has been working hard to cool things down and there are signs that the rate of growth is slowing, albeit not by much. A recent issue of China Economic News predicted that GDP growth will only fall to about 8% this year. It calculates that consumption increase was one of the important factors in lifting China’s economy last year, and it is set to continue through 2005. Total retail of consumer goods is estimated to reach RMB 5803 billion this year, up 9.5% on last year. Growth of foreign trade is forecast to slow, but still likely to remain at about 20%.
In recent years the engines of employment growth have been construction and services. In particular the construction industry has been booming; much evidence of which can be seen in the major cities such as Beijing and Shanghai. While, for example, Beijing still retains much of its historical past: the Forbidden City, Tiananmen Square, the silk markets and the hútongs, its skyline is rapidly changing as hotels and office blocks now dominate. McDonalds China can be seen alongside the old restaurants, while western-style department stores sell the latest in Gucci, Armani, Christian Dior plus a whole range of other European fashions, accessories, and goods.
- Title: Malaysia’s Market
- Author(s): David Hayes discusses the current market in Malaysia and looks ahead to prospects in 2005.
- Synopsis:
- During the boom years of the early and mid-1990s, the cement industry was a thriving business in Malaysia. Consumption more than doubled from 7.2 million t in 1991 to a peak of 17.5 million t in 1997, with large national construction projects such as the new KL International airport that opened in 1997. When the Asian financial crisis struck in the same year, the ensuing economic slump caused consumption to plummet 37% to 11.1 million t, a downturn that continued into 1999 when consumption fell a further 15% to 9.4 million t.
Despite the country’s rising cement demands in recent years, the industry’s recovery appears to be slowing once again, as a decline in new government contracts and the completion of several major infrastructure projects have caused demand to slacken over the past 12 months. What can be expected from the Malaysian cement industry in 2005?
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