Local cement market wobbles through lack of real estate investments

The Romanian cement market will drop by between 3 and 5 percent in 2013 as both residential and non-residential constructions stall. No growth perspectives are so far in sight for 2014, and should the industry lose its access to the EU’s free CO2 allowances scheme, the economic viability of doing business in Romania will come under threat, warn manufacturers.

Simona Bazavan

“In 2011 and 2012 we had a boost from infrastructure projects such as Corridor IV works, and we continued to benefit from some of these projects in 2013, but we do not see any infrastructure projects of significant size that would drive demand next year,” said Daniel Bach, CEO of Holcim Romania, last week. Alongside Carpatcement Holding and Lafarge Romania, the company is one of the main suppliers on the Romanian cement market.

Existing infrastructure projects were not enough to drive up the local cement market in 2013 either. Factoring in that the number of building permit applications for residential and non-residential buildings will fall again in 2013 as they have since the beginning of the crisis, Bach estimates that the local cement market will decrease by between 3 and 5 percent in volume. This means another year of decline after the market shrank by 0.2 percent in 2012 on 2011.

Earlier this year, cement manufacturers were hoping that the market would at least stagnate, but this has failed to happen. “I don’t think the Romanian construction market will ever again see annual increases of 7-9 percent like those posted over 2005-2008. But I am confident that a moderate yet stable and constant growth rate of about 1-2 percent per year is achievable,” Florian Aldea, general director and president of the board of directors at Carpatcement Holding, said in May. Judging from how things are looking at present, growth perspectives lie beyond 2014. “I would expect 2014 to be similar to this year in terms of activity. We don’t assume a further drop but we believe that the risk of decline is probably slightly higher than the possibility of growth,” added Bach.

Any positive impact could come from the non-residential sector, such as the development of industrial projects and logistics centers, but here too there is no certainty, as demand for this is fueled by export activities, which in turn depend on the economic evolution of Western Europe, Romania’s main export market.

Fall in free CO2 allowances spells disaster

Even if the economic situation turns around, should the European Union (EU) drop the free CO2 allowances scheme for cement producers, the market will come under considerable strain, thinks Holcim Romania’s CEO.

Industrial players in the EU have to buy certificates in order to emit CO2. At present, a number of industries, including cement producers, which are at risk of suffering a competitive disadvantage in relation to imports, get free certificates. EU authorities are presently reconsidering the list of industries to benefit from this between 2014 and 2020, and should cement producers have to pay for CO2 emission certificates their competitiveness will be driven down, said Bach, stressing the need for the local authorities to support their position in Brussels.

Cement imports already represent about 10 percent of the market, but this could go up even further, he warned. Local producers will see increased competition from producers in Turkey, Ukraine and Russia, who don’t have to bear such costs.

The continuation of the free CO2 allowances scheme is vital, stressed Mihai Rohan, president of CIROM, the Romanian cement producers association. “Otherwise we will build our infrastructure using Ukrainian cement,” he said.

The drop in free CO2 certificates is not the only energy related issue Holcim has faced. Last week, the company opened a EUR 15 million waste heat recovery installation for its factory in Alesd, north-west Romania. The investment will be recovered in ten years, forecasts the firm.

The installation produces electricity using the gases resulting from the cement production process, and will generate about 15 percent of the electricity the factory uses. It is the first of this kind in Eastern Europe, said Bach.

“There is an opinion that we should buy green certificates for the energy we produce in this installation, when it should be the opposite. Of all the green energy, what we produce is the greenest. We don’t see why we should be punished by having to buy green certificates for the energy we produce. I think they simply forgot to include this in the law,” said Bach.

Another local cement factory will open a similar installation, but if the authorities require producers to buy green certificates for the electrical energy they produce, there will be no incentive for them to make similar investments, added Rohan.

Dropping numbers

Holcim Romania will see its sales fall for a second consecutive year. This will be in line with the general 3-5 percent contraction of the cement market, said Bach. The company has increased prices this year (by 2-3 percent) but this will most likely not offset the drop in volumes, he added. On the other hand, Holcim says it will return to a similar profit level to the one reported in 2011. Last year Holcim Romania made a EUR 8.5 million loss, but much of this was generated by several write-offs, added the CEO. Last year’s sales brought EUR 213 in turnover, below the EUR 223 million reported in 2011 and considerably down on the EUR 372 million record level posted in 2008.

Holcim Romania owns two cement plants in Campulung and Alesd, a grinding station and a cement terminal in Turda, 16 ecological ready-mix plants, five aggregates plants, two special binders plants and a cement terminal in Bucharest. It employs around 1,000 people.

The factory in Alesd was built in 1969 and was bought by Swiss firm Holcim in 2000. Some EUR 178 million has since been invested in upgrading the plant. The company’s total investments in Romania amount to approximately EUR 700 million, making it the largest Swiss investor in the country.

simona.bazavan@business-review.ro

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