November 14, 2011
Title: Hard times in the cement industry
Sub-title: Despite hopes stemming from huge infrastructure projects the cement industry is struggling to deal with new challenges.
You’d think that crumbling infrastructure in Canada and in the United States, and resulting initiatives to build new roads, bridges and hospitals, would signal new hopes for the country’s cement producers. However the industry continues to navigate a variety of challenges and opportunities on the business, economics and export fronts and companies are struggling to adapt.
“The strengthening dollar and the US recession, has considerably dampened demand in the industry’s largest export market,” notes Michael McSweeney, president and CEO of the Cement Association of Canada. “This has been exacerbated by challenges from importers, who are now grabbing an increased share of the domestic market.” Earlier this year, cement production in the United States hit a 28-year low, and with production facilities there idle, it is hard for Canadian reps to get a hearing from clients.
Here in Canada the picture is not much better. Production has fallen from 14.4 million tons in 2007, to just 11.6 million tons in 2010, and this year, is expected to slip further, to an estimated 11.0 million tons. The strong loonie not only makes local goods more expensive in export markets, it also gives Canadian cement consumers more purchasing power on international markets, making imports relatively cheaper. Nowhere is this more apparent than in British Columbia, where according to McSweeney, imported cement now accounts for 24 percent of consumption, up from just 3 percent in 2007.
Making a better case on the environmental front
The industry took another big blow earlier this year after the Quebec government announced that it would favour wood use over concrete in construction, for environmental reasons. McSweeney challenges the Quebec effort and similar moves, which he characterizes as just plain bad business. “These types of initiatives only serve to push production overseas, into jurisdictions where environmental oversight is less of a priority,” says McSweeney. “Furthermore, they are often based on inadequate or incomplete assessments.”
McSweeney cites government purchase decisions regarding road construction, which tend to specify asphalt use in bid documents, despite the fact that concrete roads have a significantly longer durable life span, which more than make up for possible cost differentials. (Asphalt prices are heavily tied to oil prices, and when these rise above $70 per barrel, concrete roads are cheaper even on a straight-comparison basis).
Beaudoin Nizet, a senior vice-president (Quebec and Eastern Canada) at Holcim (Canada) Inc. agrees that assessments regarding cement use need to be more thorough. “Analyses of wood constructions generally don’t take into account the total lifecycle costs of these initiatives,” says Nizet. “For example concrete homes are generally cheaper to heat in the winter and cheaper to cool in the summer. You need to include these data, when determining overall environmental impacts.”
Quebec presents an interesting case in point regarding industry challenges. The province’s cement plants are currently operating far below capacity (two million tons per year compared to a possible three million tons). Much of the weakness stems from a significant drop in residential construction in the province, a sector which absorbs close to 40 percent of cement output. Nizet also notes that cement from Asia, which hardly appeared on the radar screens five years ago, has now grabbed an estimated 12 percent of the Quebec market
Ontario, which accounts for close to 40 percent of the country’s cement output, is having troubles of its own. Capacity utilization remains low, and the industry is also having troubles on the environmental front, notably in getting approvals to open new quarries. “Contrary to what you may have heard in the news, there are many pit and quarry license applications in the works right now, and approvals in process,” says Noreen Miller, president of the Ontario Stone, Sand & Gravel Association. “However the province continues to grow at a rapid rate, which means demand for aggregates near expanding urban areas continues to be strong.”
The challenge says Miller, is that transportation expenses form a huge percentage of overall aggregate prices. “Half of the product costs consist of moving it from where it is extracted to where it is used,” says Miller. “That means the pressure to develop resources that are close to where they are used is high.” This presents the industry with two challenges in getting mine approvals. The first is that Ontario’s rapid expansion means that potential resource sites often have multiple alternate uses, ranging from agriculture to residential housing developments. The second is educating environmental activists, who are often unaware of how responsive the mining industry can be to local concerns when developing new resources.
A focus on innovations
One way that cement companies are trying to respond to recent challenges is by focusing on innovation, in particular to help reduce the industry’s environmental footprint. For example in October the industry announced a new, environmentally-friendlier product named Contempra. The new compound includes a 15 percent ground limestone content limit (compared to the previous 5 percent limit) and has many of the same features as traditional mixtures, but creates a smaller environmental footprint.
Contempra, which promoters say cuts CO2 emissions by 10 percent, recently got approval from the Canadian Standards Association as well as recognition in the Quebec and Ontario building codes, for use as an alternative to ASTM C150 equivalent or CSA General Use powder.
However according to McSweeney industry can only do so much and that to reach its potential, it well need help on the public policy front. “If governments can coordinate their efforts on the environment to create a more simplified and level playing field, and to bring in fairer tax policies, recovery in this sector could recover much faster.”
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Peter Diekmeyer Communications Inc.