Highlights spoke with Dr. Albert Scheuer, Member of the Managing Board at Heidelberg- Cement, who shared his thoughts on the current state and future of the cement industry.
What challenges are the cement industry facing in the coming years?
One challenge is obviously the overcapacity that has been built over the last 10 years. In some markets, such as in Asia – China in particular – we are facing oversupply. This means that the time for building a lot of greenfield plants is over – at least for now. The current clear trend is modernisation and consolidation – building brownfield plants or modernisation of existing large production lines while mothballing older, smaller, inefficient production lines.
At the same time, export prices have fallen practically to marginal cost. In coastal regions, clinker is very cheap, because of low freight costs and overcapacity in clinker production. This is something the supplier industry must face, because there are fewer orders for greenfield plants, but it's also something cement producers have to deal with, largely because cheap clinker is available in many coastal regions around the world.
Another main challenge is of course the environment. Energy efficiency and climate protection are big topics for the cement industry. The high energy requirements make the enhancement of energy efficiency vitally important from both economic and environmental protection perspectives. Moreover, cement production processes by their nature lead to high levels of CO2 emissions. Our industry has continually reduced these emissions over the past years and will continue to implement the associated measures in the future as well. Such efforts will also trigger the development of new technologies, such as, but not limited to, new CCU (Carbon Capture and Utilisation)/CCS (Carbon Capture and Sequestration) technologies and new products with a lower CO2 footprint.
The cement industry supports international CO2 reduction targets and initiatives as well as policies designed to slow global warming – provided that such initiatives and policies ensure the same competitive conditions for the manufacture of building materials. A mere shifting of CO2 emission sources is not wanted. Nevertheless, I believe strongly that concrete is an excellent building material due to its durability and formability, its insulating effects and its availability in large volumes at an affordable price. The high level of building standards in the modern world would not have been possible without concrete. Our challenge in the coming years is to make its production more sustainable.
How is HeidelbergCement affected by the current cement market?
One of the key principles guiding HeidelbergCement employees’ daily work is the idea that ’all business is local business’. It’s not just that the success of our business operations is largely determined by the development of local markets. Also of major importance is the fact that we can gain social acceptance for our business activities, if we work to ensure the continued well-being of the people and the environment in the communities where we operate. Last but not least, it’s our customers who count and need full management attention.
So, there is not one common market, but there are several markets with different players. The recent past was obviously characterised by consolidation of large international players such as Lafarge and Holcim as well as HeidelbergCement and Italcementi, but also on a local level in India and China. At the same time, local players had increased their investments in emerging markets, and new capacities came at a time when markets were slowing due to declining raw materials prices. HeidelbergCement is staying focused on its strengths in operational efficiency and customer orientation to cope with this environment.
On the other hand, the task to significantly reduce our CO2 footprint and with this, develop new technologies and products, is the same worldwide. For this, worldwide cooperation of practically all cement players and the related industries in tackling the task is essential. We must bundle our resources to be successful. Current discussions to found a World Cement Association are in that regard moving in the right direction.
What excites you about the cement industry?
It is an industry where individuals can have a high impact on results. As a young manager, for example, you can aspire to P&L responsibility already early in your career. In other industries, such as machinery or hi-tech, you might end up in a large office building with thousands of other engineers, and you might not know what you are working for. For engineers and indeed for other disciplines, if you are a motivated person, your work is very visible and you can feel the success. This has excited me throughout my career, and was the reason I joined the industry.
Why is the cement industry attractive to investors?
The demand for cement is driven by fundamental long-term trends including population growth, urbanisation and a growing middle class. Without cement and its end product concrete, the economic development of countries would not be possible. Concrete is the second most widely used material after water on our planet. It is more durable than wood, more energy-efficient than steel, and available in large quantities at a reasonable price. And you can recycle it, of course.
Cement and aggregates producers extract their raw materials from quarries and refine them by applying industrial processes. If the plants are well located with respect to raw material reserves and sales markets and if the operations are managed well, producers can earn decent profits and a premium on their cost of capital, as HeidelbergCement has in the past two years. As a consequence, investors may benefit from dividends and share price performance. The strategic priorities of HeidelbergCement, for example, are increasing shareholder returns and continued growth.
What opportunities are yet to be taken in the industry?
Each country has its own opportunities, so that is of course a difficult question to answer. But in general, the cement industry is behind other industries in the application of IT and science. For example, in high-wage countries, we could invest more in the automation of plants. The key word here is unmanned production.
We could also apply more advanced technologies in maintenance procedures, such as with Condition-based Maintenance (CBM). I don’t believe we are realising the true potential of the knowhow in that regard in our industry.
We need much greater use of internet enabled technologies and IT. Advanced sensor technology will help us to do so. Sensors are not new, but they simply haven’t been reliable enough in the past. We introduced the logic for running plants with sensor-based technology already 25 years ago, but the technology wasn’t reliable and IT infrastructure not fast enough. Today, there are no limits any longer.
There are huge potentials for our industry in digitalisation. That said, the cement industry should make a step forward, even if application of such technology does not pay off at once. Equipment suppliers on the other hand have to take care not to miss the boat, but to invest in innovation. Currently, our industry might appear a little bit like old-tech to young people and they might prefer to work in high-tech. This is one of our industry's challenges – and an opportunity.
At the same time, we always need to strive to achieve greater cost efficiencies by developing technologies that make this possible.
The other area of technological development is environmentally friendly technology, as I mentioned earlier. In the future, it should not be necessary to discuss dust, CO2 and NOx emissions. And in 30-50 years, CO2 emissions may be a thing of the past. In fact, we even already discuss the idea of selling CO2 as a product – that is the vision.
Where do you see the industry in five years?
The well-performing cement companies will look to continue improving their financial performance. And I believe HeidelbergCement is one of those companies. This will likely lead to further consolidation in the market, which is of course also driven by external factors, such as environment issues and market forces. The strong will survive.
If we look even further to the future, I think the next major milestone will be achieving so-called CO2-free production. There is political pressure for the industry to achieve this by 2050 – which is why we are highly focused on this at HeidelbergCement. I expect we will apply a lot of new technologies in the next 30 years.
What variations do you see in different global regions?
In China, I expect a lot of capacity will be mothballed, because the country will not need such high supply of cement forever. Estimates of capacity reductions range from 0.5 to 1.5 billion tonnes of cement capacity. In this context, plants with poor environmental performance and small inefficient plants will be shut down.
Africa and other parts of Asia, however, will in the long run need more capacity, such as but not limited to India, Pakistan and Bangladesh. One of India's and Bangladesh’s special challenges is the long term scarcity of limestone.
Europe and the US will need modernisation and consolidation of old production lines. I expect that the number of kilns will decrease significantly in such regions and only a few large, environmentally friendly production lines, especially in landlocked areas will remain. In coastal regions, there will be a need for more grinding units.
What are some defining moments in your career to date?
I considered becoming a plant manager quite early in my career as a defining mile stone. I have always been open for new things and transparent to my employer about what I want and what I don’t want.
When the company asked me to help, I always helped. I was often the person assigned to special or difficult cases or projects – and this led me to a lot of interesting assignments in my career.
What do you like most about your work?
Today in my current job, I have a big mix of operations, technology, R&D and environmental sustainability initiatives as well as strategic projects. We have a strong project management culture at HeidelbergCement, which I enjoy. I am involved in many projects with mixed teams around the world. If I can achieve success together with my colleagues – or my colleagues can achieve success in such project teams, I'm happy.
At Group level, we have a lean management team and we have strong teams in the countries. They are all a source of inspiration for me. It's not me, but them; it's about teamwork, bringing the right people together for the maximum effect.