Australia’s largest importer of cement has taken a stake in a Malaysian producer in a move that it says will in the immediate term lock in supply of premium white cement but which in the longer term also gives it exposure to the growing Asian market.
Adelaide Brighton Cement’s $US29.7 million purchase of a 30 per cent stake in Aalborg Portland Malaysia, along with the continuation of two Japanese supply agreements will give the country’s largest supplier of supplier of cement and clinker – an intermediate product – certainty of supply. It will also give the facility 180 kilometres north of Kuala Lumpur capital to expand, chief financial officer Michael Kelly says.
“This is primarily for us about securing supply of a key raw material for our domestic business,” Kelly says. “But over time, as we’ve got more comfortable with Asia, it could lead to other things.”
While all Australian cement companies strike long-term agreements with overseas suppliers, Adelaide Brighton’s equity stake puts them “pretty much on front foot,” Morningstar analyst Nathan Zaia says. “They expect those businesses to do well,” Zaia says.
High Australian power and labour costs are hastening the import of cement. The country currently imports about 30 per cent of its needs and over the next three years this figure is likely to rise to 40 per cent, Zaia says. Adelaide Brighton alone says it intends to boost its imports of so-called cementitious products – grey and white clinker, cement and blast furnace slag – from 1.6 million tonnes this year to over 2 million by 2016.
While the volume of white cement and clinker Adelaide Brighton will secure from the transaction is limited – “we would be importing less than 100,000 tonnes,” Kelly says – the white colour, of cement low in iron, can cost up to 50 per cent more than grey cement and is in demand for high-profile buildings. It is the material used to build Parliament House in Canberra.
You’ve got Asia growing and there are limited supplies of this product,” he says. “This is a premium product and the risk over time is that availability is difficult and/or the price gets higher.”
One consequence of greater imports will be that plans in Australia become less competitive. Kelly says the company has made no decision on Australian closures, but that they are likely.
“As time goes on, there will be more pressure on those smaller and older facilities,” he says. “There’s a certain inevitability for some of the plants.”