concrete grinding

Companhia Siderúrgica Nacional (CSN) Cimentos was confirmed this week as the agreed buyer of Holcim’s Brazilian cement business with a transaction value of US$1.03 billion. The transaction includes five integrated cement plants, four grinding plants and 19 ready-mixed concrete facilities. In terms of production capacity, CSN is now expected to become the third largest cement producer in Brazil, second only to Votorantim and InterCement. Or, if you believe CSN’s brazen claims about competitor idle capacity, you are in second place!
Figure 1: A map of the cement plant included in the CSN Cimentos acquisition of LafargeHolcim’s Brazilian assets. Source: CSN Investor Relations website.
CSN originally started with steel production, and it is still a major part of its business to this day. In 2020, it reported revenue of 5.74 billion U.S. dollars. Approximately 55% are from the steel business, 42% from the mining business, 5% from the logistics business, and only 3% from its cement business. CSN’s development in the cement industry began in 2009 when it began grinding blast furnace slag and clinker at the Presidente Vargas plant in Volta Redonda, Rio de Janeiro. Subsequently, the company started clinker production in 2011 at its integrated Arcos plant in Minas Gerais. In the next ten years, a lot of things happened in public at least, because the country was facing an economic recession and the national cement sales fell to a low point in 2017. Starting around 2019, CSN Cimentos then began to discuss some new proposed factory projects elsewhere. Brazil, depending on market growth and expected initial public offering (IPO). These include factories in Ceara, Sergipe, Para and Parana, as well as expansion of existing factories to the southeast. Subsequently, CSN Cimentos agreed to acquire Cimento Elizabeth for USD 220 million in July 2021.
It is worth noting that the acquisition of Holcim still needs the approval of the local competition authority. For example, the Cimento Elizabeth factory and Holcim’s Caaporã factory are both located in Paraíba state, about 30 kilometers apart from each other. If approved, this will enable CSN Cimentos to own two of the state’s four integrated plants, with the other two being operated by Votorantim and InterCement. CSN is also preparing to acquire four integrated factories in Minas Gerais from Holcim to increase the one it currently owns. Although due to the large number of plants in the state, this does not seem to receive much attention.
Holcim made it clear that the divestment in Brazil is part of its strategy to refocus on sustainable building solutions. After completing the acquisition of Firestone in early 2021, the proceeds will be used for its solutions and product businesses. It has also stated that it wants to focus on core markets with long-term prospects. In this case, the diversified development of cement by large steel manufacturers like CSN is in sharp contrast. Both industries are high carbon dioxide emissions industries, so CSN will hardly stay away from carbon-intensive industries. However, by using slag in cement production, the two have synergies in terms of operation, economy and sustainability. This led CSN Cimentos to partner with Brazil’s Votorantim and India’s JSW Cement, which also produce cement. No matter what else happens at the 26th United Nations Climate Change Conference (COP26) in November 2021, it seems unlikely that the global demand for steel or cement will decrease significantly. CSN Cimentos will now resume its stock IPO to raise funds for the Holcim acquisition.
Acquisitions are all about timing. The CSN Cimentos-Holcim transaction follows the acquisition of CRH Brazil by Buzzi Unicem’s Companhia Nacional de Cimento (CNC) joint venture in early 2021. As mentioned above, Brazil’s cement market has been performing well since it started to recover in 2018. Compared with other countries, due to weak lockdown measures, the coronavirus pandemic has hardly slowed this situation. According to the latest data from the National Cement Industry Association (SNIC) in August 2021, current sales growth may be gradually weakening. Since mid-2019, the monthly rolling annual total has been increasing, but it started to slow down in May 2021. According to data so far this year, sales in 2021 will increase, but after that, who knows? A CSN Investor Day document in December 2020 predicts that, as expected, based on the overall economic forecast growth, Brazil’s cement consumption will grow steadily until at least 2025. However, concerns about inflation, price increases and political uncertainty before the next general election at the end of 2022 may undermine this. For example, InterCement cancelled its proposed IPO in July 2021 due to low valuations due to investor uncertainty. CSN Cimentos may encounter similar problems in its planned IPO or face excessive leverage when paying for LafargeHolcim Brazil. Either way, CSN decided to take a risk on the road to becoming the third largest cement producer in Brazil.