Eurocement Buys Into Competitor

Eurocement.ruA train carrying raw materials from a mining site for processing ahead of cement production at a Eurocement plant.
Eurocement, Russia's largest integrated building materials group, announced last week that it had bought a 6.5 percent stake in Swiss firm Holcim, the second-largest cement manufacturer in the world, a move which shows that some of the country's industrial companies remain strong despite the global financial crisis.

"We have invested in Holcim on the basis of our knowledge of the industry and taking into account the company's industrial know-how and future prospects,'' Thierry Sauvaire, chief executive of Eurocement, told Bloomberg last week.

Eurocement informed Holcim on Sept. 19 of the purchase of more than 17 million voting shares and rights on the open market, the Swiss cement maker said.

"This is a strategic move to get ready for when the market gets on its feet again," said Semyon Fomin, a real estate analyst at Troika Dialog. "If a company is trying to diversify at a time like this, it means they feel comfortable."

Eurocement, owned by Filaret Galchev, one of Russia's richest men, has informed Holcim that the stake is a long-term investment and that they don't plan to seek control, Bloomberg reported. The company did not discount the possibility of purchasing additional Holcim shares, however.

"There is no plan to buy more stocks in other companies, but maybe we will buy more in Holcim," said Dmitry Savitsky, a Eurocement spokesman.

Eurocement operates 16 cement factories in Russia, Ukraine and Uzbekistan, making it the region's biggest producer, with capacity of about 28 million tons and a 40 percent share of the Russian market.

Holcim operates in 70 countries and last year produced 150 million tons of cement.
Eurocement runs 16 factories throughout Russia, Ukraine and Uzbekistan.
Expanding on the back of the construction boom in Russia, Eurocement plans to increase its cement production capacities to 50 million tons by 2015. Already having invested more than $6 billion into their construction capacity, the firm plans to inject another $2 billion, a press release said.

While the world cement and concrete additive market has been growing at more than 6.8 percent annually since 2005, according to research by the Discovery Institute, markets in developed countries have only been growing by about 6 percent a year. At the same time, the emerging markets of Eastern Europe, including Russia, are posting annual gains of over 15 percent, more than twice the world average.

Besides the appeal of buying part of a company at a discount -- Holcim's stock is currently near an 18-year low -- analysts see a variety of reasons for Eurocement's purchase.

"One of the reasons is to grow into the world economy. This is the general goal of Russian companies," said Ruslan Vinokurov, director of project management at Cushman & Wakefield Stiles & Riabokobylko.

"Another reason could be that Holcim has Western know-how and can be acquired here. That's what companies have to do at this level of competition," he said.

But even with Russian firms taking advantage of a slowdown to buy into Western markets, harder times for cement manufacturers could be around the corner.

"In the first half of 2008, less houses were commissioned," Fomin said.

This is a radical change from the usual wildfire expansion fueled by strong fundamentals and a market where demand far outstrips supply.

The trend could be a canary in the coalmine for the building materials sector.

"The rise and fall of the cement industry is closely linked to the fortunes of the construction industry," Vinokurov said.

Now, because of the financial crisis, many developers have put their plans on hold, which will decrease demand for cement, he said.