Bloomberg News

HeidelbergCement Finds Mild Winter Shields Chilly Economy

January 09, 2012

(Updates with Swiss cement growth in 13th paragraph.)

Jan. 6 (Bloomberg) -- HeidelbergCement AG, Schwenk Zement KG and other European building-material suppliers are getting a reprieve from the region’s faltering economies as mild winter temperatures extend the building season.

Germany had its fifth-warmest December on record, according weather bureau DWD. The benign start to winter has boosted Ulm, Germany-based Schwenk Zement’s sales by about 2 percentage points, Managing Director Gerhard Hirth said in an interview. HeidelbergCement, Europe’s third-largest cement maker, said plants in Germany are continuing to run at a time normally associated with seasonal stoppages.

“2011 was such a rare year for us in Germany,” HeidelbergCement Chief Executive Officer Bernd Scheifele said by e-mail yesterday. “Normally, cold weather means we shut down plants for a time and get on with maintenance. There’s only been a few years when we have been able to keep cement production running for an entire year.”

Temperate weather, contrasting with the blizzards across swathes of Europe last year, is a welcome tailwind for suppliers of cement and crushed rock as they grapple with a struggling construction industry and cutbacks in government spending. HeidelbergCement, like larger competitor Lafarge SA of France, is cutting costs and selling assets to lower acquisition-fueled borrowings.

The 24-member STOXX 600 Construction & Materials Index declined 20 percent last year, after falling 4.8 percent in 2010. HeidelbergCement, which generates about one-third of sales in western and northern Europe, dropped 30 percent. Lafarge, the world’s No. 1 cement maker, fell 42 percent, and Holcim Ltd. of Switzerland, slid 27 percent. HeidelbergCement rose as much as 1.5 percent to 34.1 euros in Frankfurt today.

Winter Doldrums

“Usually, construction companies lay down their tools in November or December and go on a winter break,” Schwenk’s Hirth said in the Jan. 3 phone interview. “This year, they continued to work, so there’s demand for cement.”

The closely held company boosted sales by more than 10 percent in 2011, Hirth said. It reported 271.4 million euros ($348 million) in revenue in 2010. Hirth predicted the overall industry saw a similar growth rate.

In Germany alone, building companies would normally shed as many as 150,000 employees to survive the winter doldrums, said Harald Schroeer, deputy managing director of Germany’s ZDB construction-industry group. This time around, workers are being kept on, he added.

Holcim

With the mild temperatures, fourth-quarter sales across the industry should be “reasonably good” in volume terms, said Tim Cahill, a Dublin-based analyst at J&E Davy Holdings.

Europe’s debt crisis is clouding the economic outlook for 2012, with the Bundesbank cutting its German growth forecast last month to 0.6 percent from 1.8 percent.

“We hear industry sources saying December was a positive month due to the weather,” said Cahill. “Still, companies are very careful to not create a false sense of optimism.”

Holcim’s Swiss factories had been running well in the first part of December, before the weather turned colder, according to spokesman Markus Gerber. The plunge in temperatures from mid- December then led to a pull-back in construction activity to regular seasonal levels, he said.

Swiss cement shipments rose 2.9 percent in 2011, according to figures released today by cemsuisse.

HeidelbergCement is behind schedule with plans to cut borrowings inflated by the $18 billion acquisition of Hanson in 2007. It’s now closely looking at disposals in a bid to regain an investment grade credit rating.

Lafarge, based in Paris, is facing similar challenges. Efforts to reduce debt failed to stop its credit rating being moved to junk last year. Lafarge sold or agreed to sell more than 2 billion euros of assets in 2011 and aims to reduce costs by 500 million euros, mainly this year.

2012 Forecasts

Cahill said quantifying the effect of better weather on fourth-quarter results is almost impossible and lower energy prices and weaker year-earlier figures will be bigger factors.

The benefit may grow if weather forecasters have got the outlook right.

Warmer-than-usual temperatures throughout Europe should last through the 2011-12 winter, potentially making this year’s season Europe’s mildest in four years, Weather Services International of Andover, Massachusetts, said on Dec. 19.

In the U.K., 2011 was the second-warmest year on record, the Met Office, Britain’s state forecaster, said Dec. 30. After “fairly widespread mild temperatures” in December, temperatures will “often be around average or slightly above” through Jan. 20, it added.

“The worst thing for the industry is snow either in early December, or in the first two weeks on January,” Peter Tom, chief executive of Breedon Aggregates Ltd. of the U.K., said in a telephone interview. “This year, it looks like we’ll be fortunate. The weather is reasonably mild, and it looks like it’ll remain mild this week and next, and that’s important.”

--Editors: Andrew Noel, Tom Lavell

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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