Positive outlook for 2017 despite rising energy costs

LafargeHolcim, HeidelbergCement and CRH are optimistic about their global outlook in 2017, despite the challenge presented by rising energy costs.

Positive output forecasts in developing markets such as India as well as Europe are expected to support demand for petcoke and other solid fuels.

Ireland-based CRH said in its 4Q16 earnings call that it expects energy prices to increase this year. Around 60 per cent of its cement-related fuel requirements, which includes petcoke, coal and bitumen, is under contract for 2017, according to the company. The firm has benefitted from securing this term pricing, based on current prices.

Meanwhile, LafargeHolcim said it had partly reduced its energy costs by increasing the share of petcoke in its fuel mix. This strategy also significantly improved its margins in Egypt, but foresees a continued reduction of costs in Egypt a challenge due to “headwinds from energy costs,” chief executive Eric Olsen said. While the company did not specify how much of its expected coke requirements it had secured in long-term contracts, CFO  Ron Wirahadiraksa said: “We are not hedging because hedging on petcoke is simply not available.”

Heidelberg Cement said it is working on reducing energy costs by changing its fuel mix. The company indicated it is switching its US plants from coal to natural gas and its Egyptian plants from gas to coal.

LafargeHolcim and Heidelberg Cement believe that global cement demand will grow upwards of two per cent in 2017, despite rising energy costs potentially impacting margins.