21.04.2016 munkhnasan (monpolymet)
TRANSCRIPT
1st ANNUAL BCM SUMMIT
MONCEMENT BUILDING MATERIALS LLC
MONGOLIA’S CEMENT SECTOR OUTLOOK
2
CEMENT SECTOR IN NUMBERS
16.1 Million Large scale projects: Cement demand in Mongolia is expected to increase due to government’s push
for large infrastructure projects, leading to 16.1MLN tons of cement needed in the next five years.
1.6 Million to 4.4 Million Demand: Mongolian cement consumption is expected to grow from 1.6 MLN tons in 2015 to 4.4MLN tons
in 2020 (implied CAGR of 22%) driven primarily by construction projects such as Urban re-planning project,
and infrastructure projects such as Steppe highway project a 7,000km of new roads.
0.8 Million to 3.5 Million Supply: Mongolia’s cement production is expected to increase in the base case from 0.8 MLN tons
(0.4MLN official) in 2015 to 3.5MLN tons in 2020 (implied CAGR 34%); as a result Mongolia’s cement self
sufficiency will increase from 26% to 80% from 2015-2020.
4 Integrated plants The market is characterized by a couple of large integrated plants, small capacity grinding units and
unionized cement traders who have been relying on imported cement. The top 2 producers are expected to
account for almost 70 per cent of the total cement supply in the country.
3
MONGOLIA’S ANNUAL CEMENT DEMAND
Cement demand - 2001-2020
Million tons
4.4
2.0
1.3
0.40.2
Cement
intensity
(kg/capita) 64 169 463 650 1,477
▪ Consumption is expected to grow
from 1.6MLN tons in 2015 to 4.4MLN
in 2020 driven primarily by
construction projects such as Urban
re-planning project, and infrastructure
projects such as Steppe highway
project, as a result Mongolia’s cement
consumption will grow from 572
kg/capita in 2015 to 1477 kg/capita by
2020
▪ Currently, the housing sector is the
biggest demand driver of cement,
accounting for about 42* per cent of
the total consumption in Mongolia.
The other major consumers of cement
include infrastructure at 26* per cent,
commercial construction at 29* per
cent and remodeling at 3* per cent.
*approximate value based on 2015 statistics on
construction
CAGR
Percent
2001-10 2010-15
9 20
2015-20
22
2020F 2015 2010 2005 2001
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MAJOR INVESTMENT IN THE SECTOR
Existing
player
Under
construc
tion
Location
▪ Dornogobi
▪ Selenge
▪ Tuv
▪ Darkhan
▪ Dornogobi
▪ Dornogobi
Companies
Moncement
Khutul
Munkhiin
Erel
MAK
Hermes
Estimated production
2010 2015 2020
-
183
-
20
-
-
50
450
100
50
-
800
800
800
100
800
800
Status Timeline
▪ Commissioned 2016
▪ Commissioned 2015
▪ Commissioned 2016
▪ Expansion in 2017
▪ Delayed to 2016
▪ Unclear status
Some of the major investments in Mongolian cement industry in recent years:
• Moncement Building Materials, subsidiary of Monpolymet group, has commissioned 1 MTPA
capacity plant in Urgun Soum, Dornogobi province in 2015.
• Khutul Cement and Lime Plant has expanded and commissioned 1 MTPA line in Saikhan
Soum, Selenge province in 2014.
• Munkhiin Bayan Gal, subsidiary of CNBC, has commissioned 1MTPA plant in Sergelen Soum,
Tuv province in 2015
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MONGOLIAN CEMENT PRODUCTION
Self
sufficiency
Mongolia annual cement production – 2001-2020
‘000 tons, 2001-2020
800 410
800
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2020
800
2015 2010 2005 2001
5,000
147 89 320
2,037
3,541
800
Demand Moncement
Total
Hutul MAK
Munkhiin Bayan
Other existing players
58% 34% 30% 26% 80%
Implied CAGR
Percent
2001-10 2010-15
45 15
2015-20
34
▪ The current estimated capacity of
Cement producers is around 1.5
MTPA. To meet the rise in demand,
cement companies are expected to
add another 2 MTPA capacity over
the next three years. The country's
per capita consumption stands at
around 500 kg.
▪ Mongolia’s cement production is
expected to increase in the base case
from 0.8MLN tons in 2015 to 3.5MLN
tons in 2020; as a result Mongolia’s
cement self sufficiency will increase
from 26% to 80% from 2015-2020.
▪ In mid term, we expect less than 4 key
players in the market with
Moncement, Khutul, Munkhiin Bayam
leading the market with 20-25% share
each on average.
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MAJOR PROJECTS IN NEAR TERM
Urban Re-
planning
Project
Government
plan for roads
and highways
National
railroad project
Description Time horizon Cement intensity
▪ Government project to build 100,000 units of
residential apartments to accommodate
projected sharp rise in future demand for
proper housing
▪ Average unit size is expected to be ~45m2
▪ 75% of units will be in Ulaanbaatar, the rest in
rural areas
▪ 15% of units have
already been completed
as of 2015.
▪ Remaining 85% to be
completed by 2020
▪ 190-210 kg of cement required
for 1 m2 of floor space on
average
▪ Plan has been approved by for 5155 km of
roads to be built to improve connectivity in the
country
▪ Of the above, 200 km of urban roads to be
constructed in Ulaanbaatar
▪ In addition, ~1000km national highway will be
developed
▪ 15% of planned road
network completed by
2015
▪ 85% of the planned road
and highway system to
be completed over 2016-
2020
▪ ~300 kg of cement required
per 1 km of a simple 2 lane
road
▪ Additional construction fixtures
(e.g., bridges, dividers) for
parts of road system, like the
highway will increase cement
consumption
▪ 2487 km railway planned by the government
will require close to 5 million concrete sleepers,
~2500 culverts and ~155 bridges
▪ Potentially delayed,
construction expected to
begin earliest start of
2017
▪ Expected to be
completed in 2020
▪ ~100 tons of cement for 1 km
of the railway’s basic structure
▪ Additional construction
required for certain parts, e.g.,
tunnels, bridges which will
increase cement intensity
7
CONSTRUCTION SECTOR LEGAL ENVIRONMENT
Government of Mongolia is supporting construction sector development through various
legislative initiatives as well as project financing support:
Tax support for eligible investments • Agreement/certificate to stabilize tax rate on four major taxes
• CIT
• Mining Royalty
• Customs duty
• VAT
• Customs and VAT deferred payment on equipment and machinery imports
• Protective tariff on Cement and Clinker imports
Non tax support for eligible investments • Land lease for up to 60 years with extension of 40 years.
• Foreign high skill employee quota exemption as well as fee relief
• Project financing via Development bank of Mongolia: Khutul, Moncement, MAK
Challenges remaining for the sector: • High electricity and fuel prices and unstable supply
• High transportation tariff and bottlenecks
• Mining licenses for raw materials
• Absence of cement quality standards and regulation
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ROAD AHEAD
Need support on:
• Tax incentives for large scale projects: The investment law provides deferred
payment incentive of up-to two years of Customs duty an VAT payable on imported equipment. In most
cases, construction period for large scale projects go long beyond two years. As such, it is more effective
from cash flow point of view, that the two year period starts upon commissioning.
• Stability of power supply: For any industrial projects, power is the main cost driver. Since
2013, the electricity tariff increased from MNT 116.16 per kWh to over MNT 160 per kWh and increase of
almost 50%. This fact negatively affects the project financing in significant ways. Some countries, power
authority negotiate lower tariff for first few years and gradually make up the subsidy in future years when the
project is more financially prudent.
• Logistics bottleneck: Volume based, flexible tariff policy; investment by UBTZ in additional
cement hopper wagons
• Sustainable supply chain: Incentive to procure raw materials locally to eliminate
transportation burden if locally available; license and permission to extract raw materials locally
• Need for quality standards: Much of the cement used in new construction is composed of
low quality imported cement resulting buildings to be deteriorated in quality sometimes before they are
finished. Major concern for public safety for residential and office buildings increasing maintenance costs
and quick depreciation of real estate value.
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MONCEMENT PROJECT HIGHLIGHTS
Project company: Moncement Building Materials LLC
Investor: Monpolymet Group
Project Financing: EBRD, Development Bank of Mongolia
Capacity: 1 MTPA with expansion plan in 2019
Products: OPC 42.5, PC 42.5, PC 52.5 Portland cement
Limestone proven reserve: 249.4 million tons
JORC proven reserve: 264.2 million tons
First Cement: August 2015
First Clinker: November 2015
Strictly confidential 10
Created 300 jobs in Rural area
Significant contribution to Industrial development and economic diversification.
European Standard Cement products offered at stable yet competitive price to compete with imported cement.
Strategically located production and distribution facilities in Ulaanbaatar and Sainshand region to overcome logistics bottleneck.
Environmentally friendly, sustainable production encompassing the Best Available Technology on the global cement industry.
MONCEMENT PROJECT HIGHLIGHTS
MONCEMENT BUILDING MATERIALS LLC
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