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December 2008 (Robert McCaffrey)

One of the best things about the AUCBM conference in Cairo was that it gave me a chance to talk to a wide variety of industry experts on not just technical matters but also on how the industry is shaping up going into 2009. The news is not entirely comforting. What follows is my own view on what will happen, coloured or informed by views from around the world.
The big cement companies are in trouble. Once they start issuing denials that they are in trouble, you know that things are not going well for them (denials usually come after someone has looked very carefully through their books and found out something worrying). They borrowed billions when money was cheap, to finance their takeovers. In several cases, their takeovers now look like terrible deals, bought at the most expensive part of the cycle, and whose markets are now suffering from huge demand collapses. The multinationals are now saddled with huge debts, which are becoming more expensive to service (in both real and relative terms). Ordinarily they would have the option to refinance the debts (either at a lower interest rate or with a later maturity date), but the credit markets are just not interested: banks are presently fighting for their own survival. A limited number of options are open to the industry behemoths – sell off equity (to those with oil money or to sovereign wealth funds, but no longer to the battered hedge fund industry or to suffering pension funds); sell off some of the family jewels or non-core assets (but at fire-sale prices), or undertake some mega-mergers at zero net cost, and then cut, Cut, CUT. The other major option for the cement producers is to reduce their costs (production costs, capex costs, manpower costs, overheads etc). We have already seen and heard about plant closures that we had previously thought unthinkable – big, previously profitable plants that have had tens of millions of Euros spent on them over the last decade, closed practically overnight. Already, and in the future, cement companies are looking at every possible way of spending less money. Without doubt, we will see all options explored over the next year or two.
As outlined in the review of Arnaud Pinatel’s paper at the AUCBM (page 55), the world is set to suffer a major downturn, but some regions will be worse than others. From conversations with shippers and traders, it seems that the Middle East will largely be okay, bolstered as it is with oil money, with the exception of Egypt and Turkey, which are both looking at major surpluses. The situation in Spain is ‘particularly bad’ and it is apparent that a ‘wave’ of Chinese cement is coming our way (I have never believed that the Chinese consume as much as they say they do, or that their economy is as robust as it had appeared: now with a downturn, it seems that what goes up can quickly come back down again).
The word from many equipment suppliers is that postponements and cancellations of new projects and contracts are rife. In Russia, contractors have been told to ‘drop everything – spend nothing.’ A list of postponed Indian projects makes for sober reading. Chinese orders once kept European factories on overtime: soon they will be wondering where the orders went. ‘Big ticket’ items, new mills, pyro-system upgrades, even whole new plants; many will be postponed or cancelled. Equipment suppliers will be existing on their order backlogs for the next year or two – and in the meantime we can expect to see more competition on equipment prices (to the possible detriment of Chinese suppliers). The one bright spot for the equipment suppliers is expertise in and the production of anything that can decrease costs – especially through the use of alternative fuels. Despite imminent falls in the cost of energy, every cement producer has seen the light – cut energy costs and use more alternative fuels. Maintenance of course is unavoidable, but even this will fall in line with production cuts – and competition for the remaining maintenance work will intensify, with obvious pricing and margin implications for maintenance and spare parts suppliers.
Of course, increased cement prices would be the panacea for all the industry’s problems. However, prices are not going to go up in the near future. There is too much capacity chasing too little demand. In the past we have seen two scenarios: cartels and price wars. All European producers know that forming a cartel will lead (maybe in a year, maybe in a decade, but sometime, for sure) to a fine of up to 10% of annual turnover for the period of the operation of the cartel. Since this is almost certainly equal to all profit for the period in question, it is without doubt not worth undertaking any cartel activity. The other side of the coin, price wars, seems already to be in operation in various markets. Unfortunately, an agreement not to undertake a price war is by definition an anti-competitive agreement. Everyone should just calm down (easier said than done).
One big question is how long this turmoil is going to last. If it lasts only three months, then it is no problem; at six months it’s a small problem; if it lasts over a year it’s a problem and if it’s over two years it’s going to be a big problem for a lot of people.
We are looking then at a period of instability and possibly radical change in the industry. We are likely to see rationalisation in a number of areas in the industry; among the cement producers, among equipment producers and among the service providers (consultants, contractors and others). Looking at the equipment providers, their marketing efforts, including advertising, may ameliorate the effects of the downturn and shorten the crunch for them. Interesting times!

November 2008 (Robert McCaffrey)

Now we know, finally, the outcome of the American presidential election, we can start to look forward to the changes that Barack Obama has promised (although election promises are hardly worth the paper they are written upon). However, whatever promises have been made up to now will be like ashes in the wind when the harsh realities of the new global (and particularly American) economic outlook come into focus.
Even prior to the Credit Crunch, the US budget deficit was set to top US$482bn – several hundred billion dollars of which has been spent on the war in Iraq. The slumping economy – and huge falls in stock markets and dividends – is set to eat into government tax income, while the out-going Bush administration managed to give away some US$150bn in tax rebates while trying (some would say to no avail) to fend off a recession. As Rahm Emanuel, the No 3 Democratic leader in the House of Representatives, commented of Mr Bush, “Mr President, we will be forever in your debt.”
On the morning after the election, president-elect Obama will be waking up to an almighty hangover. Not only was more money spent than by any other candidates in history (McCain spent over US$400m, Obama more like US$650m: ridiculous and obscene amounts), but the incoming president will be looking out onto a financial wasteland. The big American and international banks that have been driving the bust-free economy for the last dozen years are cowed and feeble shadows of their former selves. The free-spending consumers who have provided the insatiable demand for products (including cement for new houses, renovations and new factories and offices), have banked their tax rebates and are reigning in their more frivolous expenditure. Who would build a house, after all, when there are a million unsold units out there, and when you have completed your house, its value continues to sink until you crystalise your losses when you sell it. It’s a very brave person or company that embarks on a cement-intensive house-building programme at a time like this.
However, the (US) government might yet do it. For example, in the UK Gordon Brown has promised to fast-track government-financed infrastructure projects, including the UK£17bn CrossRail project, and other ‘big-ticket’ cement-intensive projects in order to boost the economy (the cement producers must be heaving a huge sigh of relief). It is relatively easy for Gordon to do this, since he is officially a socialist, and it is therefore part of his political make-up to tax and spend. Questions are starting to be asked about where the money will come from, but in times like these, no-one seems particularly concerned (of which more, later).
In the US, we could yet see a new New Deal. President Frankin D Roosevelt set up a series of programmes through the 1930s that looked in many ways like socialism (government-financed infrastructure projects, central planning, federal control of banks and financial institutions) which came to be called the New Deal. Economists have argued ever since about whether the programmes helped or hindered the economic recovery from the Great Depression (when unemployment went from 4% to 25% from 1929 to 1932), but as I mentioned in last month’s issue, it is extremely difficult, when you are elected to do something, to do nothing.
My guess is that we may yet see something of the same ilk from president Obama. Of course it won’t be called ‘socialism’ – that concept is dangerously close to communism in the American political lexicon – but if it acts like socialism, and costs like socialism (and spends like socialism)...need I say more? America’s crumbling infrastructure could be a worthy recipient of a TEA-21-like bill that pours billions (or more likely hundreds of billions, with a dose of pork added for good measure) into roads and bridges. Federally-funded make-work programmes could yet spring up (maybe to demolish all those sub-prime-bought houses that are now surplus to requirements), to undertake all sorts of good works, perhaps including renovations to schools, hospitals and military bases.
All of this is going to cost, of course, but somehow, the economy (or more pertinently the perception of the economy) must be turned round, supertanker-like, and steered away from the rocks. It’s going to cost many billions to do it – maybe past a trillion. All that money is going to have to come from somewhere and – you guessed it – it’s likely to come from Joe Sixpack’s wages via increased taxes for the next decade or so (that’s quite a hangover for a decade of partying). The cement companies may be among the early beneficiaries of any new New Deal. The new president Obama is probably going to have to be a socialist whether he wants to be one or not – and one who gets the country deeper into debt before it gets better.

October 2008 (Robert McCaffrey)

Bizarrely, the current economic dark clouds could have a silver lining for the cement industry and for other construction industries. It seems incredible that I - ‘the Doomsayer’ as some would have it - should be saying this, but let’s have a look to see why.
As we now know, the sub-prime mortgage disaster in the US was just the catalyst for the current credit crunch. Banks then decided that they would not lend to each other, since they did not trust each other to still be in business when the loans were due to be paid back, and with good reason in some cases. The most outrageous occurrence of all happened last week – money put into Icelandic banks has just ‘disappeared.’ It turns out that the Icelandic banks took savers’ money, and then, when they went bust, the Icelandic savings guarantee scheme was not able to pay back the money. That’s pretty bad. So it’s no wonder that the banks have not been in the mood to trust each other.
The problem has been that, as global stockmarkets have contracted in the face of a global (real economy) recession, the banks have been hammered the most. With these toxic loans still on their books, default rates climbing, and their businesses contracting (and the business model collapsing in some cases, where they have been too dependent on wholesale money markets for their finance), the banks have been left with massive liabilities and reducing assets. Where assets are less than liabilities, they would be bust, but of course they are too large to be allowed to fail (apart from Lehman Brothers, which seems to have been allowed to go bust ‘pour encourager les autres’). Governments worldwide have been making large loans available to the banks to try to get money markets going again, to no avail – the banks have just been sitting on the money. So now, the governments have decided that they can do a better job themselves, and have decided to buy up big stakes in the banks. Personally, I think that it’s a great bet – they are buying at a low price, and they should be able to sell in a few years time when the banks’ share prices are much higher. Governments will also now be able to direct the banks into more public-spirited lending, and can curtail the disgusting bonus structures that have caught the piggies with their noses in the trough.
I know that many on the right of the political spectrum have felt that the whole thing smacks of Socialism. Well, they are completely correct. What we are seeing is nothing less that the humiliation and discrediting of Capitalism. As Lenin said, ‘The capitalists will sell us the rope we use to hang them.’
Another interesting effect of the Credit Crunch has been the contagion from purely financial companies to the real world (affecting, on the way, some companies that are quasi-financial/quasi-real world in particular). Any company that has unwisely hedged its currency dealings (and the multinationals all have to do it - or be burned when the Dollar/Euro/£/¥ exchange rate fluctuates) will be out of pocket. Some companies have even been so bold as to become involved in the field of derivatives, which Warren Buffett, the reknowned ‘Sage of Omaha’ has dubbed ‘weapons of financial mass destruction.’ It will only be when all positions are unwound, and the dust finally settles after the crisis is over, that we know whether these WfMD were real or not.
Where will it all end? Well, we have had a few pointers already. The UK has essentially nationalised a number of banks, and the US now seems likely to do the same. The EuroZone is set to spend well over Euro1
trillion to do the same, and one has to ask if some of the Asian banks might be forced along the same course of action. These measures are similar to those undertaken by the Swedish government in the early 1990s. This seems to have steadied a few nerves already. But after the banks have been bought up, then what happens?
Well, if the Japanese response to its ‘lost decade’ of stagflation and financial crisis and the American response to the Great Depression are anything to go by, we shall soon start to see governments start to spend very large sums on (cement-intensive) infrastructure projects, including canals, roads, bridges, hospitals, schools, houses and so on. This is because in the coming global recession unemployment is set to skyrocket, and governments will be desperate to get workers back to work, and industry back into gear. When private companies don’t have the confidence to invest, government will be obliged to step in and take the lead. Of course, they’ll be using our tax revenues to pay for it all, and it ‘smells’ more and more like Socialism, but, when we are staring into a hole, what are the options?

September 2008 (Nino Mancino)

It was only a few weeks ago that Beijing said goodbye to the Olympic Games, the world’s great sporting jamboree, but I’m already missing it. China’s capital offered us a spectacular games, packed full of drama, sporting greatness, plus the remarkable sight of Great Britain coming fourth in the medals table with a mighty 19 gold medals. From a personal point of view it was about time we punched our weight in terms of sport. And without wanting to ‘name’ any particular countries, it was extremely satisfying to finish above certain nations that have for too long finished above us. You know who you are!
So now, as Beijing 2008 recedes into memory, attention now turns to the next host city: London in 2012. What kind of games will London produce? Can it match the grandeur and spectacle of its predecessor? According to Lord Sebastian Coe, chair of the London 2012 Organising Committee Board, (LOCOG), Beijing will be the last
Olympics of its kind; it was an awe-inspiring spectacle but also mightily expensive. Such expense is not sustainable.
If Lord Coe is right – and the noises coming out of the IOC seem to back him up – then London will be smaller, less extravagant but hopefully a more fun, exuberant and open affair. As awesome as the Birds Nest stadium is, don’t expect the same thing in 2012. The keystone upon which London’s successful bid was built was legacy. An important legacy that the organisers hope will come to fruition is the re-awakening of the importance of sport in the consciousness of the British public, especially its youth. No doubt the success of Team GB in Beijing will have helped this cause already.
The other main legacy item for London 2012 is the overdue transformation of Stratford, the site of the
Olympic Park in the east end of London. The regeneration project will create numerous job opportunities, affordable housing, leisure facilities plus a new sense of pride.
It goes without saying (but it’s my job to say it anyway) that all this building and regeneration brings great opportunities for cement and construction firms. Consider for a moment the scale of the project: The Olympic Park will be the site of the major venues, including the main Olympic Stadium, the Aquatics Centre, the Velodrome and BMX circuit, plus arenas for fencing, hockey, handball and basketball and an international broadcast and media centre. The Park will also contain the Olympic Village that will accommodate 17,000 athletes and will feature shops, leisure and medical facilities. Once the Games are over, the Village will become part of the Stratford City regeneration scheme that will be made up of additional leisure, office and residential amenities, including up to 3300 affordable new homes for sale and rent.
This gargantuan project needs to be supported by a comprehensive upgrade of the surrounding transport and utilities infrastructures. The new Speed 1 Javelin® shuttle train service will ensure that athletes and visitors can reach central London in just seven minutes for example.
The overall project is split into three phases: Stage 1 involved agreeing the timetable for delivery, and submitting one of the largest planning applications in European history. Stage 2, termed ‘demolish, dig, design’, requires getting the site ready for construction work, including decontaminating 2.5km2 of derelict land. Stage 3 – the ‘big build’ – began three months early, when work started on the Olympic Stadium in May 2008.
Another key aspect of the ‘big build’ phase is the commitment to re-use 90% of construction waste. Any waste created during construction of the venues and infrastructure will be collected and taken to a dedicated area on site before being separated and sorted for re-use or recycled. Materials not able to be re-used will be taken away to external sites by sustainable transport methods, including by barge on the River Thames, so they can be used elsewhere. This new integrated system has been externally audited as being of an international standard – a first for a major project of this size according to LOCOG.
As a fan of sport I cannot wait for London 2012. The
Olympic Games – as well as the Paralympic Games a month later – could turn to be the UK’s single most important cultural event in the first half of the 21st century. It is also a fantastic opportunity for the cement and construction industry to play a part in this global event. On your marks, get set, go!

July 2008 (Robert McCaffrey)

We recently had an email in from an industry expert which had me scratching my bald head. The suggestion was that the expert write us an article on the huge advances being made in the Chinese cement industry, backed up with the latest industry statistics. To quote the expert exactly, “In 2003 the total output of the Chinese cement industry was around 900Mt. In 2007 it was up to 1.35bnt and is increasing at an annual rate of 13.5%. Demand has increased much more rapidly in the less developed provinces of the northwest (e.g. Gansu) and southwest (e.g. Yunan) where the government has recently focused its efforts on economic development leading to a boom in the construction industry. That said, eastern (e.g. Shanghai) and south-eastern (e.g. Guangzhou/Canton) areas remain the largest regional markets for cement in China. With the eyes of the world on China’s attitude towards its environment, the government has implemented legislation which prohibits on-site concrete production in over 200 cities across the country. Other environmental legislation is also being implemented. Notwithstanding China’s political hostility towards neighbouring Taiwan, a number of Taiwanese companies are preparing to take advantage of China’s thirst for cement. The chances are that with China’s national economy continuing to expand at over 10% per annum, output rates in China for cement are set to remain at 13.5% and possibly even increase.”
I’m afraid that I had to differ in my opinion, and suggested that the situation was in reality rather different. I suggested that the output of international standard cement in China is probably not more than 600Mt/year (from a careful count of cement plants and cement plant capacities), and that the output of other types of cement is unknowable (and is not included in international comparisons anyway). I didn’t support the suggestion that the annual rate of increase is 13.5%, and I said that I felt that it was unlikely that it will increase past this level. Much more interesting (and more likely, after speaking with insiders in the industry) is the prospect that capacity utilisation rates will fall dramatically over the next five years. A hard landing of China’s economy after the bursting of its bubble economy may be just around the corner. I have started to see more and more signs of this possibility in the last few months.
Forget the Olympics. Yes, they have cost a few tens of billions of dollars (“A billion here, a billion there, pretty soon it adds up to real money:” Senator Everett Dirksen), but this is a drop in the ocean compared to China’s GDP of more than US$10.17tr (or US$10,170bn).
“Clouds are now forming over China’s economy,” warns Stephen Green, chief economist at Standard Chartered Bank in Shanghai, while Chinese prime minister Wen Jiabao has prophesied that the year of 2008 might become the “most difficult one” for the Chinese economy. Inflation has been growing steadily for years, with consumer price inflation around 8% and food price inflation at closer to 20% (if you believe the statistics). In common with the rest of the world, fuel and energy prices have compounded the inflationary trend. The weakening trend in western demand for Chinese exports of consumer goods is certain to impact the manufacturing sector in China (despite growing wealth and domestic consumer demand within China).
A hard landing (where growth in the economy screeches to a halt - like the US economy in 2007-08) may yet be avoidable, but now only with the prospect of producing a soft landing - reducing growth to low single-digit figures. Raising interest rates would certainly rein-in the overheating Chinese economy: If economies in the west had the current Chinese level of inflation, the interest rate would already be in double digits. There is also the suggestion that the current commodity boom (the extremely high prices for commodities from wheat and coal to tungsten and uranium) is just the last of the bubbles inflated by cheap credit through the early Noughties (2000-2007). If the commodity ‘bubble’ was to burst, and we saw falling prices/values for everything from steel to cement, and molybdenum to rice, although inflation would simultaneously reduce, we might also see the central ‘growth’ pillar of many business models knocked away, and the whole house of cards could come catastrophically falling down.
I know I’ve tended to look on the pessimistic side of things over the years (9-11, bird flu etc), but it is better to be forewarned and forearmed.
In any case, as we’ve been seeing recently in the US, everything is possible, every scenario has a corollary, and things can be worse than you can imagine.

June 2008 (Craig Warren)

The most common forms of freight transport including aeroplane, train, truck and cargo ship have not changed significantly in decades. With factors such as record fossil fuel prices and the threat of climate change, could a non-traditional form of freight transport become a viable alternative?
Generally, the distance a cargo of cement can travel is limited by the location of the raw materials relative to the market, and by the infrastructure linking the two. Often already hampered by the remote location of raw materials, the product will usually go through several stages on its way to market. Bulk materials and fuels are often delivered multi-modally, i.e. via a combination of sea, road and rail, experiencing expensive bottleneck situations along the way. This has been epitomised recently by the near 40 ships queuing for coal at Newcastle, Australia, the world’s biggest fuel export harbour. Bottlenecks and flooding in Queensland have pushed coal prices to record highs.
A surprising technology that could eliminate the need for multi-modal transport, developed infrastructure, slow delivery and high prices was invented over 200 years ago. It was on board a hot air balloon in 1784 that Jean-Pierre Blanchard made the very first powered flight using a hand-powered propeller to propel the craft through the air. (Later Blanchard crossed the English Channel and replaced the rotor with flapping wings). This rudimentary powered flight gave birth to airships.
After 100 years of global experimentation it was Germany which, in the early 1900s, developed the largest flying vessels ever made: the mighty cigar-shaped Zeppelins. These ethereal machines were very different from the newly-invented aeroplane. Rather than using an aerofoil passing through the air to create lift as planes and helicopters do, an airship derives its lift from a lighter-than-air gas such as hydrogen. Because such gases are less dense than air, they do not require heating to provide lift as a hot air balloon does. Altitude was controlled by taking on and dispelling air (to adjust weight) in a similar way to how submarines transfer water to control their depth.
It is important to mention here that an airship is quite different to a blimp. The distinction between the two is primarily dependent on the design of the envelope that gives the airship its unique shape and contains the lifting gas; this, in turn, defines the size of the craft. Airships are built with a light internal framework able to support the large bulk of the vessel, whereas a blimp, having no internal framework, is unable to support large masses and therefore has a natural maximum size.
Following successful round-the-world flights by airship, the Hindenburg, a huge ridged craft measuring over 800ft long (the length of three Airbus A380s) and able to travel across the Atlantic and back in less than six days, was completed in 1936. It boasted facilities similar to an ocean liner and was seen as the height of fast, luxurious travel. The airships’ size was met with awe from onlookers and was even greeted in New York by ticker-tape parades, the pioneers themselves becoming heroes overnight.
However, the Zeppelin company’s 100% human safety record was smashed when, under the direction of the Nazi party in 1937, design flaws and a rushed landing led to the destruction of the Hindenburg, killing just over a third of those on board. With the massive flames from the flammable hydrogen caught on film and aeroplane development gaining momentum it is not surprising that the public lost interest in Zeppelins. Safety fears and dashed public opinion led to the scrapping of the last surviving airships and only the tiny, non-ridged blimp survived.
Over 70 years on, designs from around the world could lead to a buoyant resurrection. Plans have been put forward for passenger transport, high-altitude communications platforms, radar and even telescopes that could be used as a cheap alternative to satellites. The new designs have replaced hydrogen gas with non-flammable helium to make the new breed of craft far safer.
A small company based in Cardingdon, UK, has put forward a design it calls the SkyCat. Their aircraft, which could be used for a variety of purposes, are called hybrids because they utilise the principals of buoyancy and design the envelope, which contains the gas, to produce lift in a similar way to the wing of an aeroplane. SkyCat claims that its larger models could offer air freight at sea freight prices and can avoid the transport bottlenecks by bypassing ports and delivering straight to the destination. With a range approaching 3000 miles and speeds over 70mph, the hybrids could fill the gap between high-speed, high-cost transport and low-speed, low-cost freight.
By exploiting buoyancy, vertical takeoffs and landings are possible, making airships even more attractive in areas without highly-developed infrastructure, such as the Polar regions, Alaska, Siberia and Africa. Without the need of roads and runways a single airship would be far cheaper than building the infrastructure necessary for trucks or aeroplanes to operate.
Airships are also particularly fuel-efficient; a growing concern with rising fossil fuel prices. As the engines do not need to burn fuel to provide lift and – as has been suggested by many of the hopeful airship manufacturers – the large surface of the envelope, which limits the airship’s velocity, can also provide sufficient area for solar panels which could provide the craft with a source of renewable energy to propel it through the sky.
The reduced fuel consumption could offer a green alternative to conventional aircraft. It may not be long before airborne cement carriers are as common as ships, trucks, planes and trains are today...

May 2008 (Robert McCaffrey)

“Do you feel lucky, punk?” These immortal words, spoken by Clint Eastwood in the seminal 1970s bad-cop flick Dirty Harry, might usefully be recalled every day, to remind us of our good fortune. After all, despite soaring global food, fuel and energy prices, environmental melt-down, geopolitical instability and financial turmoil, we are all very lucky indeed.
Electric light and electricity have only been around for the last 130 years or so. Imagine the world without them. Industrial fertiliser production boomed after the First World War, when explosives factories were converted to manufacture something more useful for peacetime. TV started in the 1930 (although we are still waiting for something worth watching). Antibiotics really only became widespread in the 1940s—and the world would be a radically worse place in their absence. The amount of computer power that you have on your desktop dwarfs the amount available to the Apollo missions of the 1960s and 1970s (the on-board Apollo Guidance Computer weighed 70lbs, worked at 2Mhz and had 38k of memory). As for the web, well, as of April 2008, there were more than 166 million separate web sites (including, of course, the newly-reinvigorated GlobalCement.com).
For the most part, wars, famines, plagues, pestilence and other general unpleasantnesses are largely absent from our lives—something that could not be said for the vast majority of human history. My point is that we are lucky. Very lucky indeed.
The question is, do you feel lucky? A good answer to this question can be had each time you put on an article of clothing the wrong way round. In my family, it is traditional that if you were to change the clothing from back to front to the right way around, then you would be changing your luck. Whenever this happens to me, I think to myself of the last few days and weeks, and try to work out if I have been lucky or unlucky. Partly due to a habit of trying to make the best of a bad situation, I invariably conclude that I have been lucky (but then I turn my clothing to face the right way around anyway, since I’m not very superstitious). Would you change your luck?
A few examples might serve to illustrate my meaning. I heard on the radio yesterday that a soldier who had one of his legs blown off in Afghanistan is returning to the front line, ‘proud to serve once again with his comrades.’ That’s making the most of a bad lot. Remember Lance Armstrong, who – on the verge of his first Tour de France win – was diagnosed with testicular cancer which metastasised and which nearly killed him. He fought through radio- and chemo-therapy back to full health, and went on to win seven consecutive Tours de France. And finally, I’d like to tell you about a Chinese gentleman called Chang who I saw on a TV documentary a few weeks ago (a screen shot of which is below). He suffers from a condition called neurofibromatosis, which causes tumours to grow on nerve tissue throughout the body. Chang’s tumours had taken over his face, causing extreme discomfort and difficulties in speaking, eating and breathing. In the documentary, he was shown undergoing surgery, which left him scarred, bleeding and still with a hugely misshapen head. Chang – despite his deformities – enjoyed playing cards with other men in his village in rural Sechuan Province, and one of them commented that he was a very good card player. “No no,” said Chang, “Maybe I’m just lucky.”

April 2008 (Robert McCaffrey)

As a young boy, one of my favourite pastimes was to read a comic called 2000AD. Way back in the late 1970s and early 1990s, 2000AD seemed to be impossibly far away and futuristic. Now, of course, it seems all so ‘last century.’ Amusingly, the comic is still called 2000AD. Why they didn’t rename it 3000AD is beyond me. (As an aside, today we took delivery in the office of a 1Terabyte remote backup unit – an Apple ‘Time Capsule’ which can be used to wirelessly back-up multiple computers, while connecting to the internet as well. Verily, we are living in the future).
Anyway, one of the greatest joys of reading 2000AD was a story called Judge Dredd, which told of a 25th century policeman, judge and executioner – since made into a film starring Sylvester Stallone. I recall one series of Dredd stories where he was sent into the Cursed Earth (the radioactive desert between Megacity 1 (on the US east coast) and Megacity 2 (on the west) which had been caused by some nuclear war or other, and which was inhabited by mutants and assorted miscreants). At one point in his journey, Dredd comes across an outfit that was making huge riches for itself by mining landfills – largely for antiques from the 20th century. These ‘antiques’ included bicycles, cathode-ray tube TVs and oddly enough, saucepans. The boss of the outfit was the self-styled ‘Sultan of Trash, the Pharaoh of Garbage, King of Memphis.’ Why it was Memphis, I don’t know. Is there a lot of garbage in Memphis? Sad to say, I can’t remember the upshot of this story (Dredd probably either locked him up for being mad, or killed him. That was Dredd’s way – hard but fair).
However, as much as you might doubt my sanity, once again, this does still have a resonance with today, not just for me, but also – possibly – for you.
I recently listened with great interest to all the presentations at the Global Alternative Fuels for cement and lime Conference. It came out quite strongly that the cement industry is now in competition with many other industries for quality alternative fuels. It seems that the power, chemical and paper industries are now willing to pay for high-specification alternative fuels that the cement and lime industries might relatively recently have been able to levy a gate-fee for using. Now we have to fight for the right to use them – or pay. The other industries need to have higher-specification fuels than are required by the cement and lime industries, so we will be left with the lower specification fuels.
Now, one factor that came out of the conference was that fuel costs are likely to rise inexorably. As a geologist, I have believed in the Peak Oil Hypothesis for many years – I think that the easy oil has been found, and that it is only going to get more scarce and more expensive to produce from now on. Coal will remain as the lowest-cost fossil fuel, but fossil fuel taxes are also inevitable, and may make coal prohibitive in due course.
If cement and lime are priced out of the higher and medium-quality alternative fuels (since a power station can out-bid a cement plant for tyre-chips, diaper off-cuts and animal meal), what will be left?
Back to the Pharaoh of Garbage. I believe that it is only a matter of time before we start to dig up our landfills again – not for their antiques, but for their calorific value (and also for the valuable commodities that they also contain: I recently heard a speaker at our Global Gold Forum who was quite delighted to report that substantial quantities of gold – in computer circuit boards – were being ‘taken out of the loop’ by being landfilled. After all, non-recycled gold equals future demand).
There are certainly technical challenges to the use of previously-landfilled waste, but the economic drivers are unstoppable, and I believe that the cement industry – and the technology suppliers to the cement industry – will be among the new pioneers. To that end, we will organise the first Global Landfill Mining conference on 17 September 2008, in London. It should be fascinating, and it will hopefully lead to the attendees making or saving millions of dollars each year.
Perhaps my days of comic book reading were not wasted after all.

March 2008 (Joe Kellam)

Coal has long been thought of as the world’s ‘fuel of last resort.’ With rising oil prices, coal is often seen as a vast resource just waiting to be called upon when the oil runs out or becomes too expensive. China, for example, is obviously confident in its coal reserves. 94% of its fossil fuel needs are met by coal, and the country is looking to coal to reduce its dependency on oil further still (with coal-to-diesel plants, for instance, some of which claim they will be capable of converting 50Mt/year of coal into 10Mt of diesel by 2020).
In 2000-2006, global coal consumption increased 35%. In 2007, China, the world’s largest producer of coal, went from being a net exporter to a net importer. Added to India’s escalating fuel consumption, one wonders just where it’s all coming from in the first place.
It seems that many countries have begun to ask the same question. In recent years, many official coal reserve figures have been revised downwards. Figures in the UK and Germany, for example, have plummeted 90% and Poland’s have halved. Since 1990, declared reserves of high-quality ‘hard coal’ have fallen by 25%, from ~640bn t to less than 480bn t, and global production (estimated at 6bn t in 2007) doesn’t come close to accounting for such a dramatic drop.
The European Commission’s Institute for Energy has recorded a drop in reserves-to-production ratio (the number of years reserves would last at the current rate of production) from 277 years in 2000 to 155 years in 2005, and warned: “The world could run out of economically-recoverable reserves of coal much earlier than widely anticipated.” In 2006, the BP Statistical Review of World Energy cut the ratio further, to 144 years. A 2007 report by Energy Watch, a group of scientists and energy consultants, predicts a global coal output peak as early as 2025. Jörg Schindler, from German renewable energy consultancy Ludwig Bölkow Systemtechnik, commented: “The perception that coal is the fossil resource of last resort – that you can come back to it when you run into problems – is probably an illusion.”
These concerns seem well founded when you consider that the ‘official’ reserves statistics often quoted are – according to a recent article in New Scientist – compiled by a husband-and-wife consultancy in Dorset, UK, that sends questionnaires to 100 coal-producing countries, resulting in a mixed response described by the firm itself as “a bit of a ragbag.” Of 100 questionnaires sent out, only 50 replies are useable. China, it says, has failed to update its figures since 1990, and Russia since 1996.
If this is true, the surprisingly unreliable nature of ‘official’ figures does leave the question of actual coal reserves unanswered. The traditional view that ‘it’s there if the price is high enough’ is starting to wear thin; since 2002, reserves have continually fallen despite the price of coal quintupling. According to geologist and energy consultant Graham Chapman, much of the readily-accessible coal has already been mined, with complex geology in the way of China and South Africa’s remaining coal resources.
In an attempt to gain a less skewed perspective on the world’s coal reserves, David Rutledge, of the California Institute of Technology in Pasadena, has employed a technique known as ‘Hubbert linearisation,’ which works by plotting annual production as a percentage of total production since mining began, against total production. The resulting graph generally settles into a straight line that can be extrapolated to the point of zero production, thereby deducing the total amount that will ever be produced.
This method – which has been shown to work for historical data such as that of the UK coal industry (pictured here) – predicted future coal production to be 450bn t – slightly over half of the current ‘official’ reserves. Current forecasts, based on the official figures, suggest that there is at least a century’s worth of coal up for grabs. If Rutledge is correct, supplies could be falling short a lot earlier than expected.
According to the International Energy Agency’s most recent long-term forecast, global coal production needs to rise by more than 70% by 2030 to feed economic growth. Cutting out the spiralling costs and ever-increasing uncertainty of supply by moving away from fossil fuels could climb the agenda of many industries faster than we may have anticipated.

February 2008 (Robert McCaffrey)

I’m continuing this month with my New Year’s resolutions: sometimes you can capture a year’s action in a single word (‘decisiveness,’ ‘relax,’ ‘strive’) and sometimes it takes a few words more.
As I mentioned last month, our company is trying to be greener in its operations. In fact, the magazine you hold in your hands (if you haven’t printed it yourself from the digital edition) is the first result of this new environmental policy. It’s printed on Forest Stewardship Council certified stock, a change from our usual paper. I challenge our readers to spot the difference in quality, although it does cost us a little extra. I also mentioned briefly our internal communications policy, ‘The PRo Way,’ which includes such gems as ‘be polite to your fellow workers,’ and ‘be generous with your skills and knowledge.’ It remains to be seen whether having such a policy actually encourages changes in behaviour in the real world.
In addition, however, we have also finally written down our company business ethos and we might call this ‘The PRo Way of Business.’ It’s an interesting exercise, since it immediately makes you think about some of the decisions that have to be made every day: it is also very widely applicable, and should be of interest to you in your every day business.

The PRo Way of Business

We will act in an ethical fashion in our business dealings

We will not pay bribes

We will not act in an anti-competitive fashion under any circumstance

We will always pay our bills

Employees at PRo will not criticise the competition - we will allow our products and services to speak for themselves

Our first edict is that ‘PRo will act in an ethical fashion in its business dealings.’ It should go without saying, but actually it does need to be said. As the saying goes in cricket, ‘we are going to play it with a straight bat.’
Secondly, ‘PRo will not pay bribes.’ We do occasionally come across circumstances where a little grease might lubricate the wheels, and it’s a tough line to call, but if we think it’s a bribe, then we will turn our backs and walk away. Business that requires a bribe is not worth doing.
Our third self-imposed rule is that ‘PRo will not act in an anti-competitive fashion under any circumstance.’ Partly this is – for sure – self-preservation, since companies that indulge in anti-competitive practices can be fined up to 10% of their annual turnover during the period of the behaviour. That would not be good. However, colluding with competitors (in our case, I’m not sure who that might be) to artificially hike-up prices is not intrinsically a good thing anyway: It’s best avoided.
Rule number four is that ‘PRo will always pay its bills.’ When we have ordered something and it is delivered, we pay for it. I’m glad to say that we have been able to follow with this edict ever since we started in business a dozen years ago. We try to pay our bills in a timely fashion, and we encourage our customers to pay in a timely manner as well. Please note that ‘timely’ means within 30 days(!).
Our final internal rule for doing business with the outside world is that ‘employees at PRo will not criticise the competition;’ we will allow our products and services to speak for themselves. There are some funny stories to be told about the deeds of participants in the industry, but outright criticism is not polite and it’s not helpful. We’ve decided not to do it, and – pointing no fingers and naming no names – it would be a better world if everyone did the same.
I hope that I haven’t come across as being a pedantic old bore. However, I do think that if you are going to go into business, you had better do it in a way that allows you to sleep at night. As everyone who knows me will agree, I need and value my beauty sleep: We will play the game with a straight bat – right down the crease.

February 2008 (Robert McCaffrey)

I don’t know if they have the same custom where you are, but here it’s traditional to make resolutions at the start of the year, showing how you are going to change your ways. Apparently 85% of gym memberships are taken out in January (only to be allowed to lapse within a few months), and adverts for smoking ‘cures’ are also concentrated on TV in January. New Year, new you!
Two years ago I had a one-word resolution: ‘delegate.’ We have ended up with twice as many people working for the company (and twice the wage bill), but has totally changed the way we do business - for the better.
On a Christmas trip to my brother’s place, I saw his company’s communication strategy, and thought ‘we should have one of those.’ We have also been prompted to put into place specific corporate social responsibility policies by an award we have entered, so this year, I have resolved to move ahead with our CSR and environmental policies. Some people might say that our company is too small to have to bother with this stuff, but I reckon that everyone - small and large - should have an eye on their own conduct. Let me tell you a few things about our new CSR and environmental policies...
Environmental policy
The first thing that we recognised was that the most effective form of environmental impact abatement for PRo Publications is to continue to organise conferences (Global Slag, Ash, Fuels, Environmental, Insulation, etc) and to publish magazines (Global Cement, Global Fuels, etc) that promote environmental impact abatement in heavy industry. In addition, the company has already made enormous strides in reducing its environmental impact by allowing all of its magazines to be downloaded for free from the Internet. This reduces the number of copies printed and distributed, and further disseminates each magazine’s environmental messages to a much wider audience - each of these magazines has the largest distribution in its sector.
However, we also recognised that we could do a little more to reduce our environmental impact, and these are some of the things that we will do in 2008:
• Aim to reduce the environmental impact of how our employees get to work, and encourage use of walking/cycling, public transport and/or car sharing. We will also promote cycling through the ‘Free bicycles’ scheme, and through the subsidised provision of cycling safety and wet weather gear.
• In the office, we will turn off our computers whenever practical, and always at weekends; Switch off lights whenever possible; Turn down the heating in the office (and bring in a jumper for occasional use); Only print when necessary, and then only print what is required; Continue our paper recycling scheme; Aim towards recycling more non-paper waste; We will buy consumables with regard to reducing environmental impacts.
• When we print our magazines, we will ensure that our suppliers are EMS/ISO9000/ISO140001 accredited; We will change the paper that our magazines are printed upon to one that is FSC accredited and/or has substantial recycled content; We will ensure that the inks that are used in printing the magazine have low environmental impact. You can expect to see some slight changes from the February issue of the magazine.
• At our events, we will try to offer on-line registration (reducing the need for fax and fax paper); We will recycle delegate badge holders; We will encourage delegates to offset their transport-related carbon emissions; We will maximise recycling of waste at our conferences; We will aim to maximise the proportion of materials that are sourced locally; We will use recycled or recyclable materials whenever possible at our events.
Corporate Social Responsibility
Our CSR motto is ‘Do some good,’ which is at least one step up from Google’s ‘Don’t be evil.’ In short, we will encourage our staff to volunteeer for local community projects for at least one day per year on company time; We will designate and work towards helping a specific charity, we will carry out our environmental policy, and we will keep to ‘the PRo Way.’ The PRo Way is an ethos for our employees and for the company, and includes stipulations on behaviour within the company (including the suggestion that employees should get up from their desks and go and talk to colleagues, rather than emailing or phoning them).
You can see a lot more on this at www.propubs.com, and feel free to use it in your own place of work. Now we just have to carry it all out. Wish us luck!

December 2007 (Joe Kellam)

The environment, it seems, is jealous of the favouritism we’ve been showing its mortal enemy – the world economy – and is threatening to crank up the thermostat unless we start treating them more equally. The economy – which, for the last 100 years or so we have been feeding up on a diet of fossil fuels and population growth – has been stomping all over the environment like it owns the place, and the environment has finally got to the end of its tether.
Dr Rajendra Pachauri, the chairman of the Intergovernmental Panel on Climate Change (IPCC), has estimated that a 2°C rise by 2100 is “inevitable,” due to the CO2 we’ve already emitted. In 2006, Sir Nicholas Stern’s report for the Institute of Public Policy Research predicted that such a temperature rise would leave more than two billion people affected by drought and some of the world’s most diverse ecosystems severely damaged. The controversial 600-page Stern report, which warned of a 20% hit to the global economy and a new Great Depression, shunted the climate change debate up the global public agenda, but was at the same time widely criticised for inconsistency and scare-mongering.
With all the uncertainty about the consequences of ‘business as usual,’ it is no surprise that the first steps to combat global warming have been hesitant. The risk of a country losing its competitive edge by imposing limits on its industry is all too real, and cement production is a prime example of how concern for the environment can leave producers vulnerable to being walked all over.
Cement associations in EU countries have complained that their allocated quotas of CO2 need to be increased if demand is to be met. When I was at the ICCC (International Congress on the Chemistry of Cement) in Montreal in July 2007, representatives of the Canadian Cement Association voiced their concerns that restrictions on their production will only serve to force a gap in the market that foreign producers such as China, free from such stringent restrictions, are only too happy to fill. After taking into account the extra emissions associated with less regulated cement production, along with freight-related CO2, the regulations will have in fact left the world worse off
than it was without any emissions limits.
The situation is reminiscent of ‘the prisoner’s dilemma,’ a hypothetical situation in game theory in which two prisoners, held on suspicion of a crime, have the option to either cooperate (to minimise their collective jail time; a few months, say) or betray their partner in crime to get off scot-free (while the implicated prisoner takes the full brunt of the sentence, say 10 years’ jail time). However, if both prisoners implicate each other, they share the sentence (five years each).
Selfishly speaking, the best outcome (going free) is available to each prisoner if he betrays his partner in crime. Thus, the ‘rational’ outcome is that both prisoners implicate each other and serve five years each, in spite of the fact that, had they cooperated, they would both have served just six months. The dilemma is that simply by acting rationally to get themselves the best deal, they end up with the second-worst deal. Had they cooperated, they would each only serve six months, instead of five years.
Obviously, there are many differences between this and the climate change scenario, not least the huge amount of unknowns (and of course the world powers are able to communicate freely with each other). But the prisoner’s dilemma illustrates the difficulty of getting rational, self-interested agents to cooperate for their common good – even when fully aware of the consequences.
The US continues to reject a low-carbon economy, waiting instead to be bailed out by super-efficient technology from the future. IPCC chairman Dr Pachauri agrees (to a point) that “science and technology are going to assume a dominant role in defining solutions to climate change on a large scale.” I recently attended the 6th Arab International Conference on ‘environmental protection in cement and building materials industries’ in Tunis, a showcase for environmental impact abatement technologies, with an abundance of exhibitors and papers focusing on the use of alternative fuels. This is interesting to note simply because in Europe, the Middle East and many other areas, waste-derived fuels are hailed as a triumph for the environment, killing several birds with one stone (waste disposal, fuel, lower CO2, NOx and SO2 emissions). In the US however, alternative fuel use is on the rise for financial reasons, and environmentalists are instead lobbying against their use, arguing that this one stone risks literally killing a few too many birds (critics claim that the combustion of tyres, for example, releases unnecessarily high levels of carcinogens).
When even the environmental factions – who, it might be assumed, share the common goal of saving the planet – cannot agree, it leaves little hope that the UN climate change conference in Bali will do any better. Only time will tell...

November 2007 (Robert McCaffrey)

In my last cheerful column, I wrote about the potential ‘downsides’ to the world economy, and mentioned briefly the current credit crunch as one of the potential risks for all our livelihoods. Reading more about the situation has made me even more nervous about our collective prospects.
But first, a little history. In the 1920s, the US economy had grown strongly, but share prices had grown faster still, increasing in ‘value’ fivefold in the five years to September 1929. Millions of Americans had invested in shares, with many borrowing money in order to be able to do so. They had bet on the continued rise of share prices, a sure sign of a bubble. Some commentators suggested that share prices had plateaued, and that they would continue to trade at these elevated prices from that point onwards. However, during September and October 1929, the market saw record numbers of shares being traded, and erratic price movements. On ‘Black Thursday,’ October 24, the market dived in value, only to rebound the next day. Five days later, on ‘Black Tuesday,’ the bottom dropped out of the market, with it losing 13% of its value on a single day, (and around $30bn for the week, more than the US had spent in World War 1), and heralding a two year slide that saw the market lose 89% of its value. Some plateau! The stock market did not regain its 1929 peak level again until 1954, a quarter of a century later.
Wind forward the clock to the late 1980s. Following a spectacular computer-driven crash in 1987, the world markets were already spooked. In the background though, between 1955 and 1990, land prices in Japan appreciated by 70 times and stocks increased 100 times over. Companies began to use the apparent value of their land assets to raise loans to buy real companies abroad. When the land-bubble burst, the Nikkei stock index lost over 60% of its value, dropping 30,000 points, and tipping Japan into a decade-long recession from which it is only just emerging.
Forward again just seven years, and stay in Asia. The Asian Crisis began when Thailand devalued its currency, which had a knock-on effect throughout southeast Asia. Stock markets crashed, asset values plummeted, and corporate debts (often denominated in US dollars or Japanese Yen) went through the roof. I remember very well visiting Thailand soon after the crisis hit. I looked out of the window of a cement plant manager, at the unfinished third enormous pyroprocessing line at the site. I asked the manager why no one was working on the new plant. “Ah:,” he replied, “workers’ holiday.” That holiday was to last several years. A lot of ordinary people lost a lot of money, and buying cement was of lower priority than putting bread (or rice) on the table. At the time, I did a simple calculation that looked at the level of oversupply, and the rate of cement demand, and suggested that many economies would not be back in supply/demand balance for another decade. Unfortunately, this simple calculation turned out to be more or less correct, and only now are cement plant plants being built again in the affected countries.
Skip forward to 2007. Ignoring the stock market bubble in China (which will certainly burst at some point, taking much of Asia down with it), the huge losses sustained by US banks in the current credit crisis are only just beginning to become apparent. They bought up poor quality sub-prime mortgages, repackaged them, and sold them on, levying fees as they went. Most banks loved these financial packages, and especially the money they could earn from them, and banks have tens of billions of dollars-worth of these low-quality assets on their books. They have only just started to confess to how much they have lost (since, because US house prices are falling, and because the interest rate on a lot of the loans is resetting to a higher rate, the people who took out the original mortgages have started to not pay back their debts). Citigroup has lost $11bn, Merrill Lynch $8bn and Morgan Stanley $3.7bn (so far). It sounds like a lot, but in reality, it is just the tip of the iceberg. Up-to-date projections suggest that the total ‘hit’ that may have to be taken by the banks is somewhere between US$300bn and up to US$600m (and beyond, if interest rates were to be increased).
Observers suggest that we will see a multi-year economic downturn (banks generated 30% of the profits of all US companies in 2006), led by a collapse in the US housing market. We’ve already seen the ‘postponement’ of new cement plants in the US (another workers’ holiday, perhaps?), but when you look back at history, you have to start to wonder, ‘Just how bad can this get?

October 2007 (Tom Day)

Many of my fellow students revered our Politics Professor. Harry, as he insisted on being called, was a handsome academic in his mid-forties, with a permanent tan and immaculately coiffured, silver hair. Harry was a champion of the poor and a class warrior, whose penetrating insights and sharp wit could effortlessly demolish the intellectual foundations of the New Right. It was with some surprise, then, that I bumped into Harry in a shopping centre car park one weekend, heaving a new set of golf clubs into the boot of a Saab. He reddened when he saw me and I was unable to stifle a guffaw. “Socialist?” I asked rhetorically. “Champagne socialist more like!”
Now I have to admit to having held, until recently, a lifelong prejudice against golf. When I was young and idealistic, golf’s historic elitism was enough to turn me against it. All those privileged old boys in their exclusive private members’ clubs offended my egalitarian streak. And I could never fathom their clubs’ arcane and petty rules, more often than not enforced with relish by a pompous club secretary, permanently embittered by the fact that he was never promoted from Colonel to Brigadier.
OK, so that’s a bit of a caricature and, in any case, times are changing. For sure, golf is still mainly the preserve of well-off men in the world’s richer countries. Slowly but surely, however, it is reaching more and more people as incomes rise and new courses open at a rapid rate. According to the Golf Research Group (www.golf-research-group.com), thousands of new courses have opened around the world in the past decade. There are now over 30,000 golf courses worldwide, with over 57 million people teeing off in 119 countries. The global market for golf clubs and accessories exceeds US$2bn. Golf is on the march.
However, as my idealism has waned with age and experience, I’ve acquired another objection to golf that has helped sustain my prejudice. Whenever I meet corporate executives – particularly ones from Britain and America, but increasingly from other parts of the world too – it is not long before they are boring me silly with soporific golfing stories. This problem afflicts all rungs of the corporate ladder, from aspiring juniors to big chiefs. Like driving certain brands of luxury car and having a Blackberry, playing golf has become another badge – an indicator that you have arrived, that you are now somebody. Except that you are, in fact, just like everybody else. Corporate clone…me? No thanks.
My third and most important objection to golf, however, has always been that it is…well, pointless. Think about it: Your time on this planet is finite and is mostly spent working, sleeping and keeping your family happy. The time you have to dedicate to yourself is limited and therefore precious. So why spend it hitting small, white balls around a field – all while dressed in attire so embarrassing you wouldn’t dare wear it to a fancy dress party? How about improving your mind instead, by reading some history? Why not explore your creative potential by learning to paint? If it’s real exercise you are looking for, how about taking up jogging or going to the gym? And if you’re after a proper sport then there’s only one: Soccer.
Problem is, I’m putting up a fight but my defences are crumbling. My boss has dumped on me again. No matter how hard I try, my inbox just doesn’t get any smaller. And as soon as I get home my ears are assaulted by my wife’s woes and my kid’s demands. I go to bed and the next day the routine is the same. I think I’m cracking up. I need a break and some peace and quiet. Fresh air in my lungs would do me a world of good and some gentle, green vistas and sunshine on my shoulders could work wonders. A bit of gentle exercise to get my cramped muscles working again wouldn’t go amiss either. And what I could really do with is something to take my mind off my troubles: something that’s absorbing without being too taxing on my frazzled brain. I need…well, how about a game of golf? Now what was I saying about the club secretary? That’s right. Splendid chap!

September 2007 (Robert McCaffrey)

Now, I don’t want to bring you down, but the topic for my column will be war, pestilence and a global financial meltdown – and what it means to you. It’s not necessarily all bad news*.
At a major conference in London in March 2006, Rob Carnell, chief economist at ING Bank told the assembled delegates that the world had been through an unusually quiescent period, with no great events to shock the global economy (apart from 9-11). He pointed out that, rather than going through a boom-bust cycle, economies (including America’s US$13trillion economy) had ‘missed’ a bust, and had just kept right on going. Rob pointed out that a number of factors had conspired to either eliminate or mute the normal downturn at the end of the economic boom, resulting in a steadily rising consumer demand throughout the world which continues to this day. GDP growth worldwide has been steadily upwards for the last decade (apart from in a couple of basket-case economies such as Zimbabwe and North Korea).
Rob Carnell pointed out though that there were more troubled times ahead. I’d like to update some of the ‘blips’ that may be coming our way.
As is well known, the US has been gorging on cheap consumer goods – largely made in China – for a dozen years or more. Its external debt is around US$10trillion – US$10,000,000,000 – and this continues to rise daily. The country is also buried under domestic debt of around US$9trillion, which does not include another US$10trillion or so of mortgage debt. It is this last chunk of borrowing which is currently destablising world markets. Mortgage lenders in the US have been doling out pots of money to borrowers with very few checks on whether they could ever pay it back - and often, they can’t. Those mortgages have been sold on to banks worldwide, ‘contaminating’ their balance sheets with near-unquantifiable losses. Bank confidence is at a 20-year low, with financial institutions unwilling to lend to each other or to the man (or business) in the street. Mortgages are much tougher to get, house prices in the US are dropping for the first time in decades, housing starts are down (hitting building materials demand), consumers are curbing their spending, and at the very least it looks like this is the end of boom. Certainly, to savers at the UK’s Northern Rock ‘bank’ it certainly looks like the end of the road. Economists are now asking if 2007 will see the start of a recession in the US – and if we do, it will certainly impact China’s export-led economy, and have a major knock on effect worldwide.
But enough of these cheery thoughts. On to nuclear war. The Doomsday Clock (above) stands at five minutes to midnight, having been advanced by two minutes in January 2007. At midnight it goes ‘boom’. Iran’s continued enrichment of uranium is part of the reason for the current nuclear tension. America continues to assert that ‘all options are on the table’ when it comes to Iran, potentially including the use of nuclear weapons. Iran’s nuclear facilities are ‘hardened,’ or buried, making them extremely difficult to destroy with conventional weapons. Certainly, there are precedents for an international strike on atomic facilities – Israel destroyed the Osirak nuclear reactor in Iraq in 1981. Many commentators now believe that something similar may happen again, this time in Iran. The US has around 500 ‘tactical’ or ‘battlefield’ nuclear weapons (out of 5735 total active warheads). Israel is believed to have around 200 nuclear weapons. Personally, I don’t think that - after Hiroshima - it is possible for any ‘responsible’ country to use a nuclear weapon, but we shall see. Let us all hope not.
And finally, deep joy, on to pestilence. Experts at WHO and elsewhere believe that the world is now closer to another influenza pandemic than at any time since 1968, when the last of the previous century’s three pandemics occurred. The WHO uses a series of six phases of pandemic alert, and we are currently at three (where six is very, very bad). I note that flesh-eating mega-virus Ebola has reemerged, and that international air travel is currently growing at around 5.5% per year. As Rob Carnell noted, global pestilence has a major ‘downside.’
*It’s not all bad news, but it’s mostly bad news.

July 2007 (Robert McCaffrey)

I recently spent the weekend of my 40th birthday in the corner of a field with some of my friends and family, and endured two days of torrential rain. One of my friends was kind enough to buy me an interesting book for my birthday: Alain de Botton’s ‘The consolations of philosophy.’ This thought-provoking book – through examining the lives and philosophies of six eminent philosophers - provides consolation for unpopularity, not having enough money, frustration, inadequacy, a broken heart and ‘other difficulties.’
Socrates was born in Athens in 469BC. He grew to become a well-known figure, dressed in the same cloak throughout the year, and walking barefoot. He was short, bearded and bald, and was not a good-looking man. His wife had a famously foul temper. When asked why he married her, he is said to have replied “because horse trainers need to practice on the most spiritied animals.” He challenged his countrymen to examine their beliefs extremely closely, and to apply reason to every situation. This apparently made a number of them rather uncomfortable, so much so that they charged him with corrupting the social fabric of Athens, found him guilty and ordered him to drink hemlock. He accepted his fate with famous stoicism, realising that unpopularity is not synonymous with error (nor truth with popularity), and that reason must prevail.
Epicurus, born in 341BC, has become the poster-boy for opulent living, but he espoused a subtly different approach to a rich lifestyle. Although he did say that ‘The beginning and root of every good is the pleasure of the stomach,’ he was a man who drank water in preference to wine, who was happy to each bread, vegetables and olives, and who regarded a cheese as a feast. He regarded the pursuit of happiness as paramount, but suggested that the finest ingredients for happiness were not the exclusive preserve of the rich man. Quite the opposite. Friendship, freedom and thought were the three main essentials (after food, shelter and clothes). The pursuit of grand houses, banquets, servants, rich food, fame and power were, said Epicurus, not necessary.
Seneca’s demise is reminiscent of Socrates (the emperor Nero decreed his death, which he faced with admirable sang froid), but his philosophy was different. He suggested that we are better able to withstand frustrations that we have prepared ourselves for, and most hurt by circumstances we are unprepared for, or do not understand. His life’s work might be summed up by saying ‘Don’t expect too much, and you won’t be disappointed. Don’t get angry with the world: it’s nothing personal.’ Or alternatively, ‘That which cannot be changed must be endured.’
To console the reader for their inadequacies, de Botton recommends the robust philosophy of Michael de Montaigne, a 15th century French nobleman. Montaigne suggested that we are all-too-fallible, being part mad, part wise, with bodies that rarely fail to embarrass us. He suggested that if we fail to recognise the baseness of our own bodies, and the limitations of even the most intelligent men, we are getting too big for our boots. However, he also suggested that there is richness in even a commonplace private life, and that “we are richer than we think, each one of us.”
Arthur Schopenhauer was born in Germany in 1788, and throughout his life was not lucky in love. He came to believe that a ‘will to life’ or subconscious reproductive urge, dictated our choices of partners, and that our conscious minds could do little to disobey. Such choices do not always appear wise to the waking mind, and nor are they always convenient. A person who is highly suitable to sire and raise a child with is almost never very suitable for us. Schopenhauer asks us not to be too surprised by the misery (see Seneca). ‘We pursue our love affairs and have our children with as much choice in the matter as moles or ants – and are rarely any happier.’ However, such misery is the human lot when it comes to love. Schopenhauer might have said “Get used to it.”
Friedrich Nietzsche would have added “...and learn from it.” In fact, Nietzsche started out as an admirer of Schopenhauer, but came to regard his world view as just too passive. Nietzsche, while not having the farmer’s constitution he wished for, was an Alpinist, and he recognised in the Alps an analogy for life which was later to be echoed in a famous song by AC/DC: ‘It’s a long way to the top if you want to rock’n’roll.’ Those seeking fulfillment should not eschew difficulties, but should embrace them and learn from them. “That which does not kill us,” Nietzsche is reputed to have said, “makes us stronger.” Like two rainy days in a field? Happy days!

June 2007 (Robert McCaffrey)

This will be a column of two halves. Sorry, but it’s not a cheery or funny column, just for a change.
A story in yesterday’s paper suggested that in 2006, 8000 people per day died of AIDS around the world – that’s 2.9 million people. Looking into it, I find that the UN AIDS programme agrees with the numbers. Appallingly, 2.1 million of the total deaths come from sub-Saharan Africa (compared with ‘only,’ for example, 12,000 in western and central Europe). In 2006 there were 2.8 million new infections in Sub-Saharan Africa (of 4.3 million new infections worldwide) and there were 24.7 million people in sub-Saharan Africa living with HIV (of 39.5 million worldwide). To put this into context, 39.5 million people is approximately the same as the total population of Shanghai, Los Angeles, Paris and Cape Town. The world’s largest soccer stadium, the Maracanã in Rio de Janiero, holds around 100,000, so that’s nearly 400 giant soccer stadiums full of people living with HIV. And for the vast majority of them, that means dying of AIDS: less than one in four of those infected in low and middle income countries had access to anti-retroviral therapies.
Although the epidemic touches populations across the world, high risk behaviour (intravenous drug use, unprotected high-risk sex) means that the risk of infection is concentrated in specific population groups. You may suggest that some of the infected bring the infection upon themselves with their behaviour, and for some that is undoubtedly true. But the lack of education in these groups is also marked. Who wants to get HIV? No-one. Who would rather avoid it? Everyone.
The global AIDS epidemic is growing, and is increasingly becoming a major factor in business planning. Any company operating in sub-Saharan Africa ought to have a programme in place to treat infected workers, and to prevent non-infected workers from becoming infected if they wish to secure a sustainable business. You can’t have a business without workers. Thankfully, the cement and minerals sector has a reasonable record in this regard.
According to the UN AIDS programme, scaling up prevention strategies in 125 low and middle-income countries would avert an estimated 28 million new infections between 2005 and 2015 (the total population of Jakarta, London, Chicago and Sydney) – that’s more than half of the new infections projected to take place without scaling up prevention strategies. Doing so would save US$24 billion in associated treatment costs. AIDS funding of around US$8.9 billion was available in 2006, although around US$14.9 billion was actually needed, with 55% of resources needed in Africa.
Here we come to the second half of this column. World military spending rose to US$1118 billion in 2005. The US accounts for 48% of the world total, with China, Russia, the UK, Japan and France making up another 25% of global military spending. There is no need to single out military spending as not necessarily a smart way to spend money when there might be more useful things to spend it on. For example, Europeans spend in the order of US$50 billion each year on cigarettes, and US$11bn on ice cream. Europe and the US combined spend around US$17bn on pet food. There are many other examples of big money being spent on fripperies. Has the world gone mad?
“A billion here, a billion there, pretty soon you’re talking about real money”*
As with HIV/AIDS prevention and treatment, relatively small amounts would make a huge difference to a lot of people (providing basic education for all in developing nations – US$6 billion, providing basic health and nutrition – US13bn).
I’m not asking you to put your hand to your pocket (unless you are Carlos Slim or Ingvar Kamprad and you happen to have stumbled on a copy of Global Cement Magazine; Bill Gates and Warren Buffet are already doing the only sensible thing by giving it all away). However, it’s useful to note these odd spending priorities, and to make your views known to your elected representatives next time you might be asked.
http://www.globalissues.org/
http://www.unaids.org/
http://www.infoplease.com/ipa/A0763098.html
http://worldatlas.com/citypops.htm
http://en.wikipedia.org/wiki/List_of_billionaires
*(US Senator Everett Dirksen)

May 2007 (Robert McCaffrey)

A decade ago, I visited the Japanese cement industry in the company of a representative (Nat Kubota) of the ever-helpful Japanese Cement Association. I was impressed with what I saw: gleaming cement plants, futuristic trains and carefully-preserved traditions. I also came back with the feeling that a number of trends that I had witnessed in Japan would eventually be taken up by the cement industry around the world, largely because, in a mature cement market like Japan, the potential for volume growth in the cement market is practically nil, but also because the Japanese have a well-known tendency to take ideas, radically improve them, and then export them to the world.
The five ‘Mega-Trends’ that I found in Japan 10 years ago were gigantism, increased captive power generation, energy efficiency, increasing exports and rationalisation. It did not take a genius to spot these trends, but it is interesting to see how long it has taken for cement producers worldwide to adopt them - or not.
‘Gigantism’ is perhaps an odd term, but it essentially suggested that cement plants would get bigger, not just in terms of individual lines, but also in the number of lines located at any one plant. Individual pyro-processing lines have undoubtedly become larger (if not in physical terms, then in production capacity terms), with 8000 or 10,000t/day lines pushing the limits of technology and engineering ten years ago, but with 12,000t/day lines now being planned and built. Holcim’s new 12,000t/day (clinker) St. Genevieve plant will feature a pyro-process system consisting of an ILC 5 stage preheater (over 130m high) and a 6.6m-diameter, 93m-long kiln. Two vertical roller mills will be used for raw grinding and four OK vertical roller mills will be provided for cement grinding. When will we see the first 14,000t/day single pyro-processing line? With the economies of scale on offer - and the increasing urbanisation of the world providing ever-denser concentrations of cement-consumers - we might see it before the end of the decade.
Increased captive power generation has been taken up only patchily by the cement industry outside of Japan, but it has been embraced in India. Such is the unreliable nature of the supply - and the high cost due to the fact that the majority of the rural population does not pay for its electricity, hence driving up prices for easily-billed large industrial users - that building your own power station is what the Americans call a ‘no-brainer.’ Bizarrely, the same situation - of unreliable supply and (intermittently) high cost - has also taken place in California, and with increasing electrical cost and over-demand/under-supply, I can see this trend continuing to roll out around the world.
Energy-efficiency has of course been pursued around the world (except in countries like Iran where energy is either plentiful or subsidised or both), with an ever-increasing emphasis on not just using less energy, but on buying fuels for less. To my knowledge, the first cement plant to achieve a negative fuel cost was the Rüdersdorfer Zement plant (now owned by Cemex) east of Berlin, largely through the use of an unusual fluidised bed combustion chamber. Nowadays, every cement plant in the world can use alternative fuels, particularly with the help of devices like the FLS Hotdisk, through modelling of combustion conditions using CFD, and - often - by the use of plenty of strategically-placed air-blasters. This is a trend that has been going for 20 years or more, and has at least as much time again to run to its full course.
Exports - and world cement and clinker trade - have increased past the 100Mt/year mark, but not necessarily as fast as I had expected: sky-high freight rates have edged out lower-margin commodities like cement over the last few years.
Rationalisation, of course, continues apace. Even though new companies continue to burst onto the scene like mushrooms on dead wood when times are good - as they are now - there are smaller deals being done every month to rationalise national cement industries around the world. With Cemex’s impending takeover of Rinker, the company will become the world’s largest construction material manufacturer. The big companies are making money, and they like to spend it to grow yet larger still. Reading the financial pages though, I’m always struck by how small the cement industry’s deals look when compared to other industries. I think that the next ‘Mega-trend’ may yet turn out to be ‘Mega-deals,’ where the unthinkable may happen - a Holcim, a Lafarge or a Cemex gets taken over by another company. Think it can’t happen? That’s what they thought at Blue Circle, Southdown, ACC, RMC and at Rinker.

April 2007 (Robert McCaffrey)

More on happiness this month. Forgive me for going on about it over the years, but happiness is central to everything we do. We eat not only to live, but also to make ourselves happy. Imagine how unhappy you would be if you didn’t get enough sleep (fact for the day: babies prevent their parents from sleeping for the equivalent of 2 months in the first year of the baby’s life). Apparently, to most workers job satisfaction is the most important thing about a job, not wages. Even activities that appear to be unpleasant have a happiness-seeking side (contrary to my column in the May 2006 issue of Global Cement, I will be doing the London Marathon again this year. I will beat three hours: I will, I will!).
Some Western societies have the pursuit of happiness as an inalienable right, either explicity stated, or implicitly suggested by the national way of life. Other societies around the world pursue happiness in their own ways, though thankfully not (yet) through consumerism. My point is that happiness is an important topic, and that if we seek it, we should seek it effectively.
Which brings me on to a book that I have recently been lent by a colleague. The book is called ‘Stumbling on happiness,’ by Daniel Gilbert. It makes two main points: Our imaginations trick us all the time; and we are not good at directing ourselves towards our highest potential state of happiness.
Gilbert first points out that we are the only animal which can imagine the future and act now to affect the far future. However, he says that our imagination works so quickly and effectively that we are insufficiently sceptical of the future outcomes that we can invent. He also suggests that our future imagination is not particularly imaginative, which is why the imagined future looks so much like the present. Finally he shows that our imaginations have a hard time in showing us how we will feel when our imagined future happens. (I imagine that I will be delighted if I managed to break three hours in the marathon. I’ll probably just be tired). He even displays a graph (below left) which will dismay the newly-engaged to be wed, but which will give rise to sage nods from all those who are near the bottom of the curve.
Gilbert agrees with none other than Adam Smith when he says ‘economies can blossom and grow only if people are deluded into believing that the production of wealth will make them happy,’ and quotes Smith as saying “The pleasures of wealth and greatness strike the imagination as something grand and beautiful and noble, of which the attainment is well worth all the toil and anxiety and effort which we are so apt to bestow upon it. It is this deception which rouses and keeps in continual motion the industry of mankind.”
Gilbert espouses a formula for maximising happiness that was originated by the Dutch polymath Daniel Bernouli in 1738. He suggested that we should seek happiness by multiplying the probability that our action will give us what we want, by the ‘utility’ of getting what we want. He uses ‘utility’ because wealth is not what everyone is after: if you have gone beyond consumerism, perhaps a day of prayer, or an extra hour of sleep is your ultimate goal. Thus, if more chocolate cookies is your ultimate goal, then sitting on the couch is not likely to bring you happiness. Going to the cupboard and getting some will probably bring you more happiness. It’s a trivial example, but you get the point.
Gilbert’s overarching point though is that (sticking with the cookie analogy) although you imagined that you would be happy to have more chocolate cookies, and you were effective in getting up from the couch to get them, when you ate them, you actually felt sick, and wished you hadn’t bothered. What should we have done then? Gone without extra cookies? Switched to lettuce leaves? Annoyingly, Gilbert does not give the reader any useful alternative action plans, although he does point out that we more regret actions not taken, than taken.
So, at the end of the day, I think that the message is, carefully imagine what will make you happy in the future, and go for it.

March 2007 (Rob McCaffrey)

I was bought a very interesting book for Christmas: ‘How to get rich,’ by a Felix Dennis. He’s an engaging writer, and well qualified to write on this subject, since he is worth over UK£700m (US$1.4bn). I’d like to share with you a few of the main points of the book: you may be inspired to read the whole thing (it is worth the purchase price, for sure). For starters, he points out that anyone with assets up to UK£2m is one of the ‘comfortable poor.’ He suggests that the ‘lesser rich’ have assets of at least UK£15m, and that to be one of ‘the rich’ you would have to have at least UK£75m in assets (or at least UK£15m of cash in hand, realiseable within a couple of weeks). The ‘filthy rich’ he classifies as those with over UK£400m in assets, and the ‘super rich’ as those with over UK£999m. I’m not on his radar.
Total Assets (UK£m) ‘Richness’
£1-2m Comfortably poor
£2-5m Comfortably off
£5-15m Comfortably wealthy
£15-40m Lesser rich
£40-75m Comfortably rich
£75-100m Rich
£100-200m Seriously rich
£200-400m Truly rich
£400-999m Filthy rich
£999m+ Super rich
Felix Dennis suggests that it is very unlikely that anyone reading his book will actually get rich. The odds are just too stacked against them. The odds, and the various factors that prevent people from making themselves rich: fear of failure, the fear of not having a ‘Great Idea,’ believing that they do not have enough capital, and giving up on their business before they have given it enough of a chance. He points out that none of these is an insurmountable obstacle to becoming rich (apart from just giving up). He suggests that there are a number of useful qualities to have to be able to become rich: having tunnel vision to some extent, having a thick skin, being a bit of a ‘sh*t,’ a bit of luck, massive stamina and an appetite for hard work, and bags of determination. He says, several times, ‘Never Give In. Never. Never. Never. Never give in. NEVER.’ Thank you, Felix. I think that we get the point.
He points out that in negotiations, it helps to know your own strengths and weaknesses, as much as those of your ‘opponent.’ He suggests that luck will come your way more often than might be expected, but it will never come your way if you seek it. He is very keen indeed about owning 100% (or as much as possible) of any business. He believes in delegation. He doesn’t believe in giving away equity, or if he sells the company, he doesn’t disburse the proceeds. He strongly believes that whatever you do, you should stay focused on it, and do it as well as humanly possible. You should undertake business