We discussed the past, present, future strategies of MEDCEM and of cement sector with Murat KAHYA, General Manager at MEDCEM.
Could you tell us the foundation story and works of Medcem Cimento, Europe’s and Turkey’s largest cement factory, which has a 11,500 tons of clinker production capacity per day and which produces on a single line?
As you said, Medcem cement factory is the biggest factory in Turkey and Europe with a capacity of 11,500 tpd. Operating in the cement sector since 1992, our Company is an investment that Eren Holding plans to establish for the foreign and domestic market in the Mediterranean region. We aim to make it one of the most modern facilities in the world by employing the latest technology equipment. As a result of a 3-year investment process, we started production in June 2015. With our own port that we built 13 km away from our factory, we became a company that can easily reach foreign markets. In addition to exporting our products to different countries, we also acted with the goal of selling our products from our facilities established abroad. Today, we have grinding facilities in Cameroon and Tunisia and a terminal in Russia. We sell through our own brand here. We also provide port services to outside from our Medcem Port located in Mersin-Yesilovacik. With its high loading capacity, this port is very suitable for bulk and packaged product shipments. We are also an important player in the ready-mixed concrete sector in our region with Medcem Beton. We serve with 5 facilities here.
How do you define your company’s position in the sector?
We have been operating in the cement industry for 27 years. This experience enables us to maintain a strong position in the sector. We established an export-oriented cement factory and aimed to be successful in exports by forming a strong team. As a result, today we have come to Turkey the largest exporter of cement sector positions. We are the leading choice of our clients in the important markets, particularly those with high quality cement demand.
Have you reached your targeted figures for the first 6 months of 2019? What are your predictions for the year-end?
The second half of 2018 was a difficult period for our sector. We experienced a downsizing in the sector. In 2019, we made our annual plans based on our anticipation that this shrinkage would increase more. We planned to escape the shrinkage in the domestic market by increasing our export focus. We are not far from achieving our targets both in domestic and export markets. Still, we have lagged behind our plans in terms of our incomes.
By the end of the year, we expect an immediate shrinkage by 40% in the domestic market in Turkey. In the Mediterranean region, which has a high production capacity, we will experience a decrease above this figure. Although our exports increased by 41% in cement and 119% in clinker compared to 2018, unfortunately our country will shrink in total sales. We are not quite positive about 2020. In particular, there was a serious decline in foreign market sales prices. This situation caused significant loss of income for our country. As a country, we must take some precautions.
Being close to port is a huge advantage. What % of your production is exported?
We built our own port 13 km away from our factory. We have a port capable of loading ships with a load-carrying capacity of 60,000 tons. We can load 3 ships at the same time. Our loading level is one of the best levels in Turkey both for bulk load capacity and packaged products. Thus, we can provide our customers with very good service with flexible times and high loading capacity. It has given us a substantial advantage in the market. We also provide port services to external customers from Medcem Port. We export 85% of our production.
What countries do you export to?
Our most important markets are Israel, the United States, which are followed by African countries and Latin American countries. Even though it is not a large amount, we also export to European countries
Are there any new investments? Are there any recent plans for second line investment?
We have recently started a mill investment to increase our cement grinding capacity in our factory. It will have been activated by the mid-2020. Since we aim to export our cement, not clinker, we started a capacity increase project in cement grinding. We will not realize our second clinker production line investment plan for the time being. All preparatory processes were completed, but the current situation in the world and our country’s economy is not suitable for such an investment. We will review it again in the coming years.
We have focused on Industry 4.0. We have carried out some studies for Industry 4.0. We will continue these studies to develop it. We want to add new cement investments to our existing ones in abroad. Thus, we will establish an effective network in cement sales from our own plants abroad. We have investment plans for alternative fuel use. We will evaluate these plans for 2020.
Where do you plan to see your company in the next 5 years?
As an old and experienced player, but as a new cement company, we have achieved a successful position in the global cement market in 4 years. We are the preferred and strong company in the major cement markets in the world. Yet, we do not want to be an exporter company only, but also a company that produces and markets its own products in other countries. I believe that we will be successful in our facilities in developing markets and new facilities we will establish.
How do you evaluate the current situation for the cost increases of 2019 for the sector?
We are an energy-intensive sector. Fuel and electricity are our main cost items. The price of electricity has been increased dramatically lately. Considering the high inflation rate of consumer goods, labour has significantly increased. On the other hand, it was not possible to reflect these costs on sales prices. Unfortunately, these increased costs adversely affected our competitiveness in export markets compared to other countries. There were also significant increases in fuel costs towards the end of 2018. But the decline during the year allowed us to cut some costs for our sector. Yet, the increasing production costs, as well as both domestic and international transportation costs, will continue to challenge us in 2020.
As Medcem Cimento, what are the activities you carry out to ensure sustainability?
Our main objectives in sustainability are to reduce consumption of natural resources and to reduce greenhouse gas emissions. We established one of the most modern, state-of-the-art factories in the cement industry of the world. Our facility is very efficient in terms of both thermal and electrical energy consumption. We consume less resources and thus produce more. In April 2018, we commissioned our waste heat recovery facility that generates electricity using furnace waste flue gas. We supply 25% of our facility with electricity generated from waste heat. In this way, we do not release waste heat to nature and turn it into clean energy. In addition, feasibility studies for renewable energy plants are also in progress. We have just completed our permit process. We will start using alternative fuel. Thus, we will reduce our fossil fuel consumption. Similarly, we use wastes from other industries as raw materials. In the coming period, we aim to increase the amount of alternative raw material usage. Our afforestation works continue with the goal of planting 10,000 trees annually.
What do you think about the situation in the cement industry in the world and especially in Turkey? How do you evaluate the development of companies and the sector?
The slowdown in the world economy also shows itself in terms of cement consumption. Despite the increasing production capacity in the world, low consumption amounts are creating a more competitive market structure. It is the same case here in Turkey. We have a continuously increasing production capacity with new investments for many years. On the other hand, a 40% annual contraction in the domestic market due to the shortage in the construction sector. The market is extremely competitive due to increasing costs. In the short term, there is no improvement in the market. To be optimistic the year 2020 will be similar.
In recent years, many cement plant investments have been completed. Some of these investments are made for capacity increase of existing ones and some to serve as new factories. We had important mistakes here as a country. There have also been some investments whose strategies are yet to be fully established. Some investments have been made without making an appropriate strategical evaluation on regional domestic market consumptions, market developments trend, export potential and financing difficulties. When the high indebted burdens of companies, the contraction in the construction sector and high competition are combined, you can see our sector has been going through the most difficult situation in its history. Another problem we face other than the high capacity supply is the high number of players in our country. Today, there are 52 plants and more than 25 manufacturing companies operating in our country. Each company has its own unique situation and strategy in the market. While creating a competitive environment for the domestic market, it creates negativities in the export market. Unfortunately, a rapid recovery will be difficult in the period when recovery will begin. In addition, due to the high capacity concentrations in some regions, the prospects for improvement in the regions mentioned in the future will be very weak. High capacity supply in regions with low development and weak export potential will continue the consumption bottlenecks. In this case, we need to focus on plans such as production planning, mergers and development of export strategies.
We see that the contraction in the domestic market leads cement companies to export more. As Medcem, how do you interpret this situation?
We have realized our investment as an export-oriented cement factory. We started our activities with the strategy of producing different products, loading from our own port, marketing with our own global marketing company, producing and distributing with our facilities established abroad. It has thus given us some advantages and we are preferred. However, the result of the contraction in domestic market will see over 70% increase in the cement clinker exports and we, as Turkey, will export over 22 million tonnes. Unfortunately, we make mistakes here as a sector. Rather than focusing on profitability, a production-oriented way is followed without fully understanding the market structures of the countries and with inadequate analysis. Unfortunately, this situation harms the export market and the economic return of the country. And yet, the biggest competitors of Turkish cement producers in the global market are Turkish cement producers. Due to the wrong strategies, there is an extreme decrease in FOB prices. While export prices in the world have decreased by 20%, there is a decrease up to more than 35% in our country. Some countries are launching an anti-dumping investigation. This may result in future market losses for Turkey. There should be no action without strategy. Unfortunately, we were negatively affected by this development as the main exporter company. Even if we achieve our quantitative targets, we are far from our income targets.
What are the most important problems in the sector? As Medcem Cement, what are your solutions to these problems?
Our industry has common problems. which are, most importantly, surplus supply and low consumption. Returning to foreign markets in decreasing domestic consumption is the common solution in our country. We are an exporter cement company. We market our own product with Medcem Global marketing company. We have an effective sales system with this company. As I mentioned before, our unique features also make us the top choice in the market.
Increasing costs cause yet another problem. Our modern facility provides technical and economic efficiency, too. Our waste heat recovery facility makes a 25% electricity production contribution. We will start using alternative fuel. Still, the challenge here is the availability and continuity of an alternative fuel. Alternative fuel consumption, which is 34% in the EU, is less than 5% in our country. Inadequate legal regulations in our country are the most important reasons behind this figure. Legal arrangements should be made in our waste management policy. Some incentives may also be introduced for this purpose. The incentive system should be considered for the necessary facilities. Policies need to be developed by local authorities for the recovery of waste. Unfortunately, we will import from abroad mainly due to this inability. To increase domestic consumption, Turkish Cement Manufacturers’ Association have been carrying out prominent studies on roads and concrete barriers. When the costs of concrete roads are considered, it provides a cost advantage of 32% in the long term compared to asphalt roads. It prevents money from going abroad due to imported asphalt. Concrete barriers provide greater safety on roads than steel barriers. We will address these issues. Another important issue of the sector is the shortage of human resources. We are having difficulty finding qualified personnel both for the blue collar and the white collar. Besides, we also have employee-oriented policies in HR management. But unfortunately, regional conditions are challenging.
What should be done on the basis of companies and government to increase cement exports?
In 2019, our cement exports will be at a record level. Our primary focus must be on increasing export prices and thus on revenues, rather than increasing the amount. To accomplish this, companies need to establish effective export departments, market research, analysis, taking into account the points they can be strong at the best prices to perform exports. The right markets and the right products must be chosen. Quality products, quality service, high customer satisfaction must be targeted. Only the quantity-oriented and cash-flow-oriented sales target must be avoided. Trade and political relations between countries are also important for the export market. There is a Syrian market ahead of us, which is expected to bring a lot of benefits for our sector. We can be the main cement supplier of Syria through beneficial relations to be established here. It is an important opportunity. Additionally, incentive support plans for export can also be initiated. Such as freight support, waste import from abroad. Kaliteli Türk Çimentosu (Quality Turkish Cement) brand can be developed as a program.
Could you please provide some insight into occupational health and safety? What can you say about your company’s OHS studies and innovations?
Occupational health and safety has already become a life culture for us. In order to create and maintain this culture, we must focus on training first. Our employees receive 30 hours of OHS training per person per year. We select the OHS slogan of the year with a competition organized among our blue-collar personnel. Every month, we select the employees of the OHS month and give them small gifts.
For the development of OHS culture, we realized the “OHS Starts with Children” project. Due to insufficient facilities in our region, children do not have the chance to go to the cinema. In our seminar hall in the form of a cinema hall, we aimed to raise the awareness of both children while enjoying the cinema and OHS education. We informed them about what a cement factory is, what safety means here and in daily life. We finished the day with small gifts. In this way, we reached 2,500 children.. We also made OHS and environment themed coloring book. Therefore, we distributed 5,000 books with coloring pens. We have done more than what I have just mentioned about OHS. However, these activities, in which we act child-oriented, were the most important ones for us.
We would like to get to know you. What can you tell us about yourself?
I was born in 1977 in Ankara. I did my Bachelor’s Degree on the department of Mining Engineering in Dokuz Eylul University In 2000, I started my career as a Production Engineer at Denizli Cement Plant. After various positions, I was assignede as a Factory Manager at Medcem Cement Factory in 2014. Afterwards, I continued to serve as an Assistant General Manager. Since 2017, I have been working as the General Manager of Medcem Cimento (Medcem Madencilik ve Yapi Malz. Tic. AS), Medcem Hazir Beton, Medcem Port Liman Isletmeleri, Medcem Cimento Satis ve Pazarlama. I am married and I have one daughter.