Murat KAHYA
General Manager
Medcem Çimento
We can say that the year 2021 was an aftershock year, which made it easier for us to observe the effects of the pandemic and take necessary precautions. However, the economic turmoil in the world and especially Turkey, has affected us as well as all other sectors. Significant increases in freight costs, commodity prices, incredible increases in items such as electricity, which is our primary need in production, has driven our costs to unpredictable levels. Fuel ton prices increased from 60 dollars to 180-200 dollars Electricity prices increased from 0.50 TL/kWh to 1.5 TL. These are increases of 200%. These two items make up more than 80% of the sector’s costs. There are also significant increases in workforce and other costs. Therefore, our production costs increased over 200%. Unfortunately, we had to reflect these increases in our prices. However, the cement price in our country continues to be at a competitive level with the cement prices in the world. I can say that we conducted a price update rather than an increase. When we look at the profitability ratios, we can see a decrease of the sector’s profitability.
In terms of sales volume, there is a growth of 8-10% in the domestic market. There has been a domestic market sales volume close to 60 million tons. However, there has been a slowdown since the third quarter of the year. While the GDP increased by 7.4%, the construction sector shrank by 6.7%. Although housing sales slowed down due to high interest rates, the year was completed at the level of 1.5 million units, close to the previous year. However, due to the high interest rates, there is a significant decrease in credit sales. Compared to 38% in 2020, the rate fell below 20% in 2021. There was some acceleration in the last two months of the year. But due to this inflationary environment, this acceleration occurred as a demand. This situation will negatively affect the coming months. On the export side, there was a 2% shrinkage and the year was concluded at the level of 31 million tons. However, our export income increased to 1.25 billion dollars. When generally looked at, we can say that it was a good year for our sector, even though it was not easy.
Our main goal is to increase our power in global markets by constantly updating investment plans, entering new markets, and increasing the sales volume
The target we continuously follow as Medcem Cement is to increase our power by constantly updating our investment plans, entering new markets, and increasing the sales volume and in 2021, we continued our efforts to increase exports in line with these targets. We achieved full capacity sales by maintaining our sales volume both in export markets, which is our main target market, and in the domestic market.
Unfortunately, we suffered a small loss in our EBITDA amount in US dollars. In terms of growth, we took the step to maximize our presence in the international arena with a new investment, of which the foundation was laid in September 2021. Our company, which ranked 263rd in the ISO 500 list of May, had a turnover of over 1 billion liras. I think this is the most valuable summary of the last 2 years for Medcem. Unfortunately, the first thing that comes to mind is the increasing costs and losses due to the inflationary environment both in our country and in the world. Interruptions in the supply chain were added to this from time to time.
After that, the most important subject is the issue of climate change, which should be a part of our lives. Above all, climaterelated production forms that will shape the future of the cement industry, has become one of the priority agendas of the sector in Turkey as well as the world. The green and zero carbon emission production policies of Medcem Cement have already made us prioritized and aware. In addition, this is an indication of our stance and the responsibility we feel towards our planet. We are among the sectors that are prioritized against climate change. Serious work is being done in the sector to ensure sustainability. We carry out our work in line with the “Best Available Techniques”, which are approved by the EU. We have chosen the most efficient technologies in the world, both for our existing facility and our new investment. We have established facilities with the lowest heat energy consumption and a low electricity consumption. This way, we achieve carbon emissions below the sector average. With our in-house waste heat recovery facility, we produce 22% of our energy need from waste gas.
One of the most memorable subjects for us is our new investment of 230 million dollars, which is planned to be completed in 20 months
Another issue is the importance of using alternative fuels instead of fossil fuel. It has become clear that it is mandatory for us to develop as a sector in terms of climate change. However, insufficient legislation regulations are blocking the way of the sector. We also started to make investments to increase our use of alternative fuels. We will significantly increase our use of alternative fuels. We think that this is important both for the future of the sector in terms of sustainability and for its competitive export power.
The global unemployment problem because of the pandemic and economic fluctuations constituted another problem. One of the most memorable subjects for us is our new investment of 230 million dollars, which is planned to be completed in 20 months. By increasing the annual clinker production of 3.5 million tons to 6.5 million tons, and with an investment of approximately 90% capacity increase, we are experiencing inner peace of achieving a minimum of 30% increase in the number of employees. It is a great honor for us not only to be among the producers with the largest cement factory in the world, but also to provide new employment opportunities for our country and our people.
I expect a 10-15% contraction in the domestic market
Let’s start with the negative; rising cost increases will of course exhaust us and will continue to increase the pressure on the sector. While updating prices on one hand, there will be market risks on the other hand. While maintaining our position as a country on the export side, I expect a 10-15% contraction in the domestic market.
Another negative issue is electricity restrictions and blackouts that started recently. This is a serious risk for our sector. Our factories carry our continuous processes 24 hours a day. Stopstart operation causes production losses. In addition, each stop-start both increases energy consumption and causes equipment malfunctions. Which on the other hand translates to additional production costs. Irregular production also worsens product quality. However, the most important effect will be in the export area. Export plans are done at least one month in advance. The last-minute power outage disrupts these loading plans. As we are unable to produce, the ship that one cannot load is waiting. And of course, ships coming after that are also waiting to be loaded. This situation exposes us companies to demurrage penalties in this period of high freight costs. Also, the customer then directs his urgent needs to other countries. This on the other hand leads to sale loss. But when we look at it holistically, an environment emerges, in which our export customers do not feel safe. This may cause market loss in our global export market, which we have increased with great efforts in recent years. I can say that export revenues determined as national policy, and the raising foreign exchange policy is a contradictory situation.
However, this situation can be turned into an advantage. Cement factories have waste gases. Energy production facilities can be established from these waste gases. We have one now. We will also make a new line. But an incentive system can be established to increase the attractiveness of these facilities. On the other hand, cement companies have become willing to invest in renewable energy facilities such as RES and GES. With investments we will be able to produce some of our energy ourselves. We can connect these facilities directly to our own facility without being connected to any transmission or distribution lines. We can consume it domestically without selling it abroad. As Medcem we have plans in this direction. However, although some adjustments have been made in the legislation, they are not enough. We wish that the necessary adjustments are made. We must seize this opportunity.
Another opportunity for us is to continue to grow. Although we are a young company, we are one of the most valuable players. We are the biggest facility of our country and Europe with a Single Line. We will complete our investment of 230 million dollars that we started at the end of this year and increase the capacity of our factory by 90%. The total investment we made in our facility in Mersin will reach 850 million dollars. With this investment, Medcem will become one of the few big facilities in the world. With our new investment we will become one of the biggest cement producers in the world, and the biggest facility and exporter of Turkey. We want toachieve our goal of being the number one ‘Turkish cement brand’ in the global market.
In addition, we positively continue our activities in our facilities located in different countries. We aim to continue by increasing our sales in our grinding facilities and terminals. We aim to make a terminal investment in the United States of America, which is a very important market to us. We have started the feasibility studies for this investment. However, these take some time because of the country dynamics. We hope to finalize it this year.
Finally, I would like to state that our aim is to be a Turkish cement brand that has a global say and has the most modern facility in the world. We are the only company in Europe that uses the latest existing technologies and we are continuously working to become even better.