CEO of TÜRKÇİMENTO
Volkan Bozay
“We are striving for extending waste heat applications, reducing foreign source dependency and CO2 emissions in Turkey through minimization of power and fuel consumption with the importance we attach to the measures that help to ensure energy efficiency and reduce the carbon footprint of our sector. We are continuing our studies for producing our own energy as we are an energy-intensive sector with sufficient experience.”
The cement sector is going through very turbulent days, both on global and local scale. The global energy crisis and the war that broke out between Russia and Ukraine afterwards have produced very significant impacts. Could you summarize the recent situation of the sector?
The Turkish cement sector has been affected by the fluctuations in energy prices in the global markets in recent years. Unfortunately the energy crisis that started in China in 2021 caused distress in our sector.
Considering the stance of the cement sector, we continued our activities in 2021 under challenging conditions after 2020, when we experienced a growth of approximately 23%. Representing 94% of the sector, production figures realized by the members of TÜRKÇİMENTO in 2021 reached to 78.9 million tons with an increase by 9.2% compared to the previous year. On the other hand, their domestic sales reached to 60,2 million tons with an increase by 8.2% . While 77.5% of the cement produced by the members of TÜRKÇİMENTO with a total capacity utilization rate of 69% was consumed in the domestic market, the domestic sales had an increase by 4.6 million tons. The increase in production was due to the demand from the domestic market and the total export of the sector was in decrease. An increase has occurred in all regions except the Eastern Anatolia Region.
The total export rate of the cement sector fell down to 30.8 million tons with a decrease by 1.9% . 18.3 million tons and 12.5 million tons of the export in question consisted of cement and clinker, respectively.
The total export rate of the cement sector reached to 1 billion 256 million dollars with an increase by 12.7% on basis of value in 2021.
Turkey maintained its position as the world’s second largest cement exporter in 2021. The major markets for exports to over 100 countries were USA, Israel, Ivory Coast and Ghana. The domestic market consumption, which was approximately 59.2 million tons in 2020 reached to 62.7 million tons in 2021 with an increase by 5.9% with the addition of estimations regarding the plants that are not members of TÜRKÇİMENTO.
The ongoing war between Russia and Ukraine led to serious issues especially in the supply of coal, which put cement manufacturers in distress. What is the current situation of this crisis that made production to come to a standstill?
The biggest cost item in cement production is fuel and electrical power. This cost item, which accounts for nearly 80%, has a negative impact on our sector in a period when energy shortages are experienced in the world. Our plants are having difficulties not only in the supply of coal, but also in terms of increased costs due to rapidly increasing prices as a result of the crisis between Russia-Ukraine. The main threat is the risk that production in our sector is about to come to a standstill if these circumstances go on for a longer period. In 2021, our country was importing coal from Russia with an approximate cost of 1.5 billion dollars. On the other hand, our sector imported approximately 5 million tons of coal in 2021. The major part of this input was sourced from Russia, which is the top coal supplier for the cement sector.
In February 2022, petroleum coke prices increased by 500% compared to the same period of the previous year. Electricity price reached to 220%, and imported coal prices reached to 400%. An increase of 70% has occurred in domestic lignite again in February 2022. The USD rate, which was 7.1 TL in the same period of the previous year, reached to 13.7 TL in February 2022 with an increase of 93%. Accordingly, similar increases have occurred in freight costs. Suppliers of imported coal are not able to communicate with their contacts in Russia as reported by the sector. Shipments are being canceled showing the crisis situation in the Black Sea as reason. Also, the suppliers have run out of their existing coal reserves in their warehouses.
It is only possible to procure the remaining scarce coal and only in limited quantities at high prices due to the diminishing competitive environment.
Considering all of these circumstances, the production will come to a standstill if the crisis goes on for longer period and alternative energy sources are not utilized rapidly as the coal reserved of the sector are decreasing.
These energy crises breaking out in the sector brought the investments and studies on alternative energy to the agenda again. What are the recent advancements in this field? How do Turkish cement manufacturers approach to and work on alternative, sustainable and renewable fuels?
As a sector, we need an alternative energy source. Therefore, increasing the dry-based sulfur ratio to 3%, as applied to thermal power plants in terms of the limits set by the Ministry of Environment, Urbanization and Climate Change for industrial imported hard coal and lignite, decreasing the lower calorific value to 4,800 kCal/kg and bringing an increase to the volatile matter limit of 36% will allow the supply of coal from other sources. If an exception is granted to our sector until the end of this extraordinary period, countries such as Colombia, Indonesia and South Africa will be among the alternative options for importing coal.
Importing alternative fuels with biomass content can be another solution to the problems experienced in importing coal from Russia. Within this context, permitting the import of 7000 kCal/kg granular tire and fuel derived from waste with 4000 kCal/kg and higher calorie is especially important in terms of calorific concerns. It will be possible to import alternative fuels in the qualified fuel class only, if this permit is granted, and this will be beneficial in terms of current account deficit and the green transformation process will be supported.
While the development of our plant’s supplier portfolio will be supported through these exceptions and alternative channels, the impact of disruptions in production on us will be at a minimum level.
Additionally, major investments are being made in energy efficiency investments, biomass usage, power generation from waste heat and blended cement in our sector.
As the Turkish cement industry, we generated 7.7% of our total energy from approximately 1.3 million tons of waste in 2020. It will be possible to further minimize our carbon emissions when our country attains the waste-to-energy production ratio of 46% in the European Union. We will highly prevent petroleum coke import when we increase this rate to approximately 50% as in Europe.
We have attained an installed capacity of 141.5 MW in power generation from waste heat. We are striving to reach the potential 320 MW as we target. Accordingly, we take initiatives with the public to create financial support models that can leverage not only our sector but also for the entire industry sector and provide motivation, and we are continuing to cooperate with our concerned stakeholders.
We would like to highlight that a great motivation is arising for renewable energy investments in our sector. Certain legal barriers that can be overcome are present in respect of realizing the investments. We have undertaken initiatives to overcome them. We consider that the investments will even exceed the current potential if a positive response is given in return for our proposals.
While the increase in costs of the cement sector in the domestic market affects local sales, companies continue to compensate for this through export. What kind of efforts do you undertake to support companies in this context?
The Turkish cement sector has come to the forefront as a reliable supplier worldwide, particularly during the pandemic period. However, what should never be forgotten is that our industry always prefers domestic sales and not every manufacturer in the sector are doing export. On the other hand, the negative impact of increasing costs is affecting our competitiveness negatively in export markets throughout the sector. Although the impact of the dynamics in the domestic and export markets differs on the basis of each company, it seems impossible to balance the negative effects of the recent circumstances in freight, labor etc. production costs, primarily the high rates of increase in energy inputs, through profit margins in neither the domestic market nor foreign sales.
As a result, the reflection of cost increases is made possible in the free market by balancing the supply and demand created by the competitive conditions at the point where they coincide. However, despite the negativities in cost increases that are beyond our control due to global markets, we aim to dedicate our overcapacity to export in order to be able support the national macroeconomic policies as the sector. In this context, we also take part in international organizations and striving to increase our foreign markets as TÜRKÇİMENTO by promoting our companies and our sector. Also, export requests to our Association are constantly communicated to all of our members. Cement is a strategic product and our country is the 2nd largest exporter of cement in the World
On the other hand, planning of a fair and healthy process for transition to the initiatives in international markets for combating climate change-especially the EU Green Agreement that has been on our agenda lately – which is in a simultaneous progress and on which our industry shall focus for ensuring that the adverse impact on our sector limited to a minimum level only, as well as the pandemic process in which we have experienced extraordinary circumstances and the crisis that broke out between Russia-Ukraine. In this respect, we are aiming to ensure the transition of our sector to a green economic development model in accordance with the global new order for the sake of maintaining our competitiveness. Meanwhile, we are continuing our efforts to implement our low carbon roadmap in cooperation with relevant stakeholders for assessing the impact of the border carbon mechanism and possible national emission trade system regulations on our export and the effect of carbon price valuations in the overall domestic market in a way that will cause us to lose our strategic importance.
The cost contention between cement manufacturers and the construction sector is still going on. You are also making statements as TürkÇimento on this subject from time to time. Are cement costs really high if to consider the recent economic turmoil?
We continue to contribute to the national economy with the understanding of national unity that we have adopted since the establishment of our country, by not reflecting the increasing costs to the prices for a long time although approximately 80 percent of cement costs consists of imported energy inputs such as foreign currency-based fuel and electricity. On the other hand, the construction sector is one of our greatest stakeholders and the leading sector of our country. However, it should be noted that it does not seem reasonable to consider cement as the cause of the problems in the construction sector in such a period when our country needs to produce, create value, earn and make the others earn more than ever.
As a matter of fact, the “Report on the Effects of Cement and Ready-Mixed Concrete Prices on Housing Construction Costs” prepared by METU has also produced results that support our view. The impact of cement prices on housing costs as of 2022 was calculated as 2.8% on average in luxury constructions; as 4.5% in class 1 constructions and 6.8% in class 2 constructions in the concerning report. The impact of cement on the cost of housing construction varies between 3.6% and 5.4% as of 2022 when the most extensively employed class 1 constructions in Turkey are taken into consideration. We see that cement creates an average impact of 4.5% on a single housing. We think that it is not possible for cement to affect the construction costs as much as it is claimed to when all of the construction costs are considered.
Public support is another issue frequently emphasized. What are your expectations as TürkÇimento in respect of the government supports and incentives?
We are striving for extending waste heat applications, reducing foreign-source dependency and CO2 emissions in Turkey through minimization of power and fuel consumption with the importance we attach to the measures that help to ensure energy efficiency and reduce the carbon footprint of our sector.
We are continuing our studies for producing our own energy as we are an energy-intensive sector with sufficient experience.
As I have mentioned before, the installed power of 25 and even 141.5 MW has been attained today in 16 plants with no government incentives. Thus, we can meet the electrical demand which corresponds to the daily consumption of approximately 570 thousand domiciles only through the waste heat produced by our process. We will have achieved significant gains in terms of both environmental and economic aspects for our country if waste heat recovery investments are supported by the government, considering that a plant meets the electrical power consumption by approximately 25-30%.
At the same time, our producers are making renewable energy investments. Recent developments regarding both environmental needs, energy supply assurance and price stability in energy have led our plants to increase their renewable energy investments. Currently, a total of 24.5 MW renewable energy investments have been actualized. It is planned to commission a total capacity of 152 MW, which is currently in the feasibility study and investment stage, gradually in the future. The investments to be made by our plants will quick have a return and reach their goal through the government supports to be granted in this regard.
Importing bio-mass containing alternative fuel and permitting the import of 7000 kCal/kg granular tire and fuel derived from waste with 4000 kCal/kg and higher calorie is especially important in terms of calorific concerns. The fact that charging no environmental contribution in coal imports will also contribute to optimization of the costs. In particular, we need import waste-derived fuel temporarily for a certain period of time in order to reduce our dependence on Russia and to sustain production.
The use of waste as a raw material in biomass power plants in our country is promoted by YEKDEM (Renewable Energy Support Scheme). Thus, electrical power producers are able to pay higher figures for waste. Cement manufacturers cannot compete with such a system. Mechanisms to promote the use of such wastes in the cement sector need to be established.
“Carbon” plays a very important role in the future of the cement sector. What needs to be done to minimize carbon emissions in terms of the sustainability of the sector? What is the situation of Turkish cement producers in this regard?
As a sector that closely follows the international climate and environmental policies, we can point out that we have commenced our transition to low-carbon production. In this context, as TÜRKÇİMENTO, we have proposed our “Carbon Roadmap” study in order to develop the initiatives currently implemented in the World and in our country. Certain methods used in the production of low carbon cement are available in the world and in our country as highlighted in the report. With no doubt, the most important items among them are the implementation of the sustainability transformation program and increasing the use of alternative fuels. The vision and framework targets for carbon reduction on a company basis has to be determined for 2030 and 2053 in order to create a sustainability transformation program. The strategic initiatives to be implemented shall be established and the required amount of investment and resources shall be determined in order to comply with the established goals.
A performance management system shall be established for the sustainability strategy established and the executive boards shall monitor the performance.
In this context; I believe that organizing workshops for the senior management members of companies on sustainability trends and technologies and establishing a sustainability position in senior management will ensure that the process is carried out in a healthy and rapid way.
It is aimed to increase the amount of waste containing biomass with the initiative to increase the use of alternative fuels. Hence, the biomass content of the waste is defined as carbon neutral in our international and national legislation.
Alternative fuels produced and marketed by special waste preparation plants owned by municipalities, dried sludge containing biomass from the plants where municipal wastewater is treated using biological treatment systems, used vehicle tires made of natural rubber and various agricultural and animal wastes are the main source of waste with biomass content.
The carbon emissions are neutralized and the emissions are reduced as more wastes containing biomass are used as fuel in furnaces instead of coal and petroleum coke.
The rate of alternative fuel use in the Turkish cement sector falls behind the world averages. Elimination of wastes which can be used by the sector without being introduced to the economic value chain and limited importation opportunities are the most important reason for that.
First of all, waste availability and accessibility need to be increased for increasing the use of alternative fuels in order to minimize emissions. Delivery of wastes to the cement sector can be made possible through regulations on storage of waste. Legal mechanisms intended for the co[1]incineration of wastes in industrial plants and the importation of high quality waste fuel are among the examples.
Production of cement with low clinker factor and alternative raw material content, increasing energy efficiency and application of new technologies are among the procedures applied in low carbon cement production in the world and in our country.
One of the aspects that TürkÇimento frequently points out is the concrete roads. What is the course of your efforts as the awareness in this area is increasing day by day?
Concrete roads have been serving successfully for a long time in the worl d and in our country. Concrete roads are used all over the world extensively since they are longlasting, robust and require less maintenance and repair, and offer different possibilities for a variety of applications. Another technique called roller compacted concrete road offers cost savings of 40% even in the initial construction compared to asphalt roads in different regions of our country and ensures a service life that is 3-4 times longer. Concrete roads offer economic advantages even in excess of 40% in terms of life cycle costs with their long service life nowadays, where the circular economy is has gained further importance in our lives.
Standing out with their advantages such as being more long-lasting and economical, requiring less maintenance repair requirement and offering higher strength compared to their alternatives, Roller Compacted Concrete (RCC) Roads continue to be the preference of our Municipalities and Special Provincial Administrations. We provided on[1]site information to 406 technical personnel and 64 decision makers in 34 provinces in 2021. Additionally, we continued to provide on-the-job support to our public institutions with a nationwide study of more than 120 days.
A total of 69 provinces met with concrete roads in 2021, with 13 of them being for the first time as a result of the successful efforts we have undertaken with public institutions. We achieved 1.2 million tons of cement consumption with the completion of 3124 km of concrete road construction in 2021 alone. Concrete road applications in excess of 15 thousand km are successfully continued in every region of our country.
We will go on providing on-site support to our Municipalities and Special Provincial Administrations as we always had.
