Murat Kahya
General Manager of Medcem Cement
Medcem Cement, one of the largest and most important cement producers in the world and in Turkey, continues to grow with the investments and different projects it has recently announced. Could you tell us about the company’s recent status and general activities?
We started our activities as a greenfield project in 2015. We are an establishment of Eren Holding, which has been operating in the cement sector since 1992. We have a daily clinker production capacity of 11,500 tons in our factory, and with this volume, we are the largest factory in our country and Europe that produces in a single line. With our clinker production capacity of 3.5 million tons, we sell more than 4 million tons of cement annually. We can easily reach our target markets all over the world from our own Mecdem Port, which we have built at a distance of 13 km from our factory. With all this structure, we are among the few leading cement companies both in our country and in the world.
We are still going through a process where the effects of the pandemic continue on a global scale. We, as Medcem Cement, continued our production activities without interruption throughout this entire process. On the one hand, our export activities continued, on the other hand, we continued our growth with serious and large investments. While our production is increasing, our sales and export figures continue to grow. Parallel to all these, our investment efforts continue at full speed.
The cement sector experienced a contraction at the end of 2018 due to factors such as fluctuations in the global economy, slowdown in growth, and trade wars of the great powers. After that, the cement industry closed the year 2019, in which the construction industry had great problems, at the lowest level of the last 10 years, as a result of the significant contraction in the domestic market. Then, as you all know, we spent a year 2020 with the effects of the pandemic. Throughout this process, as Medcem Cement, our agenda focused on crisis management and how we would adapt the company to the constantly fluctuating and changing economic effects. Despite the global and local effects of the pandemic, we closed 2020 above our expectations with the growth in exports. While we grew 36% in the domestic market and 16% in exports, we achieved an increase of 43% in our turnover.
We made a quick start to 2021 and we continue on our way with 100% capacity utilization. We exceeded our sales and profitability targets for the first 6 months. However, the recent rise in global commodity prices has greatly increased our costs. Fuel prices, which are the main item of our costs, have increased by over 200% in the last year and tripled. Again, electricity prices, our second biggest expense, will increase by 55% in 2021. This led to an increase in cement sales prices. For this reason, there will be some decrease in profitability in the second half of the year, but our sales volume will be sustained with the same performance.
You made a great impression with your investment decision of 210 million dollars that you recently announced. At this time when the world and Turkey are going through difficult economic times, you will increase your capacity to a great extent with this investment. Why are you making such a big growth and breakthrough?
As a company, our basic approach is based on continuous growth and investments to become a brand with more market share in domestic and foreign markets. For this purpose, we base our philosophy on making investments in different locations, renewing our technology, increasing our capacity and branding in order to produce better and higher quality products. We give the last example of this with our new investment, which has a volume of 230 million dollars, which enables us to increase the capacity of our factory in Mersin by 90 percent. The continuous increase in commodity and freight prices has unfortunately also caused a significant increase in our investment costs. But with this investment, we will increase the annual production capacity of our factory from 3.5 million tons of clinker to 6.5 million tons. At the end of this investment, we will be among the manufacturers with the largest cement factory. We are taking firm and firm steps towards becoming the number one “Turkish Cement Brand” in the global markets, which is our biggest goal.
Apart from this, we have a target to open a new terminal in the United States of America, one of the world’s largest cement markets. Our feasibility and research studies in this matter continue.
There are also serious changes and current differences in the global cement industry. Can you provide an international level assessment?
The pandemic process continues all over the world. The pandemic continues unstable. It also created its own dynamics. Although the disease continued at a high level, a less safe environment was formed after vaccination. In this process, the economic support and monetary expansion of the countries brought dynamism to the construction sector. With the increase in liquidity, the amount of cement consumption increased globally. This situation, which we have felt since the second half of 2020, continues in the first half of 2021 as well. As a result of this, there is a high demand-supply deficiency in the cement supply-demand balance. I expect this activity to continue for the next few years in global markets.
However, the inflationary environment created by the support packages announced around the world causes price increases in every field. There are serious increases in commodity prices and ship transportation, that is, freight costs. The increase in fuel and energy prices and the cost increases in other items create a serious cost pressure in the sector. Although there is a high demand in the global market, cost pressure is an important problem for us.
Apart from this, the plans prepared on a global scale against climate change and the implementations will be the first item in our agenda for our sector. There are issues that will challenge our industry nationally and globally within the scope of the 2050 carbon neutral target of the European Union. Many environmental issues that will bring costs to the sector, such as the emission trading system and the carbon application at the border, have to be our priority.
In this context, how do you see the global position of the Turkish cement industry? How is the situation of Turkish companies in global markets?
Turkey is a strong player in the global cement industry. In 2020, we became the second largest exporter country in the world. We have very large companies that sell to different parts of the world. In addition to the opening of new factories, the technologies and capacities of the existing ones are renewed. However, at this point, we may experience difficulties in the investment processes from time to time. Investments can be made without adequate consideration of situations such as the situation of both the global and local markets, export potential, and financing infrastructure. We are faced with a production capacity above demand. There is a good competitive environment in the domestic market with the high number of players, a situation that is in favor of the consumer as it should be. However, from time to time, with the wrongly established strategies in export markets, we can harm each other instead of gaining more for our country. This weakens the power of our country in the global market. I think that companies need to make more accurate analyzes and establish the right strategy in order to export with good profitability.
Another important development that will affect the cement industry is the European Green Consensus. Do you think we are ready for these changes as an industry?
Energy-intensive industries such as iron and steel and cement are very important to the European economy as they supply products to various value chains. Under the Green Deal and the Paris climate change agreement, there is a carbon neutral target by 2050. The first target was to reduce carbon emissions to 55% below 1990 levels by 2030. They will renew their emissions trading system and implement carbon regulation at the border. They have a goal of preventing carbon leakage from countries where the emissions trading system is not implemented or under-applied under unfair conditions. There is no emission trading system currently being implemented in our country. For this reason, they will be charged 40-50 Euro/CO2 tons of tax with the present value for the fugitive carbon arising from the exports to be made from our country. In the future, this pricing may go up to 100 Euro per one ton of CO2. Post-transition taxation will begin from 2026.
We have an annual export volume of 3 million tons to EU countries. It is equal to 10-12% of our total exports. We are in a position to lose our competitive power for this market with additional taxes. These applications will not be limited to the EU in the near future. Other countries, especially the USA, which is one of our important markets, are also working on this issue. Therefore, the world will not escape from such regulations. As a country, we need to speed up our work on climate change. We need to determine our goals and roadmaps at the macro level of the country, and then to the micro level in terms of sectors and even partnerships. As the cement sector, we have started our work both as a sector and as companies for a while. We set carbon reduction targets and draw up roadmaps in accordance with the Paris Climate Change Agreement. There are established methods in the world for emission reduction in our sector. One is new technology equipment and operational excellence. As a country, we have factories with new technology in the sector. Therefore, we have an advantage over other countries. Another area of reduction is the use of alternative fuels instead of fossil fuels. Unfortunately, we are far behind here because, unfortunately, it is very difficult and not economical to reach waste as fuel in our country. By making arrangements in this regard, facilities should be established for the preparation of fuel derived from wastes in our country. In this regard, an incentive mechanism should be established and legislation on waste collection should be strengthened and published. Maybe the importation of waste-derived fuel from abroad should be allowed under limited conditions for a temporary period. These regulations are necessary for us to both reduce our emissions and be competitive in export markets. Another emission reduction method is to increase the production of cement with additives. However, the bidding legislation needs to be renewed. Preferring cement with additives in public tenders will again reduce emissions.
In summary, the fight against climate change will always be a priority item on our agenda. We can’t afford to stay behind. In this context, our state has a lot of work to do for legal regulations and incentive mechanisms, and we, the private sector, for implementations. We, as Türk Cement, have started our extensive work to create our sectoral roadmaps. We will develop our recommendations shortly. We will share these with our state and society. Being an environmentalist and green sector is one of our main policies. But it is clear that this process will bring new costs and challenges to the industry.
Accordingly, an important issue on the agenda of the cement industry is carbon emissions in production and its effects on climate change. Do you also have serious investments and studies in this field? Can we obtain your opinions on this agenda?
We are among the sectors that are prioritized against climate change. In order to ensure sustainability, serious studies are carried out in the sector. We carry out our work by taking the “Best Available Techniques” practices, which are also approved by the EU, as a guide. We have chosen the most efficient technologies in the world, both in our existing facility and in our new investment. These are the facilities with the lowest thermal energy consumption and low electricity consumption. In this way, we work with carbon emissions below the sector average. With our waste heat recovery facility in our facility, we produce 22% of our energy needs from waste gas. Totally green energy and zero carbon emissions. Another issue is the use of alternative fuels instead of fossil fuels. We are establishing our investment that we started by planning this issue. We will significantly increase our use of alternative fuels. We are also working on introducing the blended type cement to the markets at a higher rate. We think that these are important both for the future of the sector in terms of sustainability and for its competitive export power.
One of the other issues that have been talked about in the sector for a while is the high cement prices. In this regard, cement producers face serious pressures, especially from the construction sector. How do you evaluate these developments?
During the pandemic period, commercial life was reshaped. When we came to this period, trade revived. However, the inflationary environment in the world created by the announced support packages causes price increases in every field. There are serious increases in commodity prices and ship transportation, that is, freight costs. The global container index in freight costs has increased from 2,000 USD to 10,000 USD. Increases in commodities also force us in terms of costs. Coal-petrocoke type fuels account for around 60% of the costs of our industry, and electricity accounts for around 20%. Fuel prices have increased from 50-60 USD/ton to 170-180 USD/ton in the last one-year period. Our most important cost has tripled, with an increase of more than 200%. On the electricity side, there is a price increase of approximately 55% in only the first 7 months of 2021. Of course, as you know, there are high increases in other cost items. There is an increase in the domestic producer price index of approximately 45%, and there is an increase in other imported inputs as well. Unfortunately, as a result of all these, our costs have increased significantly and we had to reflect these increases in our prices. However, the cement price in our country is still at the level of the least expensive cement price in the world.
Due to these mandatory increases, the construction industry is trying to put pressure on us. I would like to point out that the share of cement in housing costs excluding land is between 1.7% and 3.2%. Price increases in other inputs are much higher than the price increase of cement. There is a perception that mandatory price increases in cement, which have a cost effect between 1.7 3.2%, negatively affect the housing construction sector. I think that the recent statements made by various organizations and associations are a serious injustice. In the last year, the average housing cost index has increased by 40%. However, it is a fact that the increase in housing sales prices is approaching the level of 100%. It is an unfair and biased interpretation to state that the increasing costs are due to the mandatory price increases in our sector, and that the housing construction sector has come to a standstill for this reason. As a result, our cost effect proportionally is obvious. This is not the rate we claim. This is a ratio that has emerged with the reports prepared by METU. It is imperative and inevitable that we reflect the increasing fuel prices on a global scale to our costs at certain rates. From time to time, it is stated that the cement supply is insufficient in the domestic market due to exports, causing an increase in prices. In the first 5 months, there is a growth of 6 million tons with 37% in the domestic market. On the other hand, there is a 3% contraction in exports. The indicators are selfexplanatory objectively and clearly.
With which targets and strategies does Medcem Cement continue in 2021? How will your year-end goals and projects take shape?
The goal that Medcem Cement consistently pursues is to increase its power in global markets, to enter new markets, and to increase its sales volume by constantly updating its investment plans. We will continue our efforts to increase exports in line with these targets in 2021 and beyond. Our goal is to further strengthen the powerful Medcem brand that has been formed so far.
We will close 2021 by consolidating our position in our existing markets and entering new markets. We will continue to grow with our production, which will be strengthened with our new investment, and the importance we attach to exports. We will continue to progress towards becoming the largest facility and exporter of our country. We will reach this target in 2023.
