Welcome to The Petcoke Podcast, a new series discussing key developments for the global petroleum coke markets with expert industry participants.
Listen in as Lauren Masterson, Argus petroleum coke editor, speaks with Roberto Schurmann, Global Head of Trading at Votorantim Cimentos. They discuss how the impacts of the coronavirus pandemic have varied in different countries based on their market fundamentals and political approaches to the crisis. Roberto shares his valuable insight into cement demand and when supply will return.
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Lauren: Hello and welcome to The Petcoke Podcast. In this series we’ll be speaking with key industry participants to gain their insight into the latest trends for petroleum coke markets around the world. In today’s episode, we’ll be discussing the Atlantic basin markets and how Covid-19 has affected cement production and petcoke import demand. The Petcoke Podcast is brought to you by Argus Media, a leading independent provider of energy and commodity pricing information. My name is Lauren Masterson, Editor of Energy Argus Petroleum Coke, and with me today is Roberto Schurmann, Global Head of Trading for Votorantim Cimentos. Roberto, thanks for joining us today.
Roberto: Good afternoon from Madrid and hello.
Lauren: So let's just get started. The big thing on everyone's mind, how has the COVID-19 pandemic affected cement demand, especially in the Atlantic basin where a lot of your operations are based?
Roberto: Well, it has affected us quite strongly at the beginning. But it has also affected us differently in different regions. No, it has not been like all at the same time, it has been, like, escalated. We had information of what was happening in China, the beginning of the year where the market [failed] quite a lot. So, we started to be a little bit worried when it came to Europe which was the first wave and then North Africa. And Spain was quite severely hit at the beginning, as you know, was one of the second biggest countries after Italy at the beginning. So, our cement sales started to drop quite substantially. And then we have also some hibernation period in Spain where the whole industry was shut down for a few weeks. But since then, the situation has recovered quite a lot in most of the Mediterranean markets. Then we came to the parts of Brazil that started much later, but surprisingly there the situation was totally different than in Spain.
Lauren: So, how have things unfolded differently than you expected when this first all began?
Roberto: When we see the data of China from January and February, we saw that the market there dropped by around 30%. And if we take the Wuhan region it dropped almost by 50%. So, when this first wave case came to Europe, we were quite scared that similar things could happen. And then we saw the first data coming out of our sales in the end of March, beginning of April, and they were quite bad. And also we were dropping around 50% in Spain. So, we thought that this market, this trend could continue during the following months, but fortunately, it didn't happen, no? So, basically, the market started to recover quite fast in our markets in Spain. That was the first one hit and then the first one that started to reopen slowly, because the industry only closed or in two weeks in Spain. And cement sales, at the beginning, they dropped but then they recovered quite fast.
In countries like Tunisia, there we were shut down during one month, so basically, our sales went down to 100%, so no sales. But once we reopened, we started to see a quite faster recovering. Because you have to think that cement construction and cement sites, once they reopened, they need to continue. It's not like... They will not...they're not going to leave the building, or the bridge or the whatever they were constructing just like that. So, they have to retake slowly, but in some cases, they went faster. But surprisingly, we've seen the numbers improving quite fast in the Mediterranean.
If we go to Brazil, the situation there is quite different because cement sales never dropped as we were expecting. So, we had all our plans for our employees. Basically, we sent everybody at corporate home. Everybody who could work from home was sent home. But then the cement plants we shut down some of them. We optimized some of the logistics there, but we didn't see the drops that we were expecting from what we saw in Europe and North Africa. And then Brazil never be that fully locked down, so, basically, people were at home, they could get out. Many things were closed, but in Spain, for example, the do-it-yourself retail stores like Home Depot, they were totally closed in Spain, but in Brazil not. So, basically, a lot of people went to continue buying stuff and then, like, bag cement, because Brazil is a bag cement market. We take Spain is a bulk cement market.
So, at the end, Brazil, sales didn't drop in May, for example. They went even slightly up because a lot of do-it-yourself at home took place. At the beginning, we were really worried because, from the data that we were seeing from China, and then what started to happen in Europe and Brazil, we thought it was going to happen the same but it didn't happen.
Lauren: Do you think that it's going to continue to be quite firm, or could we see a later impact there that we haven't actually come up on yet?
Roberto: From the info we have on the data of June, the market is still maintaining relatively good, and we don't expect huge changes going forward. We know that the data of Brazil of cases and deaths is very bad, is a number two in the world followed by the U.S., but the data of cement sales, surprisingly, because of the dynamics of the market, the market didn't see a huge drop like we saw in Europe.
And also we don't think in the next months we will see any big change, but we see more uncertainty going forward now in short, medium-term because we may see the economy much more deteriorated and some of the market will not be there to take our cement.
Lauren: One interesting thing, and you sort of addressed this and saying that demand was a little bit better than expected, but I think that the U.S. Gulf coke prices have been surprisingly resilient over the last couple months after a big decline in the second half of March when this was FIRST really spreading around the world, and prices have even started to pick up a little bit recently. So, like we saw the average price of U.S. Gulf high-sulfur coke so far in the second quarter is something like $3 or $4 higher than it was in Q4 of last year before the Coronavirus struck anywhere. So why do you see this increase in fuel coke prices coming up?
Roberto: The main reason I see for the increase is basically, it's a problem of supply that we have right now. So demand at the beginning of the Corona crisis dropped quite substantially in the Mediterranean market. Also, there was a forecast of drop in Brazil, and we as buyers, we delayed cargoes. So basically, at the beginning, there was a shock of demand dropping, but this demand started to recover. And then as this virus is moving around the world in different ways and also different times, when it started to hit the U.S. market, basically, the issue there started with the supply side of less use of gasoline and less use of jet fuel that basically refineries started to lower the production, and some refineries are producing much less petcoke.
I think it's estimated around 25%, 30% of less petcoke based on the data that we get from the consultants. And today, what we have is a supply problem. So the demand was partly compensated also during the crisis with new customers in India and China, while Europe and Atlantic was not taking all that petcoke. But then, right now, the problem is mainly our supply. So under this, how long the supply problem will continue? We think that it's at least until August, September once the U.S. is at a new normal and starts to get back to full production levels, but not before. But as I said, right now for me it's a problem of supply.
Lauren: So, you think that supply will continue to lag demand, at least until the fall August-September period?
Roberto: I think so. I think so. We may see petcoke prices...they could even drop. Even if we see the situation, we could see some drop of pet coke prices if the freight market continues to go strongly up, because at the end, the India market and the Chinese market, they will buy based on the coal alternative. So, if petcoke becomes too expensive on a delivery basis, they may ask a lower price. But the traditional demand right now in the Atlantic and the Mediterranean is basically using all the available petcoke with some exceptions, of course, so that's why I don't see the market recovering until the supply sites start to get back to normal.
Lauren: So one of the things that we've seen as a growing trend in the cement industry for the last few years has been moving away from fossil fuels towards more alternative fuels like biomass, tires, industrial waste. Has the pandemic accelerated this trend at all, or has it slowed it down?
Roberto: Well, this trend of alternative fuels is something that we started in Votorantim and also other companies many years ago, and it's something that is going to continue and is not going to stop. During the pandemic what we have is some issues of supply problems because the borders were closed, mainly Europe. But otherwise, we didn't experience much problems. And something that we want to do more, even in Spain, the industry was helping to burn all the material from the hospitals because there was so much waste coming out of the hospitals that basically the industry was doing some help to the hospital to get rid of all that and burning it inside a kiln.
But this is a trend that we will continue. And in 2019, we burned almost one million tons of waste in our system in Votorantim Group, which basically replaced or took from the area almost one million tons of CO2. And this, just as a comparison, one million tons of CO2 is equivalent of, what, 300,000 cars emit of CO2 in a year. So basically it's like taking 300,000 cars off circulation. But the trend is going to continue. No VIRUS will stop this, and it's part of our targets of sustainability.
Lauren: Okay. I think that's all the questions that I had. So thank you, Roberto.
Roberto: Thank you very much for your time and stay safe.
Lauren: And if you enjoyed this podcast, please be sure to tune in for the other episodes in our series, The Petcoke Podcast. For more information on Argus petroleum coke coverage, please visit www.argusmedia.com.