Lafarge-Strabag JV Cements Stronger Defence Against CEE Headwinds
Created 06/01/2010, 11:35:40 am
The strategic partnership between Lafarge and Strabag in Central and Eastern Europe (CEE) is a way for the two companies to have a stronger response against what BMI sees as a generally weak market. Both Strabag and Lafarge made an optimistic push into the CEE region earlier in the decade, but faced difficult conditions over 2008 and 2009, as the infrastructure and construction building came to an abrupt slowdown.
Both companies have been facing strong headwinds in their operations in CEE; though Lafarge's global market leader position and global diversification, made the effects from the CEE contraction much less pronounced than for Strabag. Strabag's strategic diversification away from Germany and Austria and into CEE (particularly Russia) left the company heavily exposed to the regional weakness in demand. Following Germany, CEE is the second largest market in terms of output for Strabag. Poland is the largest market among other countries in CEE: as of December 2009, it overtook Russia to have the largest order, or 17.5% of the company's total order backlog. This has reinforced BMI's core view that Poland will be the strongest infrastructure and construction market in the region by a wide margin.
The partnership pertains to the tie-up of Lafarge's and Strabag's cement production, under a new Austria-based holding company, Lafarge Cement CE Holding. The initial production capacity of Lafarge Cement CE Holding will be quite small, only 4.8mn tonnes. It is a mere fraction of Lafarge's total production capacity of 165mn tonnes globally, of which 20.3mn tonnes are produced in CEE.
Lafarge will contribute its cement plants in Mannersdorf and Retznei in Austria, Cizkovice in the Czech Republic, and Trbovlje in Slovenia. Strabag will place its cement plant in Pecs in Hungary under the ownership of Lafarge Cement CE Holding, once it comes online.
BMI believes that this agreement is of much more strategic importance for Strabag than for Lafarge, as Strabag will need to weather the storm in CEE given its choice to make the region its core operating area. This partnership plays into one of Strabag's strengths of becoming more vertically integrated, therefore reducing operating costs. The CEO of Strabag said that the new company, Lafarge Cement CE Holding, will supply the total amount Strabag needs for its operations, in the markets it will produce in. The advantage for Lafarge is that it will secure, in Strabag, a steady customer for its output from Austria, the Czech Republic and Slovenia...
Source: Business Monitor International
