Background and challenge
Cementitious products, long considered to be low-value waste, have become sought-after commodities under the combined effects of:
- Tightening CO2 regulation (EU ETS Phase IV), pushing for higher inclusion of cementitious materials in concrete
- Loosening concrete regulation in specific countries, allowing for greater cementitious inclusion
- Decreasing cementitious availability, driven primarily by the decline of the coal energy sector in Europe
Aware of these trends, some cementitious producers have become increasingly active in maximizing the value of byproducts — supported by concrete and construction players looking to cut their cement costs.
In this context of dramatic change in the balance of power within the industry, a leading global cement player asked L.E.K. Consulting to develop a cementitious sourcing strategy.
Approach and recommendations
We researched and modeled the change in the availability of cementitious products in the next five years, taking into account the effect of coal plant closures throughout Europe, new coal openings in developing countries (such as Turkey, Poland and Morocco) and the shift in slag trade dynamics. We also reviewed the ability and delivered price of distant sources of slag and fly ash across different countries, including China, India, Japan and South Korea.
Leveraging that initial analysis, we then developed an analytical tool to support plant-level decision-making regarding slag. This model generated a clear, documented slag use recommendation for each of the client’s plants based on multiple criteria, including CO2 prices, logistical costs and the level of price disruption caused by downstream slag sales.
We used the output of this model to develop the client’s negotiation strategy with one of the main suppliers of slag in Europe.
Results
The client benefited from a clear view of future trends in the cementitious products market. It was able to implement a strategic road map for short-term value creation opportunities, including the development of a negotiation position with its most important supplier and validation of its plant-level sourcing. Our insights also left the client confident in forming longer-term strategies, such as investigating new types of cementitious products and changing its negotiation positions depending on future event triggers.
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