During the first six months of 2019 many of the challenges that impacted ourbusinesses in late 2018 persisted in particular: continued softness in the Chineseeconomy; reduced automotive sales in China Europe the UK and Japan which impacteddemand for raw materials that we produce for aluminium automobile tyres and adhesives;and disruption to our calcination business due to India's restrictions on petroleum cokeimports resulting in high-cost inventories in a declining market that reduced profitmargins.
The good news is that during the second half of 2019 earnings for our Carbon businesssegment began a slow but steady return to historically normal levels as we worked throughour high-cost inventory of green petroleum coke (GPC). In addition we saw an uptick incoal tar pitch sales volumes due in part to the resolution of US sanctions against Russiathus fully restoring a market in which we have had a strong presence. On the AdvancedMaterials side of the business we saw improved demand for our environment-friendlysealer-base products and PETRORES specialty coatings which are used in lithium-ionbatteries energy storage and other specialty applications. Performance by our Cementsegment also improved during 2019 with an increase in volumes coupled with higherrealisations. Also contributing to our Cement business' performance was a cost-optimisation initiative and the generation of electricity from waste-heat recovery as wedo in our calcination business.
As a result our operating profit for the year was Rs. 17427 million. Clearly that isdisappointing coming on the heels of exceptional earnings in 2017 and a relatively strongRs. 21411 million of operating profit in 2018. However a comparison of earnings duringthe first and second half of 2019 leads us to believe that the business is returning tonear-normal performance levels.
Looking ahead we expect 2020 to be a milestone year from the projects perspective aswe complete several important expansions that will enable us to produce essentialmaterials for today and tomorrow'. And in doing so these projects and the materialsproduced should generate new revenue streams that should positively impact our performancebeginning in 2021 once we stabilise operations at the new facilities and gain customeracceptance of our new products. Completion of these projects will further solidify ourpresence in existing markets and enable us to create new markets in the coming years. Webelieve these projects will also support our efforts to advance in a sustainable way.
In our Carbon segment we will be commissioning our new vertical- shaft calciner in theSpecial Economic Zone (SEZ) near Visakhapatnam in the state of Andhra Pradesh India. Oncecommissioned the new plant will have a production capacity of 0.37 million tonnes perannum (MTPA)-adding to our current global capacity of 2.10 MTPAand it will leveragetechnology that will enable us to produce high-density calcined petroleum coke (CPC)while cogenerating electricity from our waste gases. The new shaft calciner will alsoposition the Company to meet the growing demand by anode producers in Asia and the MiddleEast which are expected to be the largest-growing markets for aluminium outside of Chinaover the next few years.
The plant's anticipated first quarter 2020 start-up was delayed due to the coronavirus(COVID-19) pandemic while we also continue to seek resolution regarding our request tobring GPC feedstock into the SEZ.
In parallel we have developed a new material called anhydrous carbon pellets (ACP)that will serve as a feedstock for calcination. ACP is a specially engineered value-addedmaterial that we have been developing since 2011. After years of testing and refinementwe are confident of our ability to produce ACP on a commercial scale and are installingequipment to manufacture this proprietary carbon material at our Chalmette calcining plantin the US and near the new shaft calciner in India.
Just as important the shaft calciner incorporates a state-of-the-art liquid ammoniaFGD system that will remove ~99% of the plant's SO2 emissions - thus addressing theGovernment of India's ambitious clean-air goals which were the basis of the HonourableSupreme Court's decision in July 2018 to restrict petroleum coke imports. In fact theCompany is the only calciner in India with installed SO2 scrubbing equipment since thecommencement of operations both at the new shaft calciner and our existing rotarycalciner in Visakhapatnam. In addition to making the shaft calciner the mostenvironment-friendly plant of its kind in the world the liquid-ammonia scrubbing systemwill convert the gases into ammonium sulphate which will be supplied to Indian farmers asfertiliser.
In our Advanced Materials segment we will begin commercial operation of our newhydrogenated hydrocarbon resins (HHCR) plant at our Castrop-Rauxel facility in Germany inthe first half of 2020. Once operational the state-of-the-art plant-permitted for up to50000 TPAwill have an initial annual production capacity of 30000 TPA and willserve as the cornerstone of our Advanced Materials segment.
This facility with its patented process technology and product innovations willenable us to produce materials for tomorrow' including our new NOVARES pureresinsthat will help customers meet changing regulatory requirements and satisfygrowing societal demand for cleaner faster and lighter products. These water-white'resins will match the purity of any competing products available and they will providecustomers with a better alternative for such applications as food packaging and hygieneproducts.
The increasing popularity of electric vehicles (EVs) presents additional opportunitiesfor our Advanced Materials business. Specifically we are excited about the continuedgrowth potential for PETRORES based on forecasts indicating that total consumption ofcarbon-based materials for EVsincluding aluminium and lithium-ion batteriesisexpected to grow 20% annually over the next few years. The Company is well positioned toserve those markets and help satisfy the world's growing appetite for moreenvironment-friendly manufacturing processes and end products.
In Indiathe birthplace of the Companythe materials for today'produced by our subsidiary company RAIN Cements Limited under the brand PriyaCement'' are providing a solid foundation for many of the new housing and otherinfrastructure projects underway in the southern states of Andhra Pradesh TelanganaTamil Nadu Karnataka Kerala Maharashtra and Pondicherry. This led to an 11% increase involume compared to the previous year.
Looking ahead continued infrastructure and housing development should translate tostrong demand for cement in the coming years. Coupled with a limited expansion ofproduction capacity throughout the industry we anticipate improved plant utilisationrates and increased earnings across the cement sector.
While we are in the business of creating essential materials that make possible so manyof the everyday products that people around the world rely on we have more than 2700employees on three continents who are equally committed to ensuring that we do what isright for the environment as a whole.
Corporate social responsibility is part of our DNA and it is visible year- round inthe communities where we operate.
Similarly our commitment to sustainability and the environment is evident at ourproduction facilities. In terms of our products it begins with upcycling'industrial by-productspreventing them from being disposed of as waste or burned as apolluting fuel sourceto make materials essential to the production of aluminium EVsand many other every-day products. But that is just the tip of the iceberg. We also usefly ash from coal-fired power plants in the production of portland pozzolana cement whichreduces our limestone consumption and lowers the risk that toxic compounds in fly-ashslurry could leach into the ground from containment ponds. Elsewhere our coal tar-basedNOVARES resins enhance the performance of automobile tyres improving safety byproviding better traction and increasing fuel efficiency by reducing rolling resistance.
Operationally our use of waste heat to generate more than 175 MW of clean electricityand steam and the SO2 scrubbing equipment installed at our existing calciners thateliminate up to 98% of the SO2 from plant emissions are well documented. Less well knownare similar waste-heat recovery efforts in Germany and the reduction of benzene emissionsat our coal tar distillation facilities in Europe and Canada as a result of ourleak-detection-and-repair initiative.
And most recently the development of anhydrous carbon pellets (ACP) gives us a rawmaterial that we believe will reduce SO2 and CO2 emissions at our facilities duringcalcination - and help the aluminium industry attain its sustainability goals.
One other area where our employees are focused on acting responsibly is workplacesafety. Last year our Rain Carbon subsidiary launched Quest for Zero an initiative tobecome an incident-free organisation. In fact they completed 2019 with a total recordableincident rate of 0.29 making it the safest year in the Company's history placing usamong companies considered best-in-class' in safety performance and moving us closerto our long-term goal of zero incidents on an ongoing basis.
I am pleased to report that despite the disruption caused by the coronavirus (COVID-19)and oil price volatility the first quarter was relatively good for our businesses.Looking at the second quarter however we anticipate that reduced global demand foraluminium due to the temporary closure of many automobile and airline-productionfacilities could have a cascading effect on our Carbon and Advanced Materials segments.Similarly the recent crash in petroleum prices has impacted our business. It will take usa quarter to reset pricing and work through inventories.
We do believe however that once the HHCR facility and shaft calciner begin commercialoperation and complete a period of customer product testing they will provide new revenuestreams and market opportunities. At the same time we know that continued fiscaldiscipline is imperative especially given the economic upheaval caused bycoronavirus which we anticipate will be a factor through the year.
Fewer vehicles on the roads in the air and on the seas have impacted the production ofall petroleum products including those that directly touch our businesses. In responsewe are actively managing the fluctuating global supply and demand for our raw materialsand finished products. We are also leveraging our strategic logistical infrastructureadvantages to maintain a firm competitive footing during this period of unprecedentedglobal economic change.
Overall we have been fortunate during the global pandemic. In every country in Europeand North America where stay-at-home orders have been implemented our plants have beendesignated as essential businesses' because they support critical industries suchas aluminium steel carbon black and petroleum refining. In India we shut downoperations at our cement plants in response to the lock-down orders issued by the centraland state governments.
Due to the nationwide lock-down construction activities came to a halt and ourcustomers had to close their shops resulting in lack of demand for cement. Later uponreceiving the requisite approvals from the state governments we restarted our operationsin our Cement Business in the last week of April 2020. Further our Vizag carbon plantwas permitted to restart operations partially in the second week of April in compliancewith the operating permissions granted. This required minimising contamination risks byreducing the number of employees and contractors moving into and out of the plant to half.
Across our organisation we have been doing everything possible to keep our people safeand plants operating so that we remain a strong link in the global supply chain. Forexample employees who are not directly involved in the production processes are workingfrom home to reduce the risk of contaminating those working in our facilities. Inaddition as a leading producer of active ingredients found in disinfectants we are usingour chemical knowhow to produce our own cleaning agents with disinfecting properties towipe down frequently touched surfaces on a regular basis. We are cognisant that thecontinued operation of our plants is not only crucial for the RAIN Group but also for theindustries we serve; if our production is impacted it could have a negative effect on thebroader global economy. The protective measures have also helped us reach mechanicalcompletion of our HHCR plant. We managed the final stage of construction with more than250 contractors in full compliance with German COVID-19 regulations and without a singlecase of infection. Meanwhile the startup sequence for the HHCR facility has beeninitiated.
At the RAIN Group we always aim high and continue to improve and make ouraccomplishments sustainable. When it comes to our financial performance we areaggressively managing our spending by focusing on activities that add value for theCompany customers or investors. We also have implemented rigorous cost-optimisation andmanagement programmes.
At the same time we are moving away from materials of yesterday'. Case in pointis the closure of the Uithoorn resins production facility in the Netherlands that weannounced last August. It was not an easy decision since it did have an impact onemployees families and the surrounding community. However the development of alternativeproducts and technologies has reduced demand for many of the resins produced at Uithoornand made some of the products nearly obsolete. The products that were profitable atUithoorn have been successfully transitioned and are now being manufactured at ourDuisburg facility in Germany. In fact during the first quarter of FY20 we realised 90%of the combined volumes of both sites despite winding down production at Uithoorn.
Throughout 2020 we are committed to building on what we accomplished during theprevious year: improved financial performance during the second half of 2019 thenear-completion of our major capital projects and the introduction of new products suchas ACP and NOVARES pure that could be real differentiators for us. By building on theseachievements and managing our costs we believe 2020 will be a year that positions theCompany to advance sustainably.
Jagan Reddy Nellore
Date: April 28 2020