Once the epitome of the rapidly-rising BRIC group (Brazil, Russia, India and China), Brazil’s economy and cement sector have taken a massive knock since 2008. This has been due to the global economic downturn exacerbated by the country’s reliance on mineral exports and accompanying political upheaval. Here we look at the country’s cement producers, recent production and consumption trends, recent news events and sector outlook.
Brazil spans 8.5 million km2 of land across 26 states. It is the largest country in South America, occupying around two thirds of the land mass. It is also the fifth-largest country in the world. With a population of 215 million in 2017, it is also the sixth most populous country in the world.
Brazil is one of the ‘BRIC’ group of economies, classically defined, along with Russia, India and China, as a large and rapidly-growing developing economy. It experienced a milder recession than many economies as a result of the 2008 global economic downturn, driven by strong domestic growth and exports of raw materials. However, as the downturn became prolonged the country’s reliance on raw material exports came unstuck due to a dearth in demand.
Brazilian GDP fell from US$2.62tn in 2011 to US$2.46tn in 2012, according to the World Bank, stabilising around that level in 2013 and 2014. However GDP nose-dived by a further 28% to US$1.78tn in 2015. The CIA World Factbook estimates that GDP fell by a further 3.3% in 2016. The country’s GDP/capita is estimated at US$16,200.
The Brazilian economy remains largely reliant upon commodity exports, including coffee, automobiles, steel, cement and crops. In 2015, it exported US$190.1bn of goods and imported US$172.4bn. Its 110.4 million-strong workforce was employed primarily by the service sector (71%), while agriculture and industry employed the remaining 15.7% and 13.3% respectively. Unemployment rose from 9% in 2015 to an estimated 12.3% in 2016, indicating deterioration in the national economy.
Cement industry - Introduction
The Brazilian cement industry dates back to the late 19th Century, when the earliest cement plants were built. Industrial-scale production began in 1926 with the launch of the Companhia Brasileira de Cimento Portland cement plant. It only took until 1933 for domestic production to overtake imports.
In the 1950s and 1960s Brazil’s economy grew rapidly on the back of significant government investments, including the construction of its new capital Brasilia in the country’s interior. This led to a significant rise in cement demand, with production increasing from just 1.4Mt in 1950 to 5.6Mt in 1965 (See Figure 1). Consumption rose from 12.9kg/capita in 1935 to 67.7kg/capita in 1962. During this time, Brazil became self-sufficient in terms of cement production.
The growth of the cement sector accelerated in the 1970s, with the establishment of 22 new plants. Production more than tripled from 9.0Mt in 1970 to 27.1Mt in 1980. However, demand stagnated in the 1980s following the oil crisis of the late 1970s. At this time capacity utilisation languished at just 45%. By 1990 production had fallen back to 25.8Mt.
In the 1990s and 2000s cement demand picked up once more, with sales rising by 54% to 39.9Mt in 2000 and by a further 20Mt by 2010, reaching 59.1Mt in that year. Higher levels of civil construction, incentives to build real estate, general increases in salaries, credit expansion and reductions in interest encouraged economic growth and cement in the late 2000s.
Brazilian cement production peaked in 2014 at 72.1Mt, before falling back to 65.3Mt in 2015. Cement sales fell from 70.9Mt in 2014 to 57.2Mt in 2016, on the back of the country’s poor economy (See Figure 2). This represents a decrease of 19.3% in just two years.
A regional breakdown of sales between 2014 and 2016 is shown in Figure 3. While all regions have seen declines, the largest volume drop (7.1Mt) has been in the populated and cement-intensive South East of Brazil, the location of major cities such as Rio de Janeiro and São Paulo. The largest percentage drop, 29.9%, was seen in the Central West region.
Cement industry - Plants
In 2017 there are 71 active integrated cement plants in Brazil that share a total of 85.7Mt/yr of cement capacity, according to the Global Cement Directory 2017. There are an additional nine proposed and mothballed plants, plus 20 active cement grinding plants and one closed grinding plant. Their distribution is not even, with production and consumption focused strongly in the most populous states of São Paulo, Minas Gerais, Rio de Janeiro and Bahia, close to the coast.
Cement industry - Summary of producers
There are a total of 16 integrated cement producers in the Brazilian market. Out of these, only two (LafargeHolcim and CRH) are not Brazilian-owned entities. Indeed, multinationals Cemex and HeidelbergCement are notable by their absence from the market.
The market, home to 19 producers in the 1990s, has become increasingly concentrated in recent years. 54 of the 71 integrated facilities currently in operation are run by just four producers. Together, Votorantim, InterCement, LafargeHolcim and Cimento Nassau share 68.3Mt/yr of capacity, around 80% of the integrated total. The remaining 12 producers are responsible for just 17 integrated facilities between them, with just 17.4Mt/yr of capacity (20% of national capacity). Figure 5 provides a breakdown of the market by producer type.
Cement industry - Producer profiles
Votorantim: The largest producer by installed integrated cement capacity in Brazil is Votorantim, which has 22 active plants and 35.0Mt/yr of capacity. This gives it around 41% of the national integrated market.
Votorantim was founded in Brazil in 1918 when it began producing textiles. Cement was first produced by the group in 1936. Today its interests also span aluminium, pulp and paper and banking. It also operates cement plants in Turkey, Bolivia, Canada and the USA.
Votorantim’s cement sales fell by 6% year-on-year to 35Mt in 2015 from 37Mt in 2014. It blamed the downturn in Brazil in particular. Although it has not yet released full results for 2016, the first nine months saw its total profit fall by 15.8% year-on-year to US$262m compared to the first nine months of 2015. The gross profit attributable to cement over the same period was US$146m. This figure was up marginally year-on-year compared to the first nine months of 2015, when the group made US$142m.
In June 2016 Votorantim Cimentos inaugurated a new cement plant at Primavera in Pará state. The US$258m plant has a production capacity of 1.2Mt/yr. It will serve the North and North East regions of Brazil.
“This plant in Primavera is part of Votorantim Cimentos’ major investment plan,” explained Walter Dissinger, CEO of Votorantim Cimentos. “Despite the challenging situation in Brazil, we are moving forward with our long-term vision and our confidence in the development of the country.”
InterCement Brasil: The second-largest cement producer in Brazil is InterCement Brasil, part of Cimpor Inversiones, which is in turn owned by InterCement Participações. It has 12 integrated cement plants in operation that share a capacity of 15.0Mt/yr. This gives it 17.5% of national integrated capacity.
InterCement traces its history back to the establishment of the Portland Eldorado plant in 1968. Then known as Camargo Corrêa, the company made its first cement in 1974. For 20 years it did not expand greatly, adding a second production line in 1991 and a second plant in 1993. However, in 1997 it acquired plants in Minas Gerais, followed by the construction of four new plants, starting in 2001. It added further Brazilian plants in 2006 and 2008.
InterCement sold 28.1Mt of cement across all operations in 2015, a 6.1% decline compared to 2014, during which it sold 30.0Mt. In financial terms sales revenues from cement came to Euro2.5bn, down from Euro2.6bn in 2014. It made a net loss for the year of Euro20.2m, compared to a Euro41.0m profit in 2014.
The company’s annual report for 2015 states that political and economic uncertainty led to a contraction in demand combined with an increase in capacity in the Brazilian market. It sold 10.5Mt of cement in Brazil in 2015, a 16.3% decrease from 12.6Mt of cement sold in 2014. It also factored in devaluation of the Real against the US Dollar.
Although the company has not yet reported full results for 2016, it has released information relating to the first nine months of the year in Brazil. Between January and September 2016 the decline in cement sales continued, collapsing by 19.2% to 6.5Mt, compared to the first nine months of 2015. The value of sales was even more alarming, falling by 41% year-on-year to Euro397m.
LafargeHolcim: The third-largest cement manufacturer by installed integrated capacity in Brazil is the world’s largest multinational cement company, LafargeHolcim. The 2015 merger between the former Lafarge and Holcim gave rise to 11.3Mt/yr of integrated cement capacity for the group in Brazil. This gives it around 13% of the local market. LafargeHolcim was forced to sell a number of integrated assets as a condition of the merger. These were sold to Ireland’s CRH.
In 2015 LafargeHolcim reported that Brazil had dragged down otherwise solid performances in South America. For the continent as a whole, the multinational sold 27.9Mt of cement during the year, a 1.2% fall year-on-year compared to 2014. In Brazil they fell by 5.6% year-on-year.
Like the other producers, LafargeHolcim has not yet released full results for 2016. In the first nine months, however, it reported that Brazil had remained a tough market and was the target of tough cost-cutting measures.
Despite the challenging market, LafargeHolcim launched a new cement line at its plant in Barroso in May 2016. At the time the group said that the construction of the new line was part of its strategy to reduce the cost per tonne of its cement, while improving quality and efficiency, in order to operate profitably in a low investment environment. It claims that the line is the most efficient in Brazil.
Equipment includes the world’s largest vertical cement mill from Gebr. Pfeiffer and an FCB Horomill for raw materials. The plant’s total capacity will rise to 3.6Mt/yr and the new line will allow the total cost per tonne of cement to fall by around 25% between 2014 and 2017. At the time Eric Olsen, the CEO of LafargeHolcim, said, “The opening of Barroso is key to our strategy in Brazil and will allow us to further improve our cost structure while we continue to supply our customers with our high-quality solutions.”
Cimento Nassau: Cimento Nassau traces its history back to 1951, when it was founded by João Santos, an entrepreneur who had previously been involved in various other cement enterprises. Today it operates 10 integrated cement plants in Brazil that share a capacity of 7Mt/yr, enough to give it an 8.2% market share by capacity. It operates through a number of subsidiaries.
Other producers: The remaining integrated producers and cement grinding plants can be seen in Figures 4 & 6 in the print version of this article. The vast majority are Brazilian-owned. One major exception is Ireland’s CRH, which took over three integrated plants with a total capacity of 2.3Mt/yr in 2015, following the LafargeHolcim merger.
Economic and cement industry forecast
In its January 2017 update the International Monetary Fund forecasts that the Brazilian economy will grow by just 0.2% in 2017, following an estimated contraction of 3.5% in 2016. GDP growth is expected to increase to 1.5% in 2018, suggesting that the construction sector may see moderate improvement in the medium term.
However, the National Union of Cement Industry (SNIC) has already said that 2017 may be ‘the worst year on record’ for the domestic cement industry, with its new President Paulo Camillo Penna describing the current situation as the worst in the industry’s history. He added that following capacity utilisation rates of 70% in 2015 and 57% in 2016 that he expects the rate to fall below 50% in 2017. SNIC forecasts that sales of cement will contract by a further 5 - 7% in 2017 compared to 2016. This would represent sales of 53.2 - 54.3Mt.
In light of this, it appears that the Brazilian market could be set for further consolidation in the short to medium term. Producers that have just brought new capacity online may soon be ruing their decisions if conditions do not improve.