The core of the Caribbean cement industry consists of the Dominican Republic (with 5.9Mt/yr in integrated capacity), Cuba (4.7Mt/yr) and Jamaica (3.5Mt/yr). Haiti and Trinidad & Tobago also command small, single integrated plants, while there are numerous grinding plants and cement terminals along the region’s extensive coastlines. The industry has been the subject of new commercial and capital expenditure-related announcements in the past fortnight. Regarding the Caribbean’s cement producers, these developments seem to lack a single clear direction.

Caribbean market leader Cemex revealed that it was considering selling up in the region’s largest market, the Dominican Republic, on 1 September 2023. Bloomberg cited unnamed sources stating that the Mexico-based cement giant hired financial services JPMorgan Chase to explore the possible divestment of local subsidiary Cemex Dominicana. Exactly one year had passed since Cemex completed its sale of Cemex Costa Rica and Cemex El Salvador to Guatemala-based Cementos Progreso for US$329m. Sources clued in on the latest development reportedly expect Cemex Dominicana to command a selling price three times greater than the Central American divestments combined.

Cemex has discussed its scattered disposal of global assets since 2019 as a strategic realignment towards its main markets, in particular those in North America and Europe. On this understanding, the Caribbean straddles an invisible line between Cemex’s strategic core in North America and Central America on its periphery.

Just to the north of the line lies Jamaica. There, Cemex subsidiary Caribbean Cement will expand its Rockfort cement plant by 30% to 1.3Mt/yr through a US$40m upgrade, scheduled for completion in early 2025. Late last week, Caribbean Cement told investors that the upgrade will equip the plant with new equipment, including a new dosing system. The producer expects this to help the Rockfort plant to further increase its alternative fuel (AF) substitution rate. It co-processed 5.6% AF in its kiln during the first half of 2023, more than double its first-half 2022 substitution rate of 2.7%. Caribbean Cement began exporting cement to Turks and Caicos on 16 September 2023, and plans to increase its shipments there and elsewhere. Managing director Yago Castro reassured Jamaicans that Caribbean Cement would also continue to help meet domestic demand.

Currently, Caribbean Cement and fellow Jamaican producer Cement Jamaica compete in the domestic market against imports, including some cement from Dominican Republic-based Domicem. This enters the country via Buying House Cement’s Montego Bay terminal. Montego Bay Cold Storage, an affiliate of Buying House Cement, shared plans for a second, US$8m cement terminal in the city earlier in 2023. The facility is expected to help meet growing demand from residential and hospitality sector construction.

More new production capacity is soon to come online in the form of a 1.23Mt/yr grinding plant in the Dominican Republic. Cemento PANAM will own and operate the plant, while Germany-based Gebr. Pfeiffer will supply a 3750 C-4 vertical roller mill via engineering, procurement and construction contractor CBMI Construction.

In a market where the nearest cement exporter is only a short sail over the horizon, producers have to compete fiercely for their market shares, even at home. Disputes over Caribbean Community member states’ rights to protect domestic cement production have gone as high as the Caribbean Court of Justice. It ended Barbados-based Rock Hard Cement’s hopes of resuming exports to Trinidad & Tobago last year.

The Caribbean’s cement producers will be acutely aware of Cementos Argos’ planned expansion of its north-facing Cartagena, Colombia, cement export facility, hot on the heels of a previous, US$42m expansion. The South American giant says that it is targeting the US, where it anticipates an upcoming construction boom. Caribbean countries present other possible markets for producers like Cementos Argos, yet their cement industries might equally emulate any successes it enjoys in the US. Like Argos in Colombia, Jamaica’s Caribbean Cement is part of a group with an existing presence in the US. Its on-going investments in the Rockfort plant signal a readiness to catch the trade winds rapidly picking up in the Caribbean.

Dangote Cement felt compelled to issue a statement clarifying its prices at the end of August 2023. In the release it stated what its ex-factory price was in Nigeria and added that transport costs and the location of a delivery could add additional expense. It made the declaration in response to alleged “misinformation” on social media channels that the company had been selling its cement more cheaply in the neighbouring country of Benin. A subsequent investigation by the This Day newspaper reported that Dangote Cement does not officially export cement to Benin and that the average price in the country was actually slightly higher than the end prices Dangote Cement provided. Competitor BUA Cement wasted no time though in saying at its annual general meeting that it would ‘crash the price of cement.’

All of this may sound familiar because a similar argument broke out in early 2021. At that time prices were rising following the outbreak of Covid-19, although other factors were at play. Then as now, Dangote Cement, the largest domestic producer, defended itself by publishing its prices and BUA Cement made another showy claim saying that it had no plans to raise the ex-factory price of its cement at the present time or in the future, “…barring any material, unforeseen circumstances.” The government also became involved with the Senate of Nigeria discussing the matter in relation to potential legislation at the time. Part of the problem here has been that Dangote Cement is the biggest producer and it has gradually started exporting cement from Nigeria in recent years and, regardless of any effects to the domestic market, it leaves it exposed to the kind of unsubstantiated scuttlebutt it has faced recently. Back in 2021 it briefly stopped exporting cement for a while before resuming it again in May 2021.

Graph 1: Half-year sales revenue from selected large cement producers in Nigeria. Source: Company reports.

Graph 1 shows how some of the large cement producers in Nigeria did in the first half of 2023. Dangote Cement is the market leader by a considerable margin and the figures here do not even include its sales elsewhere in Sub-Saharan Africa. Despite its market dominance its sales revenue has fallen so far in 2023 and the company blamed election uncertainty, a “cash crunch”, negative currency exchange issues and the weather. That said though it did manage to increase its earnings through initiatives such as using alternative fuels, making efficiencies at its plants and utilised compressed natural gas in its truck fleet.

BUA Cement and Lafarge Africa provided less descriptive context in their release. Both BUA Cement’s revenue and profit after tax rose year-on-year but Lafarge Africa’s profit after tax fell. This may have been due to a rise in fixed production costs such as staffing, by-products costs and electricity, although depreciation was also an issue.

For all of BUA Cement’s talk of “crashing the cement price” it is preparing to commission two new 3Mt/yr production lines at its Obu and Sokoto plants respectively in the first quarter of 2024. Given everything else that is going on in the Nigerian economy, such as inflation, and the large size of the country it seems unlikely to lower the price although it might slow down the rate by which the price continues to rise. In its 2022 annual report BUA Cement’s managing director Yusuf Haliru Binji said that the new production lines would enable it to potentially increase its exports. This is the logical next step for a local sector outgrowing its domestic bounds and this is exactly what Dangote Cement has done. Yet, as the recent price debacle has shown, the price of cement matters to Nigerians. If the price keeps going up all of the local producers may end up facing negative attention whether warranted or not.

The big US news this week has been that Summit Materials and Argos USA are planning to merge their operations. The new organisation will operate six integrated cement plants with a production capacity of 8.4Mt/yr, based on Global Cement Directory 2023 data. The companies say that this will make them the fourth biggest cement producer in the country, at 11.8Mt/yr, based on grinding capacity, and the largest domestically-owned operator. Additionally, the combined entity will also hold just under 5Bnt of aggregate reserves, 224 ready-mixed concrete (RMX) plants and 32 asphalt plants.

The deal is expected to close in the first half of 2024 subject to the usual regulatory clearances and shareholder approval. At this point Argos should own approximately 31% of the new company and Summit Materials’ shareholders will be the majority owner. Although, if we remember anything from the Lafarge-Holcim merger from nearly a decade ago, it is that if the share prices between the two companies diverge too much in the next six months then that proportion may change. In simple terms that split for Argos USA is in the region of where one might expect it to be given that Argos USA made 39% of the combined revenue for both itself and Summit Materials in 2022 and 28% of the combined earnings.

The two companies complement each other well for the purposes of forming a new heavy building materials concern. Summit Materials reported revenue of US$2.41bn in 2022, with 30% deriving from its aggregates businesses, another 30% coming from RMX and about 20% from paving. Cement generated US$341m, or 14%, of total revenue. By contrast Argos USA reported revenue of US$1.57bn in 2022 from a business just concerning cement and concrete. Geographically, Summit Materials’ integrated plants are in the Midwest, in Iowa and Missouri respectively, and its cement terminals follow the Mississippi River from Minneapolis to New Orleans. Notably, it made the point in the merger announcement that the deal would reduce the seasonality of its cement business. Argos USA’s plants and terminals are mostly spaced out in the Southern states with its plants in Alabama, Florida, South Carolina and West Virginia.

It goes against recent trends for a US-based company to be increasing its share in the domestic cement market, although it has resorted to teaming up with a Colombia-based one to do so. Usually it is foreign-headquarted companies making moves in the US. For example, Ireland-based CRH is in the final stages of switching its primary listing to the New York Stock Exchange. Its head Albert Manifold described the US construction market as going through a “golden age” earlier in the year whilst trying to sell the stock market move at the company’s annual general meeting. Meanwhile, there have been various smaller acquisitions such as Peru-based UNACEMs’ agreement to buy the Tehachapi cement plant in California from Martin Marietta Materials in August 2023.

Given the ongoing importance of the North American market for the international cement producers it is not surprising that merger and acquisition activity has been taking place. Each of the four largest US-based cement producers performed well in the first six months of 2023, increasing both revenue and earnings significantly. However, the picture is mixed. The Portland Cement Association (PCA) forecast at the start of 2023 that cement consumption would decline in the second half of 2023 due to a worsening general economic outlook. The downturn was estimated to be brief though as interest rates were expected to dip and infrastructure spending to rise in 2024. Half-year data from the United States Geological Survey (USGS) supported this view as shipments reached an estimated 51.0Mt, a slight decrease from the same period in 2022. The cement companies have made money so far in 2023 partly by raising their prices. Yet, some segments of the residential homebuilding market have also driven demand despite the general economic picture.

One last thing to consider is how much thought was given to the carbon risk of forming a new heavy building materials company in a developed economy in the 2020s. Sustainability receives a mention in Summit Materials’ investor presentation in the form of current achievements such as switching to blended cements or reducing fossil fuel usage but there is no suggestion that any serious investment to curtail process emissions is expected any time soon. However, one could make the case that the enlarged company might benefit from synergistic effects if it were forced to spend more on CO₂ emission reduction. This proposed merger concerns two existing organisations teaming up rather than new equity entering the arena. In this context it will be worth noting whether the next cement industry merger or acquisition in the US or Europe will involve existing companies or new entrants.

The first half of 2023 has continued to be a tough period for the major China-based cement producers, with revenue and profits down for many. As CNBM put it, the sector is facing production overcapacity, weak demand, high inventory, low prices and declining profits. However, not every company has followed this trend, with a few such as Anhui Conch, Huaxin Cement and Tapai Group managing to hold operating income up and the latter somehow even managing to increase its net profit. The China Cement Association (CCA) in its financial coverage has memorably described these companies that have bucked the national picture as ‘dark horses.’

Graph 1: Sales revenue from selected Chinese cement producers. Source: Company financial reports. Note: For CNBM, cement revenue shown only.

Graph 1 above summarises the situation for a selected group of cement producers. Anhui Conch avoided the fate of CNBM by managing to grow its non-cement revenue, specifically from aggregates and concrete. Yet it too was unble to avoid its net profit falling by 32% year-on-year to US$928m in the first half of 2023 from US$1.37bn in the same period in 2022. Huaxin Cement pulled off the same trick by raising its concrete and aggregates revenue domestically and by growing its overseas revenue. As well as its subsidiaries in Africa, the company also added Oman Cement to its portfolio, completing the acquisition of a majority stake in April 2023. The CCA has a wider roundup of how well the local cement companies have done.

Graph 2: Cement output in China, 2019 to first half of 2023. Source: National Bureau of Statistics of China.

Data from the National Bureau of Statistics of China suggests that the cement sector is stagnating rather than actively declining. This is an improvement of sorts from the decline in the first half of 2022, at least. Cement output in the first half of 2023 rose ever so slightly to 980Mt from 979Mt in the same period in 2022. On a rolling annual basis cement output has been gently falling below 1% each month since November 2022, although it rose by nearly 1% in March 2023.

The underlying problem for the Chinese cement sector remains the local real estate market. Developer Country Garden has been the latest company to warn of potential losses – of up to US$7.6bn – in the first half of 2023. It is also currently attempting to ask for more time to repay a bond. This follows the financial problems that Evergrande has faced since 2021. Financial analysts have been monitoring the situation for several years and warning of what a larger collapse in the sector could mean for the wider economy, such as the implications for the banks that hold the debts of the developers. Commentary by Goldman Sachs in August 2023, for example, suggested that the real estate sector needs to manage its inventory on a large scale, with over US$2Tn in liquidations, in order to restructure debts in the property sector. It estimated that the whole situation could reduce the country’s entire gross domestic product (GDP) by 1.5% in 2023, although this would be the trough of the downturn in its view.

Cement producers in China continue to be held hostage by the conditions in the real estate market and the effect this has in turn on demand for building materials. Yet all is not lost, as the examples of the CCA’s ‘dark horses’ show, buoyed by business diversification, overseas expansion or even regional differences. How much longer the rest of the other cement companies can cope in this environment remains to be seen. A less regulated market would certainly expect to see mergers and acquisitions taking place as the financial pressure mounts. China, for now at least, remains steadfastly different. With luck the real estate market may reach its lowest point in 2023 and a recovery could follow.