Cemex walks the line in the US

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Cemex took a major step towards cutting its debts last week when it announced the sale of selected assets in the US for US$400m. Two cement plants in Odessa, Texas and Lyons, Colorado were included in the deal along with three cement terminals and businesses in El Paso, Texas and Las Cruces, New Mexico. Grupo Cementos de Chihuahua (GCC) was announced as the buyer.

Together the two plants being sold hold a cement production capacity of 1.5Mt/yr giving a rough cost of US$267/t for the assets. This compares to the cost of US$170/t that the European Cement Association (CEMBUREAU) estimates is required to build new capacity. Back in August 2015 when Taiheiyo Cement’s Californian subsidiary CalPortland purchased Martin Marietta Materials’ two cement plants in the state it paid US$181/t. Summit Materials paid far more at US$375/t in July 2015 when it purchased Lafarge’s cement plant in Davenport, Iowa, although that deal included seven cement terminals and a swap of a terminal. Other sales in 2014 to Martin Marietta Materials and Cementos Argos also hit values of around US$450/t involving lots of other assets including cement grinding plants and ready mix concrete plants.

Back on Cemex, the current sale to GCC maintains its position as the third largest cement producer in the US after the HeidelbergCement acquisition of Italcementi completes in July 2016 subject to Federal Trade Commission approval. However, it holds it with a reduced presence. Its cement production capacity will fall to 13Mt/yr from 14.5Mt/yr. It loses cement production presence in Colorado although it may retain distribution if it holds on to its terminal in Florence. In Texas it retains the Balcones cement plant near San Antonio and up to nine cement terminals depending on which ones it sells to GCC.

Selling assets in the US must be a tough decision for Cemex given that a quarter of its net sales came from the country in 2015. This was its single biggest territory for sales. This share has increased in the first quarter of 2016 as the US market for construction materials has continued to pick up.

Withdrawing from western Texas with its reliance on the oil industry makes sense. The plant it has retained in that state, the Balcones plant, is within the so-called Texas Triangle and so can hopefully continue to benefit from Texas’ demographic trends for continued housing starts and suchlike. Colorado is one of the middling US states in terms of population and likely to be a lower priority than other locations. The sales will see Cemex retrench its cement production base in southern and eastern parts of the country with the exception of the Victorville plant in California.

We’ve been watching Cemex keenly as other multinational cement producers have merged and laid out plans to merge in recent years. Saddled by debts, Cemex has appeared unable to either buy more assets itself and has remained distant from any talk of merger activity itself. The sales announcements in the US reinforce the image of a company taking action to relieve itself of its debts in 2016 following sales in Thailand, Bangladesh and the Philippines, and amended credit agreements and more borrowing. However, sales of cement plants in west Texas and Colorado outside of the strong markets in the US don’t quite suggest a company that has really committed yet to reducing its debt burden. Cemex continues to walk a tightrope between keeping the creditors at bay and riding the recovery in the US construction market.

This article was updated on 14 June 2016 with amended production capacity data for the Odessa cement plant

Last modified on 14 June 2016

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