Displaying items by tag: Cade

Brazil: Brazil's antitrust watchdog Cade has approved a joint-venture between Votorantim Cimentos, Tigre Participações and Gerdau Aços Longos for a construction materials products loyalty scheme. The initiative will be called Juntos Somos Mais. Votorantim Cimentos will hold a 45% share of the scheme. The civil construction materials company Tigre and Gerdau Aços Longos, the steel division of the Gerdau, will hold a 27.5% share each.

Cade said that the companies will remain operationally and commercially independent in their main activities, so that the only common ground between them will be the functioning of the coalition's loyalty program. Other companies in the construction industry will be able to join the program as partners.

Russian refractory manufacturer Magnezit Group has struck a deal this week with Vamtec to sell product in Brazil. What such a cooperation agreement will actually entail, as ever, remains vague but it is an interesting time for a cement equipment supplier to enter the market. The majority of refractories sales are to the iron and steel industries but cement and lime holds the biggest minority market. Industrial research analysts Roskill placed the cement and lime share at 13% in a recent market report.

Competitor refractory producer RHI placed Magnezit in the same Euro0.5 – 1bn revenue bracket with producers such as a Magnesita, Inerys, Krosaki and Shinagawa. Magnesita is the most relevant company out of that list because it is headquartered in Belo Horizonte in Brazil. It is a global company but some of its major mines and production sites are based in Brazil. In 2013 its revenue grew by 8% to US$937m despite static refractory sales volumes led by falling steel production. In 2013 its refractory revenues came mainly from South America. So far in 2014 it appears to have increased its refractory sales volumes, despite a declining marking in Brazil and South America as a whole, by moving into new markets.

A similar situation has been reported by RHI in the region so far in 2014 with falling steel production hitting refractory revenue. RHI originally planned to build a refractory plant in Rio de Janeiro in 2011 but this was amended in late 2012. In this environment it seems that Magnezit may be testing the market rather than planning a full-scale incursion into Brazil.

For the first half of 2014 the Sindicato Nacional Da Indústria Do Cimento (SNIC) has reported that cement sales were 34.5Mt in Brazil, a rise of 2.8% compared to the same period in 2013. Despite this modest growth, Brazilian cement producers will see this as disappointing following years of higher growth prior to 2013.

However, events may not be that gloomy in Brazil after all. The prospect of CRH's impending purchase of three cement plants and two grinding plants from Lafarge and Holcim in Brazil with a cement production capacity of 3.6Mt/yr may stir up the market. For starters CRH may audit the suppliers the new plants are using and decide whether they want to continue using them. The acquisition will add a new player to compete with the existing producers in the high producing states of Minas Gerais and Rio De Janeiro. Competition authority Conselho Administrativo de Defesa Econômica (CADE) set up the terms for what Lafarge and Holcim would have to sell in December 2014, so now that a buyer has been found the move may go smoothly. Needless to say this presents an opening for any, say, Russian-based refractory producers looking for new clients!

The Brazilian cement industry took a knock last week when the competition watchdog Cade (Administrative Council for Economic Defence) confirmed its intention to issue the sector with fines worth a combined US$1.4bn.

Under the terms of the ruling, Votorantim will have to pay US$672m, Cimpor will pay US$133m, InterCement Brasil will pay US$108m, Itabira will pay US$184m, Holcim will pay US$227m and Itambé will have to pay US$39.4m. The companies involved will be forced on average to sell 24% of their assets. Votorantim, for example, will be compelled to divest 35% of its cement assets or 11Mt/yr of production capacity. In addition a fine of nearly US$2m is to be imposed on the cement associations ABCP and SNIC.

To give these figures some context, Votorantim reported a net profit of US$105m in 2013 across all its business lines including cement, metals, mining and pulp. The fine Cade wants to impose is over six times greater than this! A fine of this size will be a serious setback for Votorantim if it goes through. Votorantim's net revenue for its cement business in 2013 was about US$5.5bn. This places the fine at just over 10% of company annual turnover, a common upper limit for fines imposed by anti-competition authorities around the world. 10% of turnover, for example, is the maximum percentage fine that European Union competition regulators can impose.

Although hard to compare with the other Brazilian cement producers due to differences in financial reporting, the proposed fines seem equally tough on the other companies. Before the acquisition of Cimpor inflated its financial figures, InterCement reported a net revenue of US$1.2bn in 2011. This places its fine at 9% of annual turnover. Holcim's net sales in its Latin American region as a whole, including operations in Brazil, totalled US$3.73bn in 2013.

Both Holcim and Cimpor have issued corporate rebuttals to Cade insisting that they followed and still follow all the necessary competition laws. Both companies intend to fight the decision. Votorantim went further in its response saying that it considering the fine 'unjust and unprecedented' and it warned that the ruling would cripple any investments in the Brazilian cement sector. The ruling also forbids the company from opening new factories within the next five years, places limits on the company taking out new loans and prevents it from consolidating its market share.

Internationally, the Cade fine surpasses the US$1.1bn Competition Commission of India penalty imposed against 11 producers in India in 2013. Other recent anti-trust fines against the cement industry include a Euro80m fine in Poland that was upheld on appeal in 2013 and the US$19.3m Lafarge was charged in South Africa in 2012.

The prosecutors pointed out that work on public roads had been inflated by nearly US$8m. Overall they reckon that the cartel cost the Brazilian economy US$6.3bn. Examples likes this are unlikely to gain sympathy for the accused cement producers from a Brazilian public already angry about the amount of public money spent on building excessive sports stadiums and the like for the Football World Cup later in June 2014 and the Olympic Games in 2016. In the meantime though – over to the lawyers.