Displaying items by tag: Chile

Chile: Cemento Polpaico has reported losses of US$3.58m in the first nine months of 2017. This compares very unfavourably with the company’s profit of US$6.5m in the same period of 2016.

The firm recorded revenues from ordinary activities of US$151m, a 11.4% reduction compared to the first nine months of 2016 when it took in US$170.4m.

Chile: The Briones family has decided to acquire another 13.1% stake in local cement producer Cementos Bío Bío from Brazil’s Votorantim for US$45.5m. The family thus intends to increase its shareholding to 39.5%. Votorantim would be left without an interest in the company if the deal goes ahead.

After a couple of weeks looking at the capacity-rich cement markets of Angola and Vietnam, we turn our attention this week to some of those countries on the receiving end of overcapacity.

Costa Rica is an unlikely place to start but it came to our attention this week due to a short but significant news item. In summary, the amount of cement imported into Costa Rica increased by a factor of 10 between 2014 and 2016, from around 10,000t to over 100,000t. This is around 5% of its 2Mt/yr domesitic capacity, so the change is already fairly big news. The fact that an incredible 97% of this came from just one country, China, makes the story far more interesting as it shows the effects that Chinese overcapacity can have on smaller markets.

But when we look at how the value of the cement imports has changed over time, we see an even more dynamic shift. While the amount of cement imported into the country increased by nearly 10-fold, the value of the same imports only increased by around half as much between 2014 and 2016. If these figures can be taken at face value, the implication is stark. Taking the very low base as effectively ‘zero,’ each tonne of cement imported must cost around half as much as it used to.

Digging a little deeper and the picture gets more complicated. While they have fallen, Costa Rican cement prices have not fallen by 50% and why the sudden deluge of imports anyway? In 2015 the country changed its rules on cement imports to facilitate more flexible imports and lower prices for consumers. It did this by changing a regulation relating to how long cement can be stored, previously set at just 45 days, with the aim of allowing cement to come from further afield and, crucially, in bulk rather than bags.

The effects on price were immediate. Previously as high as US$13/bag (50kg) in December 2014, fairly high by global standards, Sinocem, the first Chinese importer, immediately sold its first shipment at US$10/bag. This effect of lower prices has now forced the average sales prices down to around US$10/bag across the country by 2017. This is good for consumers but not necessarily the local plants.

Back in 2015, the two local integrated plants operated by Cemex and Holcim warned that cement quality would suffer if cement bags were not used within 45 days. This apparently self-serving ‘warning’ went unheeded by the Ministry of Economy, Industry and Trade (MEIC), which pointed out that other countries in South America, as well as the European Union and United States, had no analogous short use-by dates for cement bags.

The rule remains in place, although discontent rumbles on. Indeed LafargeHolcim noted in its third quarter results for 2016 that ‘Costa Rica was adversely affected by increased foreign imports.’  This may well be a little bit of posturing and it doesn’t square with the fact that Costa Rica exported three times more cement that it imported in 2016. Of total exports of 0.34Mt, over 95% went to neighbouring Nicaragua, which has a single 0.6Mt/yr wet process plant owned by Cemex. It seems that the two Costa Rican plants have found a way to keep a little bit of the Chinese producers’ margin for themselves.

Of course, Chinese cement overcapacity doesn’t only affect the Central American market. It has been rippling all around the Pacific Rim. In July 2017, this column looked at the decision by Cementos Bío Bío to stop making clinker at its Talcahuano plant in Chile. It now favours grinding imported clinker from Asia. Before that, Holcim New Zealand closed its Westport cement plant in 2016, finally admitting that domestic clinker was not viable.

In the grand scheme of things, this all makes sense. The market has forced those operating on thin margins to adjust. Ultimately, the end consumer is likely to benefit from lower prices, at least for as long as reliable low-cost imports can be secured. What happens, however, if China actually gets round to curtailing its rampant cement capacity, or simply decides to charge more for its cement? Flexible imports, the main aim of the Costa Rican rule change, may then prove vital, as long as there is more than one international supplier of cement.

Sad news this week from the Talcahuano cement plant in Chile that is to stop producing clinker. Local media reports that the Cementos Bío Bío unit has decided to import clinker from Asia instead, which will reduce its production costs. At the same time it has laid off a third of its workforce. The plant has been producing cement since 1961.

The decision carries echoes of Holcim New Zealand’s closure of its Westport cement plant in 2016, another unit in a country on the Pacific Rim. However, in that country LafargeHolcim has purposely moved towards becoming a distribution company by opening import terminals and depots. Plus the local subsidiary benefits from the cement-trading arm of a multinational company. By contrast, local producer Cementos Bío Bío still retains two integrated plants and a grinding plant in Chile. Following the closure its production share from integrated plants will drop to 2.4Mt/yr (39%) from 3.2Mt/yr (45%). The country will retain a total production capacity of 6.2Mt/yr from its clinker producing plants.

The timing of Cementos Bío Bío’s decision is also interesting given that the Chilean competition authority (TDLC) approved Hurtado Vicuña Group to buy a controlling stake in Cemento Polpaico from LafargeHolcim in early July 2017. The deal was originally announced in October 2016 to sell LafargeHolcim’s 54.3% stake in Cemento Polpaico for US$225m. The sale includes one integrated plant with a cement production capacity of 2.3Mt/yr and two grinding plants. Hurtado Vicuña has not been required by the regulator to sell any of its cement units but it has been asked to sell parts of its concrete business and to abide to a ban on repurchasing the assets within 10 years. Hurtado Vicuña owns Cementos BSA, a subsidiary that runs the El Bosque cement grinding plant in Santiago and it has just started-up production at a new 0.95Mt/yr grinding plant at Quilicura, also near the capital.

In its 2016 annual report LafargeHolcim reported that cement sales volumes of cement fell in Chile due to a fall in the residential construction market in the second half of the year. However it did manage to raise its operating earnings before interest, taxation, depreciation and amortisation (EBTIDA) off the back of higher prices and lower production costs compared to the previous year. Cementos Bío Bío concurred with this assessment of the market in its 2016 report, lamenting the country’s poor economic growth since 2015 and declines in the mining and construction sectors. Despite this its cement despatches rose very slightly to 1.56Mt in 2016. The big drop in its sales occurred in 2014 when its sales fell by 10% year-on-year to 1.51Mt. More recently, Bío Bío noted a 37% decrease in its operating profit for its cement, concrete and lime division for the first quarter of 2017 due to falling sales volumes and margins in cement and lime. However, it did benefit from falling costs for energy and petcoke inputs. The group also announced plans to sell a minority stake in itself in February 2017.

These stories show another country that is realigning its cement industry to a clinker-rich world market. Chile appears to retain a ‘big three’ group of local clinker producers that has shifted with the rise of Cementos BSA and the departure of LafargeHolcim. However, the market share in the cement grinding business has changed significantly as Cementos BSA has gained both an integrated plant and a more national profile, away from the capital, with its grinding plants. Once the local market picks up it will be interesting to see whether this trend towards clinker import and local grinding continues.

Chile: Cementos Bío Bío is to stop producing clinker at its Talcahuano cement plant. The cement producer has also laid off a third of its workforce, according to Pura Noticia. It now plans to import clinker from Asia instead, which it says, will reduce its production costs by US$19/t. The company started cement production at Talcahuano in 1961.

Chile: Hurtado Vicuña Group has been cleared by the Chilean competition authority (TDLC) to buy a controlling stake in Cemento Polpaico from LafargeHolcim. However, it will be required to sell assets from its concrete business worth up to an estimated US$90m, according to the Diario Financiero newspaper. The agreement also includes other measures such as a ban on repurchasing assets within 10 years. Hurtado Vicuña and its subsidiary Inversiones Caburga operate Cementos Bicentenario (BSA). It agreed to buy Cemento Polpaico in October 2016.

Chile: Cemento Polpaico has changed its commercial strategy following a poor year for the construction industry in 2016. The cement producer has moved from a geographical approach to one based on the profile and sector of its customers, according to the Diario Financiero newspaper. It has also reorganised its business into three segments: retail, construction and special projects.

LafargeHolcim agreed to sell its controlling stake in Cemento Polpaico to Inversiones Caburga in late 2016. However, the transaction is still awaiting approval by the Fiscalía Nacional Económica.

Chile: Cementos Bio Bio plans to sell a 5.38% share in its business at auction on 3 February 2017. The cement producer hopes to raise US$16.8m in the transaction, according to La Tercera newspaper. The transaction will be handled by Credicorp.

Chile: LafargeHolcim has signed an agreement with Inversiones Caburga, part of the Hurtado Vicuña Group, to sell its 54.3% stake in Cemento Polpaico for US$225m. The transaction will be carried out by a public tender offer by Inversiones Caburga to all shareholders of Cemento Polpaico.

Cemento Polpaico operates one integrated plant and two grinding plants with an annual cement capacity of 2.3Mt/yr. The company is also a leading ready-mix concrete producer operating 25 plants and produces aggregates. The launch of the public tender offer is subject to the approval of the Chilean competition authorities, which is expected for the first half of 2017. Following the successful completion LafargeHolcim would exit Chile completely.

Chile: AES Gener is exploring options to sell by-products from its Guacolda coal-fired power station to cement producers. The power-generation company has asked for permission to do so and has approached Polpaico, owned by Holcim, and BSA, owned by Hurtado Vicuna group, according to the Diario Financiero newspaper. Guacolda produces around 40,000t/yr of synthetic gypsum and 60,000t/yr of Ash. AES Gener is already selling 30,000t/yr or half of the ash generated at its Ventanas power plant, to Melón. The company also has agreements in place with a number of universities to explore the use of these materials in concrete, cement, agriculture and mining activities.