Displaying items by tag: Grupo Cementos de Chihuahua

Mexico: Grupo Cementos de Chihuahua’s (GCC) sales grew by 23.6% year-on-year to US$925m in 2017 from US$749m in 2016. The group attributed this to strong demand in both the US and Mexico, as well as the integration of the operations acquired in Texas and New Mexico at the end of 2016. Its earnings before interest, taxation, depreciation and amortisation (EBIDA) rose by 32.3% to US$250m from US$189m.

In the US sales rose by 29.8% year-on-year to US$180m in the fourth quarter of 2017, representing 76% of the group’s consolidated net sales. The growth reflected higher cement sales volumes in the states of Texas, South Dakota, Minnesota, New Mexico and Colorado. Fourth quarter sales volumes also benefitted from favourable weather conditions throughout GCC’s area of operations. The most dynamic segments in the regions where GCC operates were oil well drilling, residential real estate and public-sector construction. For the year as a whole, excluding the operations acquired in 2016, cement volumes increased 2.1% in 2017.

In Mexico sales rose by 22.6% to US$58.4m in the fourth quarter of 2017. This was attributed to rising cement prices with growth in the mining and self construction sectors and the final stages of several industrial projects. For the year as a whole sales rose by 11.4%.

Mexico: Grupo Cementos de Chihuahua (GCC) has appointed Luis Carlos Arias Laso as its new Chief Financial Officer. Luis Carlos Arias has worked for GCC since 1996 in the Planning, Finance, and Corporate Treasury functions. He holds an undergraduate degree in financial administration and an MBA, both from the Tecnológico de Monterrey (ITESM). He is also a graduate of the senior management program of the Instituto Panamericano de Alta Dirección de Empresas (IPADE).

Mexico: Martha Soledad Rodríguez Rico, the chief financial officer of Grupo Cementos de Chihuahua (GCC) has died. The company is conducting a succession process that will appoint a replacement in due course.

With president-elect Trump due to take office this week we wonder what this means for the cement industry in Mexico. In 2016 this column looked a couple of times at the implications of Trump upon the US cement industry. First, we looked at who might benefit if he builds his wall along the Mexican border and then we wondered what his policies might mean for the US industry. To answer the latter first, the main issues for the US industry are infrastructure, changes to the Environment Protection Agency (EPA) and the repercussions if Trumps serious about a trade war with China. So long as a trade war doesn’t happen then Trump is probably good news for the US cement industry. As for Mexico, the joke has been that Trump will be good for the construction business ever since market analysts Bernstein’s passed a note around in the summer of 2016 about that wall.

Graph 1: Breakdown of Mexican cement industry by production capacity. Source: Global Cement Directory 2017.

The makeup of the domestic Mexican cement industry hasn’t changed too much in the last decade, even with the merger between Lafarge and Holcim, preserving the same market share in production capacity between the companies. Most of the producers have reported growth in 2016. Cemex reported that its cement sales volumes rose by 3% for the first nine months of 2016 and by 10% in the third quarter of that year. Overall though, its net sales fell slightly to US$2.16bn in the first nine months, alongside a fall in ready-mix concrete sales volumes. Cemex, crucially, also seems to have taken charge of its debts in 2016, saying that it was on track to meet its targets and that it had announced nearly US$2bn worth of divestments in that year. Currently the company is trying to buy out Trinidad Cement in the Caribbean, which may be a sign that it has turned a corner.

Grupo Cementos de Chihuahua’s (GCC) cement sales volumes rose in the first three quarters of 2016, in its case by 4%. Its overall net sales in Mexico rose by 4.2% in Mexican Pesos for the same period but fell when calculated in US Dollars due to currency variations. GCC attributed its sales growth to better pricing environment and increased cement volumes, mainly for projects in the commercial and industrial sectors that compensated for a decline in the public sector, following the culmination of two major urban paving and highway construction projects in 2015. At the smaller end of the market, Elementia reported that its cement sales skyrocketed by 30% to US$104m in the first nine months of the year aided by higher prices and volumes.

The major Mexican cement producers all have a presence in the US with the exception of Cruz Azul. Cemex has held assets north of the border for years, Cemento Portland Moctezuma has links to Buzzi Unicem, GCC bought US assets from Cemex in 2016 and Elementia completed its purchase of Giant Cement also in 2016. These companies have clinker in their kilns in plants on US soil manned by US citizens. This represents investment in local industry and it is exactly the kind of thing that appeals to the rhetoric of Trump’s approach so far. If the new president builds his wall then Mexican producers will probably be producing much of the cement that builds it. Even the Mexican Peso’s slow decline since 2014 could help the local cement industry, as it will cut the cost of moving exports and materials north of the border. Indeed, Enrique Escalante, the chief executive officer of GCC said in late 2016 that his company was ‘ready to build’ Trump’s wall.

However, the sheer uncertainty factor of an incoming president with as little experience of public office as Donald Trump must be giving chief executives pause for thought. After all, Trump's tweets before he has assumed office have forced car manufacturers to change policy. If he manages to disrupt the North American Free-Trade Agreement (NAFTA) in order to protect US jobs then the repercussions for the Mexican economy will be profound. It sends nearly three quarters of its exports to the US. Local cement producers would surely suffer in the resulting economic disruption.

So, currency devaluations aside, Mexican producers are making money from their cement operations at home and they are increasingly hedging their bets by operating or buying units in the US. Some, like GCC, are even being ebullient about the benefits that might come their way. It may be a bumpy ride but the Mexican industry is ready. However, it may wish to avoid appearing in any of Donald Trump’s tweets anytime soon.

Back in the May 2016 issue of Global Cement Magazine we asked key people at the Portland Cement Association how they thought the US presidential election might affect the local cement industry. Wisely, for an advocacy organisation with offices in Washington DC, no one would be drawn, citing a lack of information. At that point it was still unclear who was going to be on the final ticket. However, we all missed a trick because one candidate, Donald Trump, had been talking about building ‘a border fence like you have never seen before’ since at least mid-2014. And that fence could potentially require a lot of cement.

Researchers at market analysts Bernstein’s sent a note to clients last week ahead of the Republican National Convention looking at the implications of if Donald Trump became president of the US and actually set out to build his 40ft high concrete wall between the US and Mexico. The result would be a 2.4Mt boost in demand for cement from cement producers near to the border. In terms of market demand Bernstein concluded that this would add over 1% to cement demand in both 2018 and 2019, a healthy ‘shot in the arm’ to the already pepped-up US cement industry, which is currently growing at around 5%/yr.

Map 1: Map of cement and ready-mix concrete plants near to the US - Mexico border. Source: Bernstein Materials Blast. Note – Bernstein does not show the Capitol Cement plant in San Antonio.

Needless to say, Bernstein’s calculations pile-drive assumptions into assumptions, atop of Trump’s political rhetoric. It bases its calculations on a border wall similar to the Israeli West Bank barrier built out of precast concrete panels. It also tries to model how much concrete and cement would be required depending on the differing height’s Trump has trumpeted at his rallies.

The kicker to this tongue-in-cheek analysis is that the construction company that stands to benefit the most from this infrastructure project is Mexican!

Cemex has significantly more cement plants and ready-mix concrete plants than any other company within a 200-mile zone either side of the border. Looking at integrated cement plants alone, it has six plants in the regions near to the proposed wall from the east and west coasts. Its nearest competitors, CalPortland with four plants and Grupo Cementos de Chihuahua with three plants, are more regionally based in the western US and Chihuahua state in Mexico. Clearly Cemex didn’t rate the chances of Donald Trump’s wall actually happening when it agreed to sell its Odessa cement plant to Grupo Cementos de Chihuahua in May 2016.

All of this goes to show that, wherever you stand on the Donald Trump presidency bid, if you manufacture cement near the US-Mexican border you might be working overtime if he (a) actually becomes president, (b) actually manages to start building his wall and (c) actually decides to make it using cement. Yet before anybody starts popping champagne corks consider this: there might also be unintended consequences for the cement sector. Restricting current legal and illegal migration trends from Mexico to the US might have a greater negative effect on the US cement industry, and the overall economy, than ordering one large infrastructure project. Working that one out is harder than a guesstimate of how much cement a border wall might consume. Probably best not to ask at this stage who might actually pay for the Great Wall of Donald Trump.

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