Displaying items by tag: Mexico
Cemex changes its US profile
27 November 2019Cemex pushed ahead yesterday and announced that it had sold the Kosmos Cement Company to Eagle Materials for around US$665m. It owns a 75% stake in the company, with Italy’s Buzzi Unicem owning the remaining share, giving it roughly US$449m once the deal completes. Proceeds from the sale will go towards debt reduction and general corporate purposes. The sale inventory includes a 1.7Mt/yr integrated cement plant in Louisville, Kentucky as well as seven distribution terminals and raw material reserves.
The decision to sell assets makes sense given Cemex’s financial results so far in 2019. It reported falling sales, cement volumes and earnings in the first nine months of the year although much of this was down to poor market conditions in Mexico. However, the US, along with Europe, was one of its stronger territories with rising sales. Earnings were impaired in the US, possibly due to bad weather in the southeast and competition in Florida, but infrastructure and residential development were reported to be promising.
Graph 1: Portland & Blended Cement shipments in 2018 and 2019. Source: United States Geological Survey (USGS).
Graph 2: Change in imports of hydraulic cement & clinker to the US in 2018 and 2019 from selected countries. Source: USGS.
United States Geological Survey (USGS) data also supports a picture of a growing US market. Shipments of Ordinary Portland Cement and blended cements grew by 2.4% year-on-year to 66.9Mt for the first eight months of 2019 from 65.4Mt in the same period in 2018. By region growth can be seen in the North-East, South and imports. Declines were reported in the West and Midwest. The states of Alabama, Kentucky, Tennessee – the area where the Kosmos plant is located – saw shipments grow by 4% to 4.77Mt from 4.58Mt. It is worth noting that Louisville is in the north of Kentucky near the border with Indiana, where shipments also grew.
The Portland Cement Association’s (PCA) fall forecast may also have helped Cemex’s decision. Ed Sullivan, PCA Senior Vice President and Chief Economist, said that he expected cement consumption in the US to continue growing in 2019 and 2020 but with a slowing trend into 2021 following general gross domestic product (GDP) predictions. The PCA’s view is that pent-up demand following the recession in 2008 was gone and the economy was gradually weakening. Crucially though it didn’t think a recession was impending. In this scenario Cemex might be taking a medium-term view with regards to the Kosmos Cement Company.
Another more general interesting data point from the USGS was the change in import origins to the US. Imports grew by 11.3% to 66.9Mt in January to August 2019. The top five importing countries and their overall share remained the same but there was some movement between them. Turkish and Mexican imports surged at the expensive of Chinese ones as can be seen in Graph 2. The go-to explanation for this would be the on-going US - China trade war. Cemex is a Mexican company with a strong presence in both the US and Mexico. This change in the make-up of the import market in the US may also have informed its decision to sell Kosmos Cement as it looked at the macro scale.
More generally the US market is looking buoyant in the short to medium term. Plants are being sold like Kosmos Cement to Eagle Cement and the Keystone cement plant in Bath, Pennsylvania to HeidelbergCement and a major upgrade project is underway on the new production line at the Mitchell plant in Indiana. In Cemex’s case, as ever with asset sales, the seller sometimes has to make the hard decision of whether to divest a plant in a growing region to help the business in other places that might not be doing so well. The growth of America’s largest locally owned producer, Eagle Cement, may also give cheer to the US’ current ‘America First’ administration.
Cemex to sell Kosmos Cement plant in Kentucky to Eagle Materials
27 November 2019US: Cemex says it has agreed to sell the Kosmos Cement Company to Eagle Materials for around US$665m. The Mexican company owns a 75% stake in the company and Italy’s Buzzi Unicem manages the remainder. It expects to receive US$499m from the transaction. This will be spent on debt reduction and for general corporate purposes. The sale includes the 1.7Mt/yr Kosmos integrated cement plant in Louisville, Kentucky as well as seven distribution terminals and raw material reserves.
“This is another key milestone in achieving our ‘A Stronger Cemex’ objectives. Now, closed or announced asset sales are in excess of US$1.3bn under this program. We are pleased with the continued favourable asset-divestment dynamics in our industry,” said Fernando A Gonzalez, chief executive officer (CEO) of Cemex.
Completion of the deal is subject to regulatory approval. It is expected to complete in the first quarter of 2020.
Cemex Ventures to enter Chinese market
20 November 2019China: Cemex’s corporate venture capital subsidiary Cemex Ventures is preparing to enter the Chinese market offering innovations for the construction industry. It wants to build relationships with startups in order to do this and it has signed deals with local companies Glodon, a digital platform service provider in construction industry based in Beijing, and Interdream Ventures, a venture capital firm that focuses on the digitalisation of construction and decoration industry.
"This type of alliance between two segments that fit together, is key to finding new successful business models, and operate in the Chinese market. Glodon and Interdream Ventures also have a complete vision of the entire value chain and are good partners to drive the construction revolution,” said Juan Nieto, a representative of Cemex Ventures Asia.
Cemex Ventures is the corporate venture capital wing of Cemex that was launched in 2017. It invests in startups with potential in the construction industry and works with entrepreneurs, universities and other stakeholders.
UK: The Mayor of London visited Mexican-based Cemex’s Stepney readymix concrete plant to launch a road safety initiative along with Transport for London (TfL) and London Councils. The initiative consists of a ratings scheme of up to five stars for in-cabin vision for heavy goods vehicles (HGVs), with a ban on zero-star vehicles inside of Greater London. The regulation comes into effect in November 2020, before which time HGV operators may install a ‘Safe System’ consisting of sensors and noise alerts, in order to apply for a Safety Permit to keep their vehicles on the roads.
Cemex’s third-quarter gross profit and operating EBITDA fall
28 October 2019Mexico: Cemex has reported a gross profit in the three months to 30 September 2019 of US$3.34bn, down by 8.0% year-on-year from US$3.64bn. Its operating earnings before interest, taxes, depreciation and amortisation (EBITDA) were US$1.88bn, down by 11% year-on-year from US$2.11bn in the three months to 30 September 2018. The company stated that lower volumes offset higher sale price in all regions.
Mexico: Grupo Cementos de Chihuahua (GCC) reported a gross profit of US$188m in the third quarter of 2019, down by 4.8% compared to US$198m in the three months to 30 September 2018. GCC CEO Enrique Escalante stated that the company ‘overcame a difficult start to 2019’ with ‘record cement volumes in an increasingly competitive environment in certain markets’ and strengthened pricing. Sales rose 4.2% year-on-year to US$706m from US$677m, with US sales lagging behind the overall increase at 3.0% to US$515m from US$500m.
Update on Mexico
23 October 2019Interesting news from Holcim Mexico this week with the announcement that it is planning to invest US$40m towards building a 0.7Mt/yr grinding plant in the state of Yucátan. The unit will be supplied with clinker from Holcim Mexico’s Macuspana and Orizaba integrated cement plants. This follows the news in August 2018 that Elementia’s cement company, Cementos Fortaleza, had started to build a new 0.25Mt/yr grinding plant at Merida in Yucatan. That project has a budget of US$30m.
These two projects offer a contrast to comments made by the head of Cemex Mexico, Ricardo Naya Barba, who was lamenting the state of the market to local press at the start of the month. He said that sales volumes of cement, concrete and aggregates had fallen by 12 – 15% in the first seven months of 2019. He blamed the decline partly on falling national infrastructure investment. This marked a slight improvement on Cemex’s Mexican results for the first of 2019 where sales, sales volumes and earnings were all down. At this time as well as slowing infrastructure projects the situation was also attributed to a residential sector hit by the slower-than anticipated start of the new programs.
Elementia’s Mexican cement business, Cementos Fortaleza, reported a similar picture in the second quarter of 2019. Its net sales fell by 6% year-on-year to US65.4m from US$69.7m. This was attributed to a market contraction affecting all of Elementia’s businesses in the country, as well as the redefinition of its core products for the Building Systems business unit. Earnings fell also and this was further attributed to mounting energy and freight costs. Cementos Moctezuma faced many of the same issues. Its cement sales fell by 13% to US$147m in the second quarter of 2019. It is expecting a similar picture for the remainder of the year.
Data from the National Institute of Statistics and Geography (INEGI) shows that the value of cement sales in Mexico fell by 7% year-on-year to US$1.21bn in the first quarter of 2019 from US$1.30bn in the same period in 2018. Cement sales volumes fell by 8.2% to 10.9Mt from 11.9Mt. This was the lowest figure since 2014.
The one larger Mexican cement producer that doesn’t seem to have been overly troubled so far in 2019 is Grupo Cementos de Chihuahua (GCC). Earlier in the year the company was considered to be the Mexican cement producer most at risk from potential US tariffs due to higher reliance on exports than its competitors. Yet Mexico’s National Chamber of Cement (CANACEM) publicly said that that it didn’t consider US tariffs a significant barrier to the local industry. GCC reported growing net sales and cement sales volumes in the second quarter of 2019 due to industrial warehouse construction, mining projects and middle-income housing at the northern cities.
Two new grinding plants in a particular region of Mexico don’t necessarily reflect the state of the country’s industry as a whole. Yucatan may suit the grinding model due to a lack of raw materials or strong shipping links. The region may also be defying the gloomy national state of affairs in the construction sector. Alternatively, producers may be chasing low-cost and low-risk expansion plans in a tough market. The grinding model wins out over the clinker producing one in this scenario. In the wider picture in August 2019 Cemento Cruz Azul ordered two petcoke grinding mills from Germany’s Loesche and Austria’s Unitherm Cemcon said it had been awarded the supply of an MAS DT burner to an unnamed cement plant. These suggest that, although the sector may be having a bad year so far, things are expected to get better.
Holcim Mexico to construct 0.7Mt/yr grinding plant in Yucatán
18 October 2019Mexico: Holcim Mexico has announced a forthcoming investment of US$40m in the construction of a 0.7Mt/yr grinding plant in the state of Yucátan. Jamie Hill Tinoco, general director of Holcim Mexico, said that the plant, which will receive clinker from Holcim Mexico’s Macuspana and Orizaba cement plants, signifies the company’s commitment to the state, enabling it to ‘optimise local solutions with greater benefits for customers and communities.’ The plant will be Holcim Mexico’s sole dedicated grinding unit in an integrated cement production apparatus totalling 11.8Mt/yr capacity.
Holcim has had a presence in Yucatán since 1992 through its Uman distribution centre.
HeidelbergCement buys American and more
02 October 2019No overarching theme this week but rather four changes of note in different markets. The first is Lehigh Hanson’s agreement to buy the integrated Bath plant in Pennsylvania, US, from Giant Cement, a subsidiary of Mexico’s Elementia. Lehigh Hanson, a subsidiary of Germany’s HeidelbergCement, plans to pay US$151m for the 1.1Mt/yr unit giving it a cost of US$137/t of cement capacity. That’s a similar price that Elementia paid when it acquired Giant Cement in 2016. The Mexican conglomerate paid US$220m for a 55% stake in 2016 for three cement plants with a combined production capacity of 2.8Mt/yr or US$143/t.
The purchase by HeidelbergCement draws a line following problems selling its business activities in Ukraine. The group blamed a drop in profit in the first half of 2019 on this. Since then though it has been linked to a takeover of UltraTech’s stake in Emirates Cement, the owner of the 0.5Mt/yr Emirates grinding plant in Dhaka, Bangladesh. Buying a cement plant in North America, its second most lucrative region after Western and Southern Europe, looks set to be a wise investment.
The timing here is interesting given that Elementia, the building materials company partly-owned by ‘Mexico’s richest man,’ Carlos Slim, has been steadily expanding in recent years. As stated above it only acquired Giant Cement in 2016. However, its net sales and earnings fell in the second quarter of 2019 caused by a market contraction in Mexico affecting all of its businesses. Sales from its cement businesses in the US and Central America grew but they fell by 6% at home in Mexico. Elementia said that proceeds from the sale of the Bath plant will be used for debt repayment and ‘general’ corporate purposes. Notably, Ricardo Naya Barba, the president of Cemex Mexico, has also described the local market as ‘difficult’ this week, in comments reported upon by local media.
Meanwhile in Africa, China’s Huaxin Cement purchased Maweni Limestone from Athi River Mining (ARM) Cement in Tanzania as part of the latter’s on-going administration process. Local press reported the transaction as costing US$116m and subject to regulatory approval. This one’s interesting because it shows a major Chinese cement producer buying related assets outside of China. This is likely part of the country’s Belt and Road Initiative to develop industry and infrastructure around the world and to give its overproducing industries new markets. Perhaps the surprise here is that Huaxin Cement hasn’t gone after the rest of Kenya’s ARM Cement… yet.
The other African news story of note this week was the confirmation that Singapore’s International Cement Group (ICG)’s intended purchase of Schwenk Namibia had failed. This deal was announced in March 2019 but it later ran into trouble when the Singapore Exchange blocked the proposed acquisition in June 2019 on the grounds that ICG didn’t appear to have the money to pay for it.
Lastly, Yamama Cement announced that it wants to sell its Production Lines 1-5, which have a daily clinker production capacity of 5600t/day. The producer previously temporarily shut down the lines in 2017 and it has been planning to build a new cement plant. Since then though it has faced shrinking sales and profits in the tough Saudi Arabian market.
The takeaway from all of this is that, despite the doom and gloom of a world producing too much clinker, some cement companies are targeting growth in specific territories. Sometimes these schemes succeed, as in the case of HeidelbergCement and Huaxin Cement, and sometimes they don’t, as ICG has found out. Heavy building materials like cement are costly to move around so a plant or assets in the right place at the right time can make a fortune.
Cemex Mexico boss acknowledges 2019 as a difficult year
01 October 2019Mexico: Ricardo Naya Barba, the president of Cemex Mexico, has admitted that 2019 has been a ‘difficult’ year for the subsidiary of the building materials company. He said that sales volumes of cement , concrete and aggregates had fallen by 12 – 15% in the first seven months of the year, according to the Mural newspaper. He blamed the decline partly on falling national infrastructure invesment. In 2018 the country accounted for 46% of Cemex’s overall earnings before interest, taxation, depreciation and amortisation (EBITDA) around the world.