Displaying items by tag: Brazil
Unsurprisingly the European Commission blocked Duna-Dráva Cement’s (DDC) attempted purchase of Cemex Croatia this week. Merging the country’s biggest cement producer with its largest importer was going to be a challenge for the commission. Whereas in previous transactions the various parties offered business disposals to ease the commission’s concerns, here all they were got was access to a cement terminal in Metković in southern Croatia. And this facility on the Neretva river is currently being leased by Cemex! Clearly this didn’t give the impression of being a long term solution.
Compare this with the merger between Lafarge and Holcim in 2015 where multiple sales were proposed to make sure the deal went through. Or look at the acquisition of Italcementi by HeidelbergCement in 2016 where the parties sold Italcementi’s Belgian subsidiary Compagnie des Ciments Belges to Cementir to make the deal happen. In comparison to these deals the attempt by HeidelbergCement and Schwenk, through their subsidiary DDC, comes across as a calculated gamble designed to test the resolve of the commission. If the commission had somehow passed the proposed acquisition then the companies would have cornered the market. If it turned it down, as it has, then nothing would be lost other than putting together the bid. HeidelbergCement had its mind on bigger things as it bought and then integrated Italcementi.
Commissioner Margrethe Vestager summed up the mood of the commission: “For mergers between direct competitors, we generally have a preference for a clean, structural solution, such as selling a production plant. HeidelbergCement and Schwenk decided not to offer that. Instead they proposed to give a competitor access to a cement terminal in southern Croatia. Essentially, this amounted to giving a competitor access to a storage facility – without existing customers or established access to cement, without brands and without sales or managerial staff.”
Elsewhere, the other big story in the industry news this week was Votorantim’s decision to focus on the lime business in Brazil by adding lime units to some of its existing cement plants. Given the dire state of the local cement and construction industry, initiatives to break the deadlock have been expected. The alternative is plant closures and divestures, such as the ongoing talks by Camargo Corrêa to sell the other big local producer, InterCement. Votorantim plans to build lime units attached to the cement plants at Nobres in Mato Grosso, Xambioa in Tocantins, Primavera in Pará and Idealiza in Goiás. Unfortunately the agricultural areas of the country and ones with cement plants don’t overlay neatly. Cement production is mainly focused in the south-eastern states and Votorantim are targeting the Cerrado, in the centre of the country, for the lime business.
The scale of the project, at US$50m, the scale of the lime business generally and the addition of lime units at cement plants suggest that the pivot to lime can only be a sideline to cement and construction. Given the similarity of the cement and lime production processes the announcement would be much more significant were Votorantim set to convert clinker kilns into lime ones. A notable example of this was at Cement Australia’s Gladstone plant in Queensland, Australia. Here a mothballed FCB-Ciment clinker kiln was converted into a lime kiln in the early 2000s. At the time the cost of the conversion project was valued at just under US$20m. If Votorantim was seriously thinking of doing this at a few of their underperforming cement plants then one would expect the bill to be higher than US$50m. However, it’s early days yet.
Brazil: Votorantim plans to spend US$50m towards building new plants and adapting its existing cement plants to produce agricultural lime in addition to cement. The cement producer intends to double its market share to 16% by 2021, according to the Valor Econômico newspaper. The focus on the lime business follows a contraction in the construction industry and the growth of agribusiness.
"With the expansion of the agricultural frontier, demand will grow, especially in the Cerrado savannah, where soil need more correction. Experience shows that agricultural lime also helps in the crop productivity," said Laercio Solla, general manager for agriculture at Votorantim.
The company plans to open new quarries and build additional lime units at its existing cement plants. The focus at first will be on the region of Matopiba, which includes Tocantins and parts of Maranhão, Piauí and Bahia. Votorantim will build lime units attached to the cement plants at Nobres in Mato Grosso, Xambioa in Tocantins, Primavera in Pará and Idealiza in Goiás. The lime part of Votorantim’s business will receive most of its minerals from the cement division but also some from Votorantim Metals, the group’s mining division. It will also build two new 0.5Mt/yr lime quarries in Pará and in the Matopiba region.
Lime represents a small part of the company’s business. In 2015 it produced less than 2Mt of agricultural lime compared to 65.8Mt of cement, mortar and aggregates. Agricultural lime production is also expected to be less susceptible to foreign currency exchange rates as its market its mostly domestic.
Brazil: Camargo Corrêa is conducting talks to sell its cement business InterCement for US$6.5bn. Two bids, including one by Mexico’s Cemex, have already been made according to the O Globo newspaper. The Brazilian conglomerate was reportedly selling a minority stake in InterCement in mid-2015 and in late-2015 its chief executive officer Vitor Hallack said it was prepared to sell its assets to cut its debts.
InterCement is the second largest cement producer in Brazil with a production capacity of 15Mt/yr and 12 integrated cement plants. The country as a whole saw its domestic sales of cement fell by 11.7% year-on-year to 57.2Mt in 2016 according to data from the Brazilian National Union of Cement Industry.
Brazil: Magnesita’s revenue from its Industrial Refractory Solutions division rose by 3.3% year-on-year to US$144m in 2016 from US$140m in 2015. Its sales volumes grew by 10.2% to 147,000t from 133,000t. It attributed the gains to good performance in the Middle East, Africa and the Commonwealth of Independent States (CIS) region despite a declining cement industry in Brazil. Despite its success in its Industrial Refractory Solutions division the group reported falling overall refractory volumes and revenue in 2016 caused by decreases in steel production in South America and Europe. The company remains committed to merge with RHI by the end of 2017.
Portugal: Semapa’s sales revenue from its cement business fell by 1.35% year-on-year to Euro471m in 2016. Its earning before interest, taxation, depreciation and amortisation (EBITDA) fell by 0.3% to Euro85.1m. It attributed the slight fall in revenue to a fall in turnover in Portugal and Tunisia, although it noted that it rose in Brazil.
Its sales volumes of Ordinary Portland Cement rose by 5% to 4.99Mt from 4.73Mt but its clinker sales fell by 13% to 0.42Mt from 0.48Mt. Despite the poor state of the construction market in Brazil, the cement producer’s local firm, Supremo Cimentos, managed to increase its sales as its Adrianópolis plant increased its production in the year following its opening in mid-2015.
“One of the worst moments in its history.” That’s how Paulo Camillo Penna, the newly appointed president of SNIC - the Brazilian National Union of Cement Industry - described his industry last week. Few people are likely to be envying his position at the moment. As Camillo Penna went on to explain, domestic sales of cement fell by 11.7% year-on-year to 57.2Mt in 2016. He added that following capacity utilisation rates of 70% in 2015 and 57% in 2016 that he expected the rate to fall below 50% in 2017. When he said it was bad he wasn’t kidding.
Graph 1: Brazilian cement sales from 2011 to 2016. Source: SNIC.
Graph 2: Regional Brazilian cement production from 2014 to 2016. Source: SNIC.
Graph 1 illustrates how stark the decline in cement sales has been since the growth period at the start of the 2010s. Sales have fallen by 15Mt since 2014 in a country that has a production capacity of 88Mt/yr. Graph 2 presents a regional picture of sales. Note in this graph the sharp drops in sales (21%) in the southeast region of Brazil, an area that contains the key cement producing states of Minas Gerais and Rio De Janeiro. The decline in the northeast region including the state of Bahia, another key cement producing state, has been less extreme but it is still over 15%.
Votorantim, the country’s largest cement producer by production capacity, reported that its cement sale volumes fell by 6% to 26Mt in the first nine months of 2016, with declines in Brazil offset by business in other countries like the US. Its sales revenue also fell, by 7% to US$3.03bn. InterCement’s cement and clinker sales volumes fell by 16% to 11.8Mt in the first half of 2016 and its sales fell by 31% to Euro898m. As it described it, ‘the political and economic instability in Brazil in the first half, impacting on unemployment, investment and government spending, ultimately retracted the construction activity, compressing cement consumption.’ To compound these problems newly opened production capacity also ‘intensified’ competition. Later in 2016 InterCement’s parent company Camargo Corrêa was reported to be in talks to sell a minority stake in Argentina’s Loma Negra to pay off its debts from the cement business in Brazil. Finally, from an international perspective, LafargeHolcim’s global results for the first nine months of 2016 were negatively impacted by ‘challenging’ conditions in Brazil amongst other countries. It laid out an environment of reduced sales volumes and falling prices, although it said that it had used cost cutting to fight this.
Politically, the fallout from the Petrobras bribery scandal is continuing to shake out in the construction industry. In October 2016 it was revealed that the Brazilian Development Bank BNDES had frozen loan payments to construction firms involved in overseas projects worth up to US$7bn, including Camargo Corrêa. The Brazilian economy is expected to grow modestly, at a rise of 0.5% gross domestic product (GDP) in 2017 after dropping in 2016 although this forecast was falling towards the end of 2016. More hopeful news came from the São Paulo state construction union, SindusCon-SP, that in December 2016 released a report forecasting that the construction industry’s output could rise by 0.5%. However, this was dependent on economic reforms.
The question for Camillo Penna and the rest of the Brazilian cement industry is: where exactly is the bottom of the curve? SNIC forecast that cement sales will contract by a further 5 – 7% in 2017 and this is below the 11.7% drop experienced in 2016. So, does SNIC think that the industry is starting to hit against a bedrock of demand that economic headwinds can’t shift? In this kind of environment it seems likely to expect increased merger and acquisition activity. The merger of Brazil’s Magnesita and Austria’s RHI refractory companies that was announced in the autumn of 2016 may just be the start.
Brazil: The National Union of Cement Industry (SNIC) has said that 2017 may be the worst year on record for the local cement industry. Domestic sales of cement fell by 11.7% year-on-year to 57.2Mt in 2016. SNIC’s new president Paulo Camillo Penna described the situation as the worst in the industry’s history. He added that following capacity utilisation rates of 70% in 2015 and 57% in 2016 that he expects the rate to fall below 50% in 2017. SNIC forecasts that sales of cement will contract by 5 – 7% in 2017.
Brazil: Eduardo Ferraz has been appointed as the chief financial officer and Investor Relations Officer of Magnesita with immediate effect. Ferraz is currently the finance director for South America, a role he will continue to hold. He replaces Eduardo Gotilla who has resigned from the roles following the on-going merger between Magnesita and RHI with the transfer of some executive officers of the company to the UK.
Gotilla will continue to be an officer for Magnesita International and lead finance and investor relations globally for the Magnesita Group, but will no longer hold an officer position in the company, principally due to Brazilian legislation requiring statutory officers to be residents in Brazil.
Brazil: Arabian Cement has frozen plans to build a cement grinding plant in the north-west of the country. It said that there was no ‘investment efficiency for the project’ due to the poor Brazilian economy, according to Mubasher. The cement producer originally planned a joint venture in 2014 with Cementos Relampago Company, an affiliate of Cementos La Union, to build a 0.23Mt/yr plant for US$28.7m.
Argentina: Brazilian cement producer Camargo Corrêa is in talks to sell a 40% stake in Loma Negra. The company is exploring a potential sale with an unspecified number of bidders, according to Reuters and Brazil Journal. The proceeds of any successful sale will be used to reduce the debts of InterCement, the holding company that Camargo Corrêa uses to manage assets it purchased from Cimpor. Loma Nega is the largest cement producer in Argentina.