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Displaying items by tag: Brazil
Update on Brazil
25 January 2017“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.
Brazilian cement body says 2017 may be worst year ever
19 January 2017Brazil: 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.
Eduardo Ferraz appointed as chief financial officer of Magnesita
04 January 2017Brazil: 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.
Arabian Cement steps back from building grinding plant in Brazil
13 December 2016Brazil: 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.
Camargo Corrêa exploring sale of 40% stake in Loma Negra
08 December 2016Argentina: 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.
Otmar Hubscher appointed CEO of Secil
23 November 2016Brazil: Otmar Hubscher has been appointed as the new chief executive officer of Secil. He replaces Gonçalo Salazar Leite, according to the Negócios newspaper. Hubscher, a Swiss national, was previously the head of LafargeHolcim's Brazilian operations.
Camargo Corrêa names Heinz-Peter Elstrodt as chairman
02 November 2016Brazil: Camargo Corrêa has named Heinz-Peter Elstrodt as its chairman replacing Vitor Hallack. The decision to hire Elstrodt is part of the conglomerate’s intention to direct the company towards asset portfolio management away from the construction industry, according to the Valor Econômico newspaper. Previously, German national Elstrodt has spent 32 years at the consultancy McKinsey, where he reached the role of Latin America president. The changes in management follow the resignation of Hallack in August 2016 and governance problems following links to the Petrobras corruption scandal.
Brazil: Brazil's antitrust watchdog Cade has decided to end its investigation into 18 companies from the cement sector over alleged anti-competition practices. The allegations were that some of the companies had reached an agreement to refuse to provide three types of cement to competitors outside of an economic group, which would lead to increased prices of the products, according to the Valor Economico newspaper. Cade determined punishments were to be applied to Holcim Brasil, Cimento Tupi and Votorantim Pimentos. However, case leader Paulo Burnier decided that there insufficient evidence to apply sanctions on the majority of companies concerned. He also noted that some of the companies had already been set punishments by Cade for involvement in cartel practices.
FCT Combustion wins contracts in the US and Brazil
20 October 2016Brazil/US: FCT Combustion has released details on contracts it has been awarded from CSN Cement Brazil and Ash Grove Cement. CSN Cement Brazil in Arcos, Brazil has ordered a Turbo-Jet kiln burner with a maximum thermal power of 102Gcal/hour for high sulphur petcoke, heavy fuel oil, alternative solid fuel and alternative liquid fuels firing for its 6500t/day cement kiln. Ash Grove Cement in Seattle, Washington in the US has awarded a contract for 63Gcal/hour Gyro-Therm MKII kiln burner for natural gas firing.
FCT Combustion has also opened new offices in Fort Lauderdale, Florida and São Paulo, Brazil.
RHI and Magnesita to merge to form RHI Magnesita
06 October 2016Austria/Brazil: RHI and Magnesita are to merge to create a new refractory company called RHI Magnesita. RHI’s management board has agreed to sign a share purchase agreement with Magnesita’s controlling shareholders regarding the acquisition of a controlling stake of at least 46%, but no more than 50% plus one share of the total share capital of Magnesita, pending RHI’s supervisory board approval. The purchase price for the 46% stake will be paid in cash amounting to Euro118m and 4.6 million new shares to be issued by RHI Magnesita. The new company will be established in the Netherlands and listed on the London Stock Exchange.
As pat of the agreement, GP Investments (GP) will become a relevant shareholder of RHI Magnesita. The combined company’s corporate governance will consist of on a one-tier board structure while GP will be represented on the board of directors.
The deal is dependent on approvals by the relevant competition authorities, the migration of RHI to the Netherlands, the listing of RHI Magnesita’s shares in the premium segment of the Official List on the Main Market of the London Stock Exchange and RHI’s shareholders not having exceeded statutory withdrawal rights in an amount of more than Euro70m in connection with organisational changes preceding RHI’s migration from Austria. The migration and the preceding organisational changes in Austria require qualified approval by RHI’s shareholders’ meeting. If the deal is terminated for reasons not under the control of Magnesita’s controlling shareholders, an aggregate break fee of up to Euro20m is payable by RHI to Magnesita’s controlling shareholders.
The merger transaction is expected to complete in 2017. Until then, the two companies will remain completely separate and independent. Therefore customers, suppliers, employees and other stakeholders should expect no change in management teams, commercial relationships, supply chains and product offerings during this period.
RHI and Magnesita say that the new refractory company will bring together complementary businesses, both in terms of products and geographical footprint. Magnesita have a presence in South America and the US compared to RHI’s presence in Europe and Asia. The merger is also expected to aid the company’s position against the growing Chinese refractory industry. In addition, Magnesita’s position in dolomite-based products is complementary to RHI’s asset portfolio, which traditionally has a strong focus and an excellent market reputation for high-quality magnesite products.
Synergies from the merger are expected to deliver at least Euro36m in earnings before tax (EBIT) by 2020. However, if RHI Magnesita’s stake in Magnesita significantly exceed 46%, RHI expects substantially higher synergies of approximately Euro72m, especially in the areas of enhanced production efficiency and cost benefits in research and development, marketing and administrative functions. In addition, capital expenditure synergies are expected to amount to be Euro2 – 7m/yr and aggregate working capital savings of Euro40m are expected in the coming years.