Displaying items by tag: Costa Rica

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.

Costa Rica: According to a report released by the government trade promotion agency Procomer, imports of cement into Costa Rica expanded from 10,418t in 2014 to 107,294t in 2016, representing a growth of 930% in only two years. Approximately 97% of the 2016 figure corresponds to cement imports from China, which is now the main origin of imported cement in the country.

In value terms, cement imports reached US$18.3m in 2016, only 5.4 times more than in 2014. Cemex and Holcim are the main cement manufacturers operating in Costa Rica. If the import volumes and prices are to be taken at face value, domestic plants would appear to be under increasing price pressure from the imported cement from China.

Colombia: Cemex Latam Holdings' consolidated net sales fell by 11% year-on-year US$394m during the second quarter of 2015. The decline was attributed to currency fluctuations and lower sales. Operating earnings before interest, taxes, depreciation and amortisation (EBITDA), also adjusted for the currency fluctuations, increased by 2% year-on-year during the second quarter of 2015.

Operating EBITDA in Colombia decreased by 23% year-on-year to US$68m in the second quarter of 2015, with a 24% decline in net sales to US$198m. Adjusting for currency fluctuations, EBITDA in Colombia grew by 2% year-on-year. Consolidated cement volumes decreased by 3%, while ready-mix and aggregates volumes increased by 6% and 3%, respectively. In Panama, operating EBITDA fell by 3% to US$33m during the quarter and net sales grew by 9% to US$79m. Cement, ready-mix and aggregates volumes increased by 4%, 10% and 21%, respectively, year-on-year. In Costa Rica, operating EBITDA grew by 5% year-on-year to US$20m and net sales increased by 15% to US$46m. Volumes for the three main products grew at double-digit rates during both the second quarter and the first half of 2015. In the rest of Cemex Latam Holdings' region, net sales during the quarter reached US$76m and operating EBITDA fell by 7% year-on-year to US$20m.

In the first six months of 2015, Cemex Latam Holdings'cement volumes declined by 11%, while ready-mix and aggregates volumes increased by 4% and 2%, respectively. Compared with the first quarter of 2015, cement, ready-mix and aggregates volumes increased by 11%, 8% and 6%, respectively.

"We are pleased with the continued positive volume performance of our operations in Panama, Costa Rica and Nicaragua, where we are improving our volume guidance for the year. Additionally, our cement volumes in Colombia increased by 11% during the quarter compared with the first quarter of 2015," said Carlos Jacks, CEO of Cemex Latam Holdings.
"This year our priority is to continue working persistently towards improving our profitability, which has been affected by the depreciation of the Colombian Peso. Additionally, we continue to evolve as a company into a more customer-centric organisation, offering differentiated construction solutions to our specific customer segments."

Costa Rica: Amid the controversy generated by changes in the rules for marketing cement in Costa Rica, Sinocem has announced that the first Chinese import and sale of cement in the country generated 'good results.' It stated that it will import more. The company says that the first batch was sold in December 2014 at a price 20% lower than the competition.

Costa Rica: According to Central America Data, complaints have been made about the differences in the use by dates on cement bags misleading consumers. The cement bags in question were imported from China under the brand name Sinocem.

A label at the top of the sacks in question states that the packing date was 5 January 2015 and recommends its use by 5 July 2015. Another label on the same sack indicates that the product must be used within 45 calendar days following the date of packing, which would mean that the product has already expired.

The Consumers Association of Costa Rica has filed a complaint with the National Consumer Commission at the Ministry of Economy, Industry and Commerce over the imported Sinocem cement due to problems in product labelling that affect consumers.

"There is a deep concern that there is no clarity over use by dates for cement, which could even cause risk, because we do not know if the adhesives work well or even the exact date of the packing. With this cement being sold like this, consumers should be careful," said Gilberto Campos, vice president of the Consumer Association of Costa Rica.

Costa Rica: According to La Nacion, the Costa Rican technical standards institute, Inteco, has opened a public consultation process concerning new technical guidelines for both imported and locally-produced hydraulic cement. The agency seeks to establish a series of standards and guidelines for cement and its components.

Following a request from the Ministry of Finance, Industry and Trade (MEIC), Inteco launched a process to establish the new guidelines in 2014. The consultation process will be open until 27 July 2015 and will give players in the local cement market the opportunity to express their opinions. Cement producers Holcim and Cemex, as well as cement importer Sinocem, previously expressed their opposition to the MEIC's plans to introduce new certification requirements for cement to be approved by an internationally-accredited laboratory.

Costa Rica: Cemex and Holcim have appealed against the Ministry of Finance, Industry and Trade (MEIC) over new certification requirements. Cemex has explained that its cement has been accredited since 2005 and it presented all necessary documentation on 10 April 2015 following a request from the MEIC. Cemex believes that government authorities have made a series of errors in their procedures and asked for the necessary corrections, according to local media.

Holcim Costa Rica has made assurances that it adheres to technical requirements and every year the national technical standards institute (Inteco) certifies its cement. Holcim will appeal against the government decision for new certification. Cement importer Sinocem has not appealed against this resolution, so it will have to present its certification in six months.

Costa Rica: Costa Rica's national emergency commission (CNE) has prohibited Grupo JCB from using cement imported from China for the construction of a dam on the Nosara River in Nicoya. The works are being carried out by the CNE in order to contain water overflowing from the river.

The CNE has announced that the product does not have the certification of quality requested in the Technical Regulation for hydraulic cement. This document outlines rules to guarantee the durability of cement used in the country, as well as the safety of people who come into contact with the material during the construction process. CNE spokesperson Reinaldo Carballo said that this move does not signify the paralysis of the US$1.72m project, which is 72% complete.

The owner of Grupo JCB, Juan Carlos Bolanos, has expressed surprise at the decision and has assured that the cement does meet the requirements established by laboratory studies.

This week Beijing announced that it would close the last of its four largest coal-fired power plants, the China Huaneng Group Corp's 845MW power plant, in 2016. The four coal-fired plants will be replaced by four gas-fired plants with 2.6 times more electricity capacity than the former coal plants. China's policy makers are also encouraging increased use of hydroelectric power, solar and wind and is trying to restart its nuclear power programme.

In the same week, the Independent reported that Costa Rica had achieved a renewable energy milestone, having used 100% renewable energy for the preceding 75 days. The achievement was reportedly made possible by heavy rainfall, which powered four hydroelectric plants. Costa Rica has an impressive track record when it comes to energy sources. In 2014, 80% of its energy came from hydropower and 10% came from geothermal energy. In total, 94% of its energy requirements were met by renewable energy.

However, this week we also heard that Dangote is building the world's biggest oil refinery, which will process 650,000b/day. It will also be Nigeria's first oil refinery. Aliko Dangote, owner of Dangote Group, decided to up the initial design from 450,000b/day because he believes that Nigeria, as a leading producer of crude oil, should also be credited with local refining capacity. Currently, Nigeria produces crude oil, but has to buy refined products from abroad. The refinery is expected to be fully operational by 2017.

Efforts to increase renewable energy should be strongly encouraged - the benefits to the planet and its population are undeniable. However, renewable energy technology has a way to go (if ever) before it can entirely replace fossil fuel-derived energy, which makes Dangote's investment a safe bet. As renewable energy like solar and wind power is entirely reliant on nature, supplies can never be assured.

While sporadic supplies to houses and small businesses may be part of the price we eventually have to pay for a greener world, larger businesses like supermarkets and cement plants, which could lose millions (or billions) from power outages, will surely have something to say, and a lot of sway, when it comes to relying completely on renewable energy. In addition, power outages to essential services like hospitals are unthinkable when it comes to the health of our loved ones. Ultimately, the argument for relying on renewable energy may well be won by utilitarians' 'greater good' argument, but how would it feel to know that your sick child could have been saved by fossil fuel-derived energy?

Costa Rica: The Ministry of Economy, Industry and Trade (MEIC) has explained the changes that will be implemented in technical regulations to the market cement, including forced single day sales of bulk cement and the elimination of the 45 day limit of validity for bagged cement.

Welmar Ramos, MEIC minister said that the purpose of the changes is to make product imports more flexible. "These changes allow greater competition in the market and inure the efficiency of the cement industry for the benefit of the final consumer," said Ramos. A period of three months will be given for producers to adjust their labels. The new rules state that each manufacturer must put the expiration date on the package, which is obliged to check through technical studies. The policy of forcing the sales of bulk cement on the same day of its production has been eliminated. According to the MEIC, this will enable the import of bulk cement.

Holcim and Cemex have warned of an alleged loss of cement quality when stored beyond 45 days, which were established in earlier rules. The Association of Engineers and Architects (CFIA) has also issued warnings about it. However, the MEIC and supporters of the initiative said that different types of packaging, which is already used in Costa Rica, allows older cement to have greater effect.

According to the MEIC, standards and technical regulations consulted in countries like Chile, Peru, Ecuador, Colombia, Venezuela, Mexico, United States, European Union and Central America, only indicate the date of packaging and storage conditions that must be followed.