Displaying items by tag: SNIC

“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: The International Finance Corporation (IFC) has signed an agreement with the National Union of Cement Industry (SNIC) and the Brazilian Portland Cement Association (ABCP) to support the preparation of the Cement Technology Roadmap in Brazil. The project is being developed in partnership with the International Energy Agency (IEA) and the Cement Sustainability Initiative (CSI). It will be technically coordinated by Professor José Goldemberg, a former Minister of Education and former Secretary of Science and Technology.

In addition to co-financing the initiative, IFC will also use its experience to help produce two of the project's technical studies: energy efficiency and the use of alternative fuels. IFC’s present portfolio includes 30 investments and 10 advisory projects in the cement sector in 26 countries. IFC has already invested more than US$4bn in the sector globally and US$838m in Latin America.

The Brazilian edition of the Cement Technology Roadmap will map current and future technologies and their potential for energy efficiency improvement and greenhouse gas emissions reduction per tonne of cement produced up to 2050. Its main objective is to contribute to the development of the cement industry in Brazil towards a low CO₂ economy, using technical solutions allied to a range of recommendations from the academic, government and financial sectors.

Four major themes are being analysed by the Cement Technology Roadmap - Brazil, which includes the direct participation of major academic and research institutions from various regions of Brazil. They are: Energy efficiency; the use of alternative fuels for co-processing; the use of additions to replace clinker; and the capture, storage and use of CO₂.

Worldwide, two other studies on the cement industry have been previously carried out using the same methodology and with the same partners (IEA and the World Business Council for Sustainable Development) - the global Cement Technology Roadmap, in 2009, and the Low Carbon Technology Roadmap for the Indian Cement Industry, in 2013. The latter was also supported by IFC.

The Brazilian project was launched in September 2014 and is expected to be completed in the first half of 2017. The preparation of the Cement Technology Roadmap - Brazil is being supported by more than 90% of the country’s cement producers.

Brazil: Jose Otavio Carneiro de Carvalho, president of the National Union of the Cement Industry (SNIC), estimates that the Brazilian domestic market will decrease by 12% in 2016, according to the Folha newspaper. SNIC data shows that cement sales fell by 11% year-on-year to 61Mt/yr for the June 2015 to May 2016 period from 69Mt in the previous year. Sales so far in 2016 have fallen by 14% to 23Mt for the January to May 2016 period from 27Mt from the previous year. SNIC have suggested that demand will only resume from 2017 and that companies may be holding back investment to ensure it.

LafargeHolcim has officially opened a new cement line at its Barossa cement plant in Brail. It is unfortunate timing given that the Brazilian cement industry has not had an easy time of it of late. The wider economy in the country has been in recession since it was hit by falling commodity and oil prices and gross domestic product (GDP) fell by 3.8% in 2015. The International Monetary Fund (IMF) has predicted currently that the GDP will fall by a similar amount in 2016. Alongside this, the Petrobras corruption inquiry has enveloped construction companies and led to the suspension of president of Dilma Rousseff. The Instituto Brasileiro de Geografia e Estatística (IBGE) reported that the national construction industry contracted by 7.6% in 2015.

Graph 1: Brazilian cement production from 2011 to 2015. Source: SNIC.

Graph 2: Brazilian cement production by quarter from 2015 to March 2016. Source: SNIC.

Graph 1 summarises, with National Union of the Cement Industry (SNIC) data, what happened to cement production in 2015. It fell by 9.6% to 64.4Mt in 2015 from 71.3Mt in 2014. Unfortunately, as Graph 2 shows, the downward production trend is accelerating into 2016. Production fell by 5.76% year-on-year to 15.6Mt in the first quarter of 2015 from 17.1Mt in the first quarter of 2014. Now, production has fallen by 11% to 13.9Mt in the first quarter of 2016. April 2016 figures also appear to be following the same trend.

Amidst these conditions Votorantim somehow managed to hold its cement business revenue up; increasing it by 6% to US$3.82bn in 2015. Despite this its cement sales volumes fell by 6% to 35Mt. As a result, Votorantim announced plans to temporarily shutdown kilns and plants and sell off selected concrete assets. Cimento Tupi reported that its cement and clinker sales volumes fell by 23% to 1631Mt in 2015 from 2119Mt in 2014. It blamed the fall of the ‘retraction’ of the cement market and a wide-scale maintenance campaign it had implemented on its kilns. Its revenue fell by 26% to US$98.8m from US$134m.

LafargeHolcim pulled no punches when it blamed challenging conditions in Brazil for dragging its financial results down globally in 2015. It didn’t release any specific figures for the country but it described its cement volumes as falling ‘significantly’ with competition and cost inflation adding to the chaos. This has gotten worse in the first quarter of 2016 with volumes further affected. Its cement sales volumes in Latin America fell by 10.7% year-on-year for the period principally due to Brazil. Companhia Siderúrgica Nacional (CSN) has reported an 8% rise in production to 531,000t in the first quarter of 2016 and an 8% rise in sales volumes to 571,000t in the same period. This was partly achieved by the ramp-up of production at its new plant at Arcos in Minas Gerais.

In the wider cement supplier sector the knock-on from falling cement demand has hit refractory manufacturer Magnesita. Its revenue fell by 17% year-on-year to US$66.9m for the first quarter of 2016. This was due to falling steel production in various territories and the negative effects of the construction market in Brazil hurting its cement customers.

It is unsurprising that companies like LafargeHolcim commissioned new capacity in Brail a few years ago given the promise the market seemed to hold. Both the CSN project at Arcos and Holcim’s Barroso project were announced in 2012 near the height of the market. Both are also based in Minas Gerais, the country’s biggest cement producing state. Predicting both the drop in the international commodities markets and a local political crisis would have been hard to predict. All these producers can do now is sit back and wait out the situation with their efficiency gains until the construction rates pick up again. Hopefully the first quarter results for Brazil’s two leading cement producers, Votorantim and InterCement, will not be too depressing.

Brazil: Cement sales have fallen by 14.5% year-on-year to 13.9Mt in the first quarter of 2016 from 16.3Mt in the same period in 2015 according to the Sindicato Nacional da Indústria do Cimento (SNIC). Local cement companies estimate that sales and apparent consumption will fall by up to 13% in 2016.

A survey by SNIC shows the sales began falling in mid March 2014 due to problems in the construction industry. However, SNIC president José Otávio de Carvalho said that this is not the worst crisis faced by the cement industry. In 1982 cement consumption fell to 19Mt from 27Mt in 1982.

Brazil: Brazil's antitrust watchdog Cade has ordered six cement makers named in a price-rigging case to pay a combined US$934m in fines within one month in a landmark decision that also orders asset disposals, according to Reuters. Under the terms of the decision announced on 29 July 2015, the watchdog gave the companies a one-year deadline to reduce their installed capacity in the cement and concrete industries through asset sales. The decision was published in the government's official gazette.

According to Cade, which first issued a ruling in the case in May 2014, Votorantim Cimentos, Intercement Brasil, Itabira Agro Industrial, Cia de Cimentos Itambé, Holcim Ltd and Cimpor Cimentos de Portugal colluded on pricing to force rivals out of the market. The ruling, which followed an eight-year inquiry, followed cost overruns that dogged Brazil's preparations for the 2014 FIFA World Cup as well as dozens of road, port and infrastructure projects across the country. The companies control about 75% of the domestic market for cement and concrete.

A series of studies by Cade showed evidence that several takeovers and asset swaps among cement companies during the 1990s and the 2000s were made to prevent rivals from entering the market. The largest players in Brazil's cement industry tend to have strong market control in specific regions, increasing the potential for collusion. The number of cement producers in Brazil shrank to about 10 in 2011 from almost 25 in the early 1990s.

Under terms of the ruling, Votorantim must pay US$450m in fines and Cimpor US$89.2m. Cade fined Intercement Brasil US$72.4m, Itabira US$123m and Holcim US$153m. Itambé must pay US$26.4m. Some of the companies are challenging Cade's ruling in the courts. Cade also imposed sanctions on ABCP, Brazil's Portland cement group and SNIC, which represents local cement plants.

Brazil: According to Valor Economico, estimates from the cement industry association Sindicato Nacional da Indústria do Cimento (SNIC) point to a retraction in domestic cement demand in 2015, the first market dip in the last 10 years.

Some estimates point to a 10 - 12% decrease, eventually 15% if there is no pick up in demand. There was a 1% increase in cement demand in 2014, as the sector was pushed by construction activities and abundant credit offers at favourable rates. Cement sales in 2014 grew by 1.4% to 70.9Mt and imports fell by 20.4% to 817,000t. Apparent cement consumption in 2014 grew by 1% to 71.7Mt.

The SNIC has said that consumption could fall to around 60Mt in 2016. Installed capacity is 90Mt/yr and 10Mt/yr of extra cement production capacity is expected in 2015.

The Brazilian cement industry took a knock last week when the competition watchdog Cade (Administrative Council for Economic Defence) confirmed its intention to issue the sector with fines worth a combined US$1.4bn.

Under the terms of the ruling, Votorantim will have to pay US$672m, Cimpor will pay US$133m, InterCement Brasil will pay US$108m, Itabira will pay US$184m, Holcim will pay US$227m and Itambé will have to pay US$39.4m. The companies involved will be forced on average to sell 24% of their assets. Votorantim, for example, will be compelled to divest 35% of its cement assets or 11Mt/yr of production capacity. In addition a fine of nearly US$2m is to be imposed on the cement associations ABCP and SNIC.

To give these figures some context, Votorantim reported a net profit of US$105m in 2013 across all its business lines including cement, metals, mining and pulp. The fine Cade wants to impose is over six times greater than this! A fine of this size will be a serious setback for Votorantim if it goes through. Votorantim's net revenue for its cement business in 2013 was about US$5.5bn. This places the fine at just over 10% of company annual turnover, a common upper limit for fines imposed by anti-competition authorities around the world. 10% of turnover, for example, is the maximum percentage fine that European Union competition regulators can impose.

Although hard to compare with the other Brazilian cement producers due to differences in financial reporting, the proposed fines seem equally tough on the other companies. Before the acquisition of Cimpor inflated its financial figures, InterCement reported a net revenue of US$1.2bn in 2011. This places its fine at 9% of annual turnover. Holcim's net sales in its Latin American region as a whole, including operations in Brazil, totalled US$3.73bn in 2013.

Both Holcim and Cimpor have issued corporate rebuttals to Cade insisting that they followed and still follow all the necessary competition laws. Both companies intend to fight the decision. Votorantim went further in its response saying that it considering the fine 'unjust and unprecedented' and it warned that the ruling would cripple any investments in the Brazilian cement sector. The ruling also forbids the company from opening new factories within the next five years, places limits on the company taking out new loans and prevents it from consolidating its market share.

Internationally, the Cade fine surpasses the US$1.1bn Competition Commission of India penalty imposed against 11 producers in India in 2013. Other recent anti-trust fines against the cement industry include a Euro80m fine in Poland that was upheld on appeal in 2013 and the US$19.3m Lafarge was charged in South Africa in 2012.

The prosecutors pointed out that work on public roads had been inflated by nearly US$8m. Overall they reckon that the cartel cost the Brazilian economy US$6.3bn. Examples likes this are unlikely to gain sympathy for the accused cement producers from a Brazilian public already angry about the amount of public money spent on building excessive sports stadiums and the like for the Football World Cup later in June 2014 and the Olympic Games in 2016. In the meantime though – over to the lawyers.