Room for improvement: Cement industry displays potential while looking to regain momentum

Heavily dependent on the construction sector’s progress, the local cement industry took a slight dip in production in 2012. In the 12 months to May 2013 the production of Portland cement, the most commonly used material for infrastructure and housing in Colombia, amounted to 10.79m tonnes, representing a 1.67% year-on-year (y-o-y) decrease, according to the National Administrative Department of Statistics. Total national dispatches followed a similar trend, accounting for 10.43m tonnes, falling by just under 1% y-o-y. Nonetheless, major sector developments suggest activity will regain momentum in the short to medium term. Run by a strong oligopoly of three major producers, Colombia’s cement market displays a tightly knit combination of foreign and international presence. Swiss producer Holcim accounts for 13% of the local market while Mexico’s CEMEX accounts for 31% and Grupo Argos, the sole major player with Colombian capital, represents 51%. Altogether these companies hold 95% of the market.

PERFORMANCE: Surprisingly, regions with some of the country’s most important cities, such as Bogotá DC, the capital district, Antioquia (Medellín) and Valle del Cauca (Cali), displayed unfavourable performance in 2012. Cundinamarca, on the other hand, increased potential with 32.7% more dispatches – the most common method of measuring cement due to its short shelf life. According to CEMEX Colombia, 2012 sales went primarily to commercial projects and housing construction. However, within the housing segment, only 15% of development is formal while the rest is in the informal category, entailing self-construction and home repairs. Much cement sales go to these activities, which explains the popularity of distributing by bag.

DEMAND: In 2012 dispatches by bag accounted for around 70% of cement, while 30% was sold in bulk, a common trend in Colombia and other Latin American countries, as opposed to the US where those numbers are reversed. Carlos Jacks, president of CEMEX Colombia, attributes this tendency to the fact that manual labour is inexpensive and the cost to mix cement is far less than hiring cement trucks. According to Jacks, only around 71% of the cement sold in bulk comes ready-mixed. Dispatches to commercial distributors declined 8.4% y-o-y to March 2013, while rising 6.8% for construction companies and concrete producers.

This may reflect the heightened demand produced by aggressive housing projects set forth by the government. Output figures are also expected to increase thanks to a long list of infrastructure projects in the pipeline (see Infrastructure chapter).

Colombia’s fractured road system is especially in need of repair. Most highways have been constructed with asphalt, which is a significantly cheaper alternative to concrete but also much more erosive. Both the government and contractors are well aware of these factors and are looking to construct roads with more concrete this time around, creating a solid transportation network for the future and providing a promising demand for the cement industry in the near term.

PRICES: Deficient infrastructure also heightens production costs for current operations. According to Jacks, the cost of transporting a tonne of cement from a plant on the coast to Bogotá is $180, of which $60 could be attributed to additional transportation fees required as a result of poor roads. On the other hand, Carlos Enrique Moreno, president of the finishes manufacturing company Corona, attributes high prices of cement to the exclusive market structure. “Discrepancies arise where natural oligopolies exist, such as in cement and in the cost of transportation,” Moreno told OBG. “The price per tonne of cement in Colombia is around $200 while the global average comes in at $120. In these cases the internal cost is much higher than the international cost.”

For heavy work, cement as a whole registered a yo-y increase of 6.8% up to March 2013, while within the housing segment Portland and white cement prices rose 4.52% and 3.64%, respectively. Although prices are steadily rising along with overall economic growth, cement costs are often volatile, an element that contractors tend to factor in. Regardless, sector specialists interviewed by OBG generally agree that the price of materials is not a problem for the sector, in light of other major issues such as access to urbanised land.

EXPANSIONS: CEMEX, the world’s third-largest cement producer, has made much progress in the Colombian market over the years, covering national distribution with its brand Diamante and attending to Bogotá through its brand Samper, both of which were acquired upon entering the local industry in 1996. The firm has a yearly installed capacity of 4.8m tonnes. Also a significant international presence, Holcim currently operates at nearly half that, but in December 2012 the firm announced plans to begin constructing a plant that would add 2m tonnes to its capacity. Investments would surpass $600m and provide employment for over 1000 Colombians. Holcim distributes the majority of its cement to Bogotá. By far the largest presence, Grupo Argos has national coverage and installed capacity of about 10m tonnes, which is currently not fully utilised due to expansion works at several plants. One of the largest expansions in sight is slated for the company’s Rioclaro plant, located in its home region of Antioquia. With COP167bn ($100.2m) planned investment, the plant’s installed capacity should expand by 900,000 tonnes. As Latin America’s fourth-largest cement producer, Argos has recently ventured deeper into the US market, buying out some of French firm Lafarge’s interests by acquiring their cement plants in the south-eastern US.

Low-environmental impact practices are also becoming commonplace within industry expansion and Argos is an example to follow. The company recently modified its concrete plant in northern Chimitá to include emissions control, waste management and a system to recycle 100% of the water used in the industrial process. With a total investment of COP2.5bn ($1.5m), the new plant was inaugurated in March 2013 and has an installed capacity of 12,000 cu metres per month.

NEW PLAYERS: Several major construction firms have begun to challenge the traditional market structure by venturing into the production of cement, mainly as a means to supply their own needs and cut down on costs. As a prime example of this market shift, civil works company Grupo LHS began producing cement in May 2012 at its plant in south-western Colombia. Currently working at around 20% of the plant’s capacity, Grupo LHS still purchases from the larger three producers but has plans to expand in the near future, according to company president Luis Fernando Solarte Viveros. “The projected annual production of our plant at full operational capacity will be 14,000 tonnes,” Solarte told OBG, adding that company goals include eventually covering 5-10% of the local market, prospects that imply stripping market shares from larger companies. Solarte maintains an optimistic outlook, forecasting a change in market dynamics with the entry of new producers.

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The Report: Colombia 2013

Construction & Real Estate chapter from The Report: Colombia 2013

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