Spanish cement producers have announced a price hike for 2011, a move that is being viewed positively in light of the weak pricing environment experienced by local producers in 2010.
Although the Spanish cement association, Oficemen, has forecast a further decline in demand of 10% in 2011, which will bring the market to around 22Mt (2.5 times less than highs seen in 2007), local producers have announced the price hike to limit the negative impacts of falling utilisation rates and increased input costs.
Analysts at CM-CIC Securities note that the increases will vary between regions. The centre of Spain, which is not particularly accessible to imports but where prices are traditionally high and have come under attack, will see a rise of around E8/t. In the south, where prices are much lower in absolute terms (close to E55/t and which have fallen by E13-15 in the last three years), the jump announced is close to E12/t. So far no increases have been made public in the north of the country where prices are almost at E80-85/t and have shown resilience despite the market contraction.
While CM-CIC Securities says that it is too early to draw any definite conclusions about the market, which has contracted by 60% in four years and is close to bottoming out, it adds that sales teams could well adopt a less aggressive strategy than in 2010 and may focus on yield rather than volumes.
Spanish consumption was seen closing 2010 with a total of 24.5Mt, down 15% YoY. Recent data from Oficemen shows that demand has continued at minimal levels into 2011 with January registering just 1.5Mt, a figure which goes back to levels last seen in 1988. Cement production reached 1.6Mt during the month representing a YoY increase of 7.2%. However, in the 12 cumulative months between February 2010-January 2011, production declined just over 10% to 26Mt. Exports, on the other hand, have increased and were up 31.35% at 3.8Mt during the period.
Annual results for 2010 by local producers reflect the challenges faced in this persistently weak market. Cementos Portland’s profit slumped by 95% in 2010 to €1.2m. Revenue was down 14.4% at €886.7m. The group endeavoured to get the maximum return from its assets by increasing its cement and clinker exports. Cementos Molins, meanwhile, posted a net profit of €65.5m in 2010, down 1.9% YoY. EBITDA came in at €166m, up 2.4%.
Leading multi-nationals also posted weak performances in the country last year. Cemex’s Spanish sales deteriorated further, with cement deliveries down 22% and prices 7% lower. Lafarge saw a 17.5% fall in cement shipments and a 26.3% drop in turnover as prices softened. Cimpor’s turnover declined 17.1% to €272.5m and the EBITDA dropped by 30.2% to €32.5m with cement deliveries down 9.3% to 2.86Mt. Meanwhile, Italcementi’s local deliveries decreased 26.2%, but increased exports limited the overall volume reduction to 14.7%. Holcim was also able to sell more cement thanks to exports, but delivery volumes continued to decline in all other segments.
However, forecasts for 2011 suggest that the worst may be over and decreases in demand are expected to slow. While a rebound in the commercial and industrial building sector is expected to take some time, the housing market appears to have reached is lowest point and is forecast to recover around 15% this year with increases expected for 2012 albeit a modest pace. New civil engineering is also expected to see a 12% expansion this year.