The late 2006 rulings by the Colombian President that domestic cement prices should come under closer supervision of the Ministry of Commerce has disappointed local cement producers, Argos, Holcim and Cemex who also face hefty fines for what the government has said was serious price collusion between the various parties in 2005 and 2006.
With the President of Colombia Alvaro Uribe seen as a close friend to local industrialists, this latest ruling has surprised the market, but the earlier price war in which prices fell from Peso 20,000 to Peso 7000 over a matter of months in early 2005, then led to Cementos Andino, a local independent cement producer, to request a full investigation by the appropriate Government supervisory body as to why prices were being pushed ever-lower and in fact to levels below the actual cost of production.
The subsequent investigation found the accusations of price dumping proven, and the three major producers, Argos, Cemex and Holcim were then forced to go to the authorities with an offer not to dump cement at below the average variable cost and if prices were to be modified in the future, suitable documentary evidence would be provided by each company to justify such claims for revised prices.
This investigation was however too late to save Cementos Andino which was forced out of business, despite having just completed a new cement factory, due to be opened by the President of Colombia, with this company quickly sold to the Argos Group for a very low price.
In order to verify if Holcim, Cemex and Argos were fulfilling this new pact, in May 2006, government inspectors made a visit to the three companies. In that investigation it found that Holcim and Cemex increased the prices between the first of January and 23 of May 2006. The problem, according to the inspectors was that the companies did not have the necessary supporting documentation and on the 11th of October subsequently fined Cemex 816 million weights for Cemex, and 1,526 million weights for Holcim. Argos meanwhile had agreed to freeze prices until July 2007 and escaped such sanctions.
Paradoxically, the authorities were then not too much concerned as to why prices had fallen dramatically, but why, since Cementos Andino had been acquired in November 2005 and effectively taken out of the market, had prices risen dramatically. In fact in December 2005, a month after Cementos Andino’s demise, prices for bulk cement on the domestic market had risen by 40 per cent and a year later prices were up to a reported Peso 20,000 almost a 200 per cent rise.
An initial ruling is expected shortly from the Colombian authorities to determine if any recent price collusion has taken place between the respective domestic producers. More fines are again expected, but these are likely to be limited in line with the government’s existing powers. Hence the news that the President of Colombia is taking a keen interest in such proceedings is sending a chill through local cement circles, particularly the thought that price controls could be enacted by the government in the near future.
With socialist winds now blowing across South America, even the more conservative government of Colombia is becoming more attuned to the living costs of its poorer members of society, especially basic elements for life and housing. Price controls might be seen as an exceptional response and perhaps a seizmic precedent for Colombia, but should not be ruled out as an effective move to control excessive price movements by the local cement industry – both up as well as down!