Mexican cement stocks sluggish

Despite the news that the US will eliminate antidumping tariffs on cement imports from Mexico, the stock price of the main exporters, Cemex and Grupo Cementos de Chihuahua have shown little reaction. As the US Department of Commerce (DOC) announced the news last Thursday afternoon, the share price of the two companies made small gains, but the increases were lower by the close of trading.

On the NYSE, Cemex’s ADSs climbed from US$61.20 at Wednesday’s close to US$62.72 at the end of business on Thursday; a gain of 1.5 per cent. However, by the close of trade on Friday, the ADSs slipped slightly to US$62.70.

On the Mexico City stock exchange (BMV), Cemex shares followed the same pattern, gaining 2.0 per cent on Thursday after closing at 65.96 pesos, before gaining just 0.04 pesos on Friday to end the day at 66.00 pesos, despite these stocks being those that changed hands most during trading, with a volume of 6.12 million.

GCC stocks did not fare much better on the BMV, although the gains were steadier. On Thursday the shares rose 1.6 per cent to 32.49 pesos each, while on Friday they climbed another 1.6 per cent to 33.00 pesos.

The shares were expected to rise by more after the DOC announced that restrictions on Mexican cement imports would be gradually reduced over a three-year transition period, before being totally abolished in 2009.

In that three-year term, the US will allow imports of up to 3Mt of Mexican cement, with this figure possibly being increased if the US market grows. Once the period is up, Mexican companies will be allowed to export the volumes they wish to the US without any duties to be paid or any volume quotas.

A report by financial services firm Merrill Lynch suggested that the Mexican cement manufacturers may not be able to raise their exports to the US before 2007, which could be the reason for the lack of interest in the firms’ shares. Apart from the fact that the companies will need time to adjust their export policies, sales of cement to the US could also cut prices, which would reduce the incentives to sacrifice the current high margins they enjoy in that market for smaller profits on larger export volumes.

"The principal and main part of the profit for Cemex comes from not paying the high duties without making any changes to the current level of exports," the report by analyst Carlos Peyrelongue was cited as saying by daily El Norte.

Meanwhile, brokerage UBS estimated that Cemex could export between 3Mt and 4Mt in 2009, when the US antidumping duties are fully eliminated. This would give the firm an additional operating cash flow of US$130m.