Cemex: a rethink on China?

News that Lorenzo Zambrano, Cemex’s innovative leader is starting to look seriously at further cement-based acquisitions around the world is likely to lead to wide-ranging speculation as to where and when? Speaking late July to reporters at Bloomberg, Zambrano  said: “One thing that I’ve learned is that you have to be ready for opportunities when they come,’’ If you’re not ready, they slip by you in the night.’’

Once again, it appears that Cemex has growing cash earnings, spurred by rising sales and lower debt, and this could be used for acquisitions aimed at boosting sales growth to as much as 14 per cent annually, up from just two per cent in the past two years.

Cemex has held off from acquisitions for more than three years while economic growth sputtered in the US and Mexico. During that time, Zambrano maintained free cash flow of about US$1 billion or more by cutting corporate expenses and reducing energy costs. With the US and Mexican economies poised to grow at least 4 per cent this year, Cemex forecasts free cash flow of $1.35 billion in 2004, an 18 percent gain from last year.

Close to home, Cemex has been associated with further expansion in the Colombian cement sector, while in Europe, market speculation has recently linked Cemex with a potential buy-out of the Danish Aalborg Portland facilities, cementing its global leadership in white cement as well as a useful north European production and sales base for a further 1.8Mt of grey cement.

We can however confirm that Cemex has now opened an office in Shanghai, China which in terms of effective strategic planning, comes as rather late in the day. Cemex has been looking at China prospects since the mid-1990s, but the message filtering down from higher management has long-been one of ‘let’s wait and see’ or ‘it’s too early to make a move into China. Well, after a period of about ten years, it looks as if Cemex is now about to be taking the plunge into a market that is set to dominate the global cement sector for many years ahead.

Whether the Cemex strategy in China is either to now make an initial presence and then quickly build up a niche market share, at what can only be rather high valuations, or to wait for the Chinese economy to eventually implode and then to mop up a variety of distressed cement company sales, we can only but speculate. Given Cemex’s 10 year gestation period on China, we might suggest the latter option.