Venezuela can't hide shortages and black market

This week ICR reported on the inauguration of the second line at the Las Llanadas cement plant in Trujillo, Venezuela. The Cementos Andino works is owned by Corporacion Socialista de Cementos and will increase plant cement capacity by 0.5Mta to 1.35Mta.

China has fostered much of the work on the Las LLanadas upgrade with Catic Beijing being the main contractor. Other recent Chinese support includes AVIC International Beijing's deal with Loesche to supply two vertical roller mills for Invecem’s Monay plant in 2015.

Cement shortages to continue
Despite a national debt estimated in excess of US$150bn, the Venezuelan government tries to invest what it can in the state-controlled cement sector. However, there is a large supply shortage and cement prices have escalated in recent months.

Moreover, state projects have been prioritised to receive deliveries, leaving many small businesses without cement or facing hiked prices for the product to complete buildings. This month, local papers have been reporting cement prices that are normally VEF2000/t (US$198/t) are now subject to hyper-inflation and mafias controlling cement distribution escalating prices to VEF16,000 to VEF50,000 (US$1600-US$5000).

While the new line at Las Llanadas implies a progressive picture, in reality, the cement sector – like so many other industries in Venezuela – is on its knees. The second line was supposed to be scheduled for completion in 2016. In addition, the US$238m investment will not satisfy many local shortages, let alone regional or national demand. It is expected that just keeping the plants operational will be a major government expense. Currently, cement plants in the country are estimated to be operating at 50 per cent of capacity, reports La Prensa's Diario de Lara.

Furthermore, in January 2017 it was reported by the President of the Bolivian Construction Workers Federation, Marco Tulio Diaz, that the industry still forecast to export 0.3Mt of the country's 6Mta production target. 

Export revenues would then be used to provide financial support to the state-owned cement enterprises.

“All trade union organisations of the sector are committed to the national production of cement to guarantee the Great Housing Mission Venezuela (GHMV) and the construction of all infrastructure, including subways bridges, roads, railways, which will guarantee more than 87,000 jobs throughout the country [this year],” Mr Diaz said.

Cement sector outlook
Venezuelan cement production has fallen a long way from the renationalisation years of 2007-08 when Holcim, Lafarge and Cemex could rely on good margins. Great optimism returned to the sector when  Cerro Azul's 1Mta cement plant was launched in 2015. Built by Iran-based Ehdasse Sanat, the US$273m greenfield plant in Piar, Monagas, was thought to be just a part of a new era that would expand the country's cement production capacity to 12Mta by 2017. 

However, the only plant expansion since has been the new 1Mta line at Invecem's San Sebastian de los Reyes plant in March 2016. Further capacity, namely a mini plant in Peña, is due to come on-stream in 1Q17, but will have limited impact on supply.

Now even with the launch of the second line at Las Llanadas, there is little reason for optimism as any extra cement will only benefit the few state-funded building projects.

In recent weeks plans between Cuba and Venezuela to build housing structures that can withstand the strong winds and flooding caused by hurricanes in the wake of hurricane Irma and Maria were drawn up. A meeting was held at the headquarters of Petrocasa, an organisation that mass produces houses in rural areas under the country’s public housing programme.

While it is clear that Venezuela's demand has significant potential, economic disarray and the cost of supplying the market could mean such initiatives will not get off the ground.