New challenges for Colombia's market leader

New challenges for Colombia's market leader
05 January 2018

This week the Colombian cement market has reported cement dispatches up by just 0.3 per cent YoY for November 2017. The latest ICR data suggests that while annual cement consumption in Colombia for 2017 was still down approximately -0.5 per cent, monthly returns have improved in recent months.

In spite of this lacklustre growth, Cementos Argos managed increased volumes of 6.9 per cent in 2H17 in the domestic market, in part helped by the fall in national cement imports, which declined by 47 per cent in 2Q17. By the 3Q17 the rate of growth had slowed, but the company still managed to increase volumes again by 1.6 per cent, while cement imports fell by 62 per cent.

The Colombian market remains essential for Cementos Argos as a stable source of revenues that has provided a platform for rapid regional growth in recent years, including to the US where revenues now well exceed Colombia. With 9.1Mta of domestic cement capacity, Cementos Argos is the largest producer in the country, and the company expects dispatches to accelerate later this year on the back of the government’s 4G infrastructure projects. Social housing is also expected to increase cement demand with 30,000 homes planned in the second phase of the goverment's free housing programme.

Cementos Argos will have competition for infrastructure and housing contracts from other cement producers that are expanding their reach in Colombia. New entrant Empresa Colombiana de Cementos (Ecocementos) is constructing a 1.3Mta cement plant in Rio Claro, Sonsón, as a EUR224.6m joint venture between the Colombian group Corona and Cementos Molins of Spain. OHL Industrial has been contracted to build the plant with FLSmidth equipment. The project is scheduled to be completed in the 1Q18.

Meanwhile, Cemex is continuing with Phase 2 of its Maceo Project, which proposes to expand the current grinding capacity of 0.25Mt with the addition of a kiln line as well as build an access road to the plant in Antioquia. However, the company was forced to postpone the plant's start-up due to unresolved permitting issues. Cemex will now modify the enviornmental licence application in an effort to gain approval to expand capacity at the plant to 0.95Mta.

Jaime Muguiro, president of Cemex South and Central America, confirmed in a recent meeting with analysts that the plant delay will not impact on the company's ability to serve the market: "We have enough capacity to serve until 2020-21, assuming an annual growth of 4-6 per cent." The company also mothballed the Bucaramanga plant in February 2017, although this could be reopened if imported clinker is purchased.

There have also been announcements from LafargeHolcim of two grinding plants to be established in Buga. Argos, meanwhile, has put on hold its plans for expansion, which entailed the building of a 1.4Mta greenfield cement plant in Sogamoso, which was originally scheduled for completion in the 3Q17.

The game changer for Colombia's market, however, will be the sight of Medcem Cimento’s proposed 3Mta integrated plant at the Free Economic Zone of Puerto Brisa on the north coast, although this is expected to take six years before coming into operation.

Cementos Argos may well have gone ahead with plans to complete its Sogamoso project by then, but like all cement producers in Colombia, it is reliant on public infrastructure spending to increase its volumes and move Colombia’s per capita cement consumption to higher levels than the 266kg currently reported in The Global Cement Report, 12th Edition.

Beyond demand trends and capacity, the Colombian cement sector faces other challenges in the year ahead with the three multinationals, Cementos Argos, Cemex and LafargeHolcim, coming under scrutiny from the state regulator.

The three multinationals account for some 96 per cent of cement sales in Colombia but deny collusion over any cement pricing. Still, the regulator imposed fines of COP200bn (US$66m) on the three producers and some of their managers at the end of 2017. The price-fixing allegations related to the period between January 2010 and December 2012, and a court battle is now expected in 2018.

Published under Cement News

Tagged Under: Cementos Argos Colombia