New player adds fresh stimulus to Colombia's market
This week, Empresa Colombiana de Cementos (EcoCementos) has opened its new 1.5Mta cement plant in Sonson in Antiquia, Rio Claro, Colombia. EcoCementos is a joint venture between the Colombian building materials group, Corona, and the Spanish cement company, Cementos Molins. The project was carried out as an international collaboration between OHL Industrial of Spain and Denmark-based FLSmidth, who built a 3150tpd clinker line. The new line will provide around 100 direct jobs and 180 indirect jobs.
Colombia's market has a current capacity of around 21.5Mt, but clinker capacity is much lower at around 14.2Mt. So, while the market has overcapacity, adding clinker capacity would likely reduce imports.
The domestic market has seen something of a resurgence in the last 12 months rising by about four per cent, from approximately 12Mt in 2018 to 12.5Mt in 2019, as forecasted by analysts. Between January-August 2019 MoM advances in cement demand were reported, with the exception of April when there was a four per cent contraction. In July MoM growth peaked at 12 per cent, with the lowest rates of market expansion recorded in January (+2 per cent) and February (+1 per cent). Cement dispatches in the first eight months of the year rose overall by 3.9 per cent to 8.163Mt, compared with 7.858Mt in the 8M18.
Lingering stigma of corruption
Colombia has also seen its fair share of scandal and investigations into corruption. In December 2017 Cementos Argos, Cemex and Holcim along with some managers were fined COP200bn (US$66m) for price fixing between 2010-12.
More recently, Cemex has been the subject of corruption accusations for payments for the re-election campaign of Juan Manuel Santos in 2014 with fees of US$1m allegedly directed to fund Santos’ campaign, in return for closer ties with the government, reports BNAmericas.
Slow expansion projects and delays
Better news for Cemex was clearing the way for it to start its US$420m modernisation project at the Maceo cement plant in Antioquia in April 2019. The project had been delayed for legal reasons over improper land transfers, according to Medellín Herald. The conciliatory agreement that was reached enabled the signing of the mining operation contract, and the endorsement of the manufacturing and dispatch services for production to begin. The plant is expected to have its cement capacity expanded from 0.25Mta to 0.95Mta, but in September 2019 the company reported that it still needed approval of other procedures, such as the modification of its environmental licence and land use and some construction authorisations.
Cemex Colombia still operates owns plants in the country, but as of December 2018, in its Form-20F, it stated that it had reduced cement capacity to 4Mta. The Cúcuta and Los Patios are now believed to be operating as grinding plants, along with the Santa Rosa de Cabal grinding unit. Meanwhile, the 2.8Mta Ibague and, under construction, greenfield, Maceo plant can be described as the two listed integrated facilities.
Meanwhile, Argos delayed its Sogamoso cement plant project in 2017, instead favouring the expansion of the company's Cartagena and Río Claro plants first. However, the scope and timing of these projects remains undisclosed. Group Argos has increased its tranche for potential bond releases by COP850bn (US$246.4m), while it has seen 1H19 profits rise by 16 per cent. The company has the largest cement capacity in the country at 8.2Mta and operates seven plants.
These above upgrades will seem minor in comparison to the planned project of Medcem Cement (Eren Holding group) that aims to build a 3Mta cement plant in Puerto Brisa, which was announced in 2015. However, there has been no news since about the project.
LafargeHolcim's 0.5Mta grinding plant in Buga, Valle del Cauca, was scheduled to be inaugurated at the start of the year, but is still under construction. This facility is a Gebr Pfeiffer Ready2Grind unit that cost approximately US$30m. This plant will add to the 2.1Mta Nobsa plant it owns. The other dometsic producers are made up of Cementos San Marcos, Cementos Tequendama and Cementos de Oriente.
Outlook
Despite the slow progress in increasing capacity among the established players, the start-up of EcoCementos' new plant is a good sign that there is potential for capex projects to resume soon. The BMI Research into Colombia's construction sector has forecast robust growth between 2019-20 and the strengthening of the residential market from 2020. The Fourth Generation (4G) road concessions programme will see investment of US$25bn, while the US$4.4bn Bogotá Metro Rail project will also drive cement demand. Airport investment will continue through to 2023. LafargeHolcim has been supplying the Pereira Airport project, which is scheduled for a December 2019 launch. Meanwhile, Bogotá's El Dorado airport expansion and a greenfield airport in Cartagena will provide focus points.
The weak sector has been residential construction in 2019 which has fallen since the 2015 peak, although non-residential construction has compensated for this to some extent. The indicators for better growth going forward are evident in the IMF's GDP forecasts which see a growth of 3.7 per cent in 2020 and 3.65 per cent in 2021, up from 2.8 and 3.6 per cent in 2018 and 2019, respectively.
