CEMEX to reassess regional strategy?
This week CemNet investigates CEMEX's strategy in central America and the Caribbean. The Mexico-based cement producer may consider exiting the Dominican Republic, while looking to reinvest at other locations in the region.
October saw the announcement that Domicem, a Colacem subsidiary, had commissioned its new kiln line at Sabana Grande de Palenque, San Cristobal province, Dominican Republic. This project included a US$120m investment for the new 3500tpd kiln line that doubles the existing capacity at the plant to 3.8Mta. CBMI Construction of China won the contract to provide the new kiln line and started work on the project in March 2021. The official inauguration will take place on 22 November 2023.
The commissioning of this project comes just after a Bloomberg report suggested that CEMEX might exit the Dominican Republic. Bloomberg reported that CEMEX and JP Morgan have been looking for potential buyers for the divestment of the 2.4Mta San Pedro de Macorís cement plant and also 10 concrete plants, two aggregate quarries, a gypsum mine and three marine terminals. A deal in excess of US$1bn is thought to be a likely outcome for these assets.
CEMEX Dominicana only restarted its kiln at San Pedro de Macorís in September 2022, as part of a US$34m upgrade to raise cement capcity to 2.5Mta. The plant has also seen improvements in waste-derived fuels, additives and hydrogen technology.
A wise exit strategy for CEMEX?
Cement demand in the Dominican Republic has seen an upward trend in 2022, rising by 0.5 per cent to 5.572Mt, a historic high. But the market saw growth of 24.2 per cent in the previous year, driven by the post-pandemic stimulus. Cement production reached a record high in 2021 at 6.535Mt. The capacity utilisation rate grew to 73 per cent in 2022, when industry sales totalled US$757m, up 21 per cent YoY.
The timing of the new line coming on-stream at Domicem may have had some influence on CEMEX's decision over the Dominican Republic market. The country currently has 10.84Mta of cement capacity and with cement demand currently at just over half of that, competition for domestic cement sales will increase. Domicem will be in the favourable position, having inaugurated a low-cost production line and it is now the largest manufacturer in the country by some distance.
Exports accounted for 12.7 per cent of cement production in 2022 or approximately 0.81Mt, but the additional capacity now installed could see exports start to increase further. Meanwhile, clinker imports are expected to shrink, having totalled 0.98Mt in 2022, at a total value of US$102.6m, primarily sourced from Turkey (0.691Mt) and Algeria (0.23Mt).
CEMEX looking to reinvest
If CEMEX does sell its Dominican Republic assets, it will have funds to reinvest. CEMEX reported at the end of 2022 that it still expects to make further synergies with the vertical integration of Trinidad Cement Ltd's business in Jamaica, along with improvement in productivity and capacity. The Jamaican expansion will include a 30 per cent increase in cement capacity and an investment of approximately US$40m in the first phase of the project, which should be completed in the 2H24.
CEMEX is already invested in Panama-based Cemento Bayano, in which it holds a 99.5 per cent shareholding. Cement consumption in Panama grew by eight per cent in 2022 YoY, mainly due to increased consumption in the housing sector and due to the reactivation of the Subway Line 3 Project.
To meet Panama's demand, cement capacity at Cemento Bayano's Calzada Larga plant was expanded from 1.2Mta to 2.1Mta in the last year. In terms of capacity, Cemento Bayano is well ahead of the country's only other integrated plant: Argos-owned Cemento Panamá's 1.6Mta Quebrancha facilities. While Cemento Panamá is understood to be adding a 1Mta clinker line to the unit, it is not clear how much work has been carried out on the project since its initial announcement in 2019. In either case, it will have to successfully compete with Panama's other cement producers, Cemento Interoceanico (Cementos Progreso) and Cemento Chagres, a locally-owned players that entered the market in the 2H20.
Summary
CEMEX looks primed to make further deals in the region. However, the company has not commented on rumours about whether it wants to sell any assets in the Dominican Republic. This week it successfully refinanced its US$3bn syndicated credit agreement to lower its debt maturity profile.
