Monday, November 21, 2011

JAMAICA: Cement Market Shows Signs Of A Turnaround



The cement market rebounded in the third quarter, according to new data from primary supplier and producer Caribbean Cement Company Limited (CCCL), but not enough for its owners to raise their market outlook.

On Thursday, CCCL General Manager Anthony Haynes signalled that a price hike was imminent, citing eroded profit margins.

Caribbean Cement has been exporting increasingly higher volumes of cement, but the September quarter has also seen a rise in sales in its home market by an annualised 14 per cent to 133,961 tonnes.

Caribbean Cement controls about 70-80 per cent of the market. Last year, imports of 197,400 were equivalent to 27 per cent of domestic supplies, according to industry data from the Planning Institute of Jamaica. Domestic cement supplies fell 8.8 per cent overall in the year, the agency said.

"Domestic sales have continued to show a small rebound and the free fall of the market over the last three years appears to be behind us," said CCCL, at the release of its third-quarter financial report.

"While this growth is expected to be maintained, it will be slow and it must also be recognised that several threats to sustained macroeconomic growth remain. As such, we will continue to remain focused on effective cost management, reducing manu-facturing costs, reducing distribution costs and optimising our selling prices."

The latter comment, as well as another by the company that increased production costs "have not yet been addressed through a price correction", signalled an impending price adjustment for cement, which Haynes confirmed.

"The company needs to adjust its prices to recover the increased costs. At the moment, we are engaged in discussions with various stakeholders in this regard," he told the Financial Gleaner.

CCCL's caution is more readily explained by its nine-month results, marked by a lacklustre 0.65 per cent or 2,2670-tonne gain in home market sales to 412,677 tonnes. Exports, meantime, leapt 33 per cent in the nine-month period to 176,110.

Benefit of cheap sales

Caribbean Cement has acknowledged in the past that it sells cheap in other countries to gain footholds in those markets. The upshot is that its finances remain dependent on strong domestic sales.

Consequently, alongside the 14 per cent increase in quarterly sales, total turnover rose by more than 10 per cent to J$2.05 billion in combined home sales, export sales and export clinker; but against the backdrop of a minuscule 0.65 per cent improved sales volumes over nine months, income fell by three per cent from J$6.13 billion to J$6.07 billion.

If CCCL maintains its current domestic sales trajectory, it will likely outperform the annual 531,000 tonne sales in 2010, but not by much.

Haynes did not venture a figure, but said he expects fourth-quarter volumes to outperform last year's quarter. Then, CCCL's home market sales topped 121,000 tonnes, according to the current financial report.

Of note, CCCL's export volumes year to date have accounted for close to 43 per cent of total sales in its home and regional markets - boosted by a 72 per cent rise in the third quarter - and is tracking seven percentage points ahead of the annual performance in 2010 due to a policy shift by Caribbean Cement to contain its market risk, including exposure to imports and a soft construction sector, through geographical diversification.

Aggressive push

The company is pushing aggressively into markets in the greater Caribbean and Central America, including the heavily competitive Dominican Republic, and is attempting to tie down fresh business in South America.

Caribbean Cement cut its third-quarter loss nearly in half to just over made a half-billion dollars as sales climbed, but dropped J$270 million deeper in the red over the nine months ending September with losses of J$1.4 billion.

The bleed resulted from a combination of lower revenue intake and higher debt-financing charges. CCCL said its production costs have also ballooned, eroding some production and market gains.

"After discounting for the increased volumes ... the energy impact on our manufacturing costs due to the higher energy prices has been J$630m," the company said. Electricity costs rose 47 per cent and fuel for its kilns rose 23 per cent, it said.

The market turnaround comes just as Caribbean Cement is reporting a loss of about half its book value from J$3 billion at the top of the year to J$1.6 billion nine months later, resulting from J$1.5 billion of accumulated deficits.

Caribbean Cement's financial troubles trace back to its US$177 million expansion in 2008, which was largely financed by debt.

Haynes said, however had that investment not been made, "our energy bill would have been increased by close to J$800m over the last nine months."

The cement producer is now J$8.2 billion in debt, resulting from the addition of J$2.5 billion in long-term loans since January.

Caribbean Cement is yet to divulge details on how the debt deal being negotiated by parent Trinidad Cement Limited with its creditors will affect or improve the debt profile of the Jamaican subsidiary.

TCL has struck a deal with the larger debt holders, but is still ironing out details of the plan for final sign-off.

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