CARIBBEAN: Caribbean Cement Crude-For-Commodities Deal Appears Uncertain

Caribbean Cement Company Limited is banking on a new cement supply agreement with Venezuelan to reboot sales and reinvigorate its cash flows, but intervening elections could crush its plans.

The cement supply deal is being negotiated under the crude for commodities component of the PetroCaribe agreement between Jamaicaand Venezuela, which allows for part-payment of oil with goods.

In June, Caribbean Cement's chairman Brian Young disclosed to shareholders that the Kingston plant hoped to begin supplying cement to Venezuela in early 2013.

However, finalising the contract was first delayed by Hugo Chávez's illness - the Venezuelan president was widely reported to have cancer and was treated several times in Cuba - and now it faces the uncertainty of elections and a potential change of government when residents of the South American country vote in national elections on Sunday, October 7.

Chávez is considered to be leading narrowly in opinion polls with his challenger, Henrique Capriles, nipping at his heels. It is widely expected that a new Venezuelan administration would, at the very least, seek to reshape the PetroCaribe agreement struck with individual oil-import dependent Caricom nations, which, in turn, would delay or jeopardise its side deals.

A portion of Jamaica's oil bill owed to Venezuela is converted to long-term loans under the seven-year-old PetroCaribe accord to be used for development projects.

The loan proceeds are administered by the PetroCaribe Development Fund, which was established to manage and invest the portion of the oil payments that are treated as long-term loans.

Repayment is priced at one per cent but the agreement also allows for the trading of commodities to offset the oil debt.

Trade compensation

The cement deal aims to leverage that area of the agreement, known as the Trade Compensation Mechanism.

The cement producer disclosed the arrangement in its 2011 annual report. General Manager Anthony Haynes has not responded to requests for comment on the structure of the arrangement and how big a contract Rockfort is negotiating.

However, the company's second-quarter financials released in August vaguely refers to continuing negotiations for a three-year supply contract with an unnamed party - as have previous quarterly reports - which, it said, is expected to "make a significant contribution to the group's forecasted turnover and net cash flow over the contract period."

If agreed, it will be the first such crude-for-commodities arrange-ment for Jamaica, but Guyana has supplied rice to Venezuela under the pact.

Caribbean Cement is struggling with accumulated losses of more than J$5 billion and is reliant on parent company Trinidad Cement Limited for its continuing operations.

The Jamaican operation has been expanding aggressively into export markets - including Haiti, Eastern Caribbean and Dominican Republic - to offset shrinking domestic cement sales.

CARIBBEAN: Carib Cement workers in limbo

Workers at Caribbean Cement remain off the job this afternoon as discussions continue at the labour ministry over an industrial dispute.

Some 200 employees are on work-to-rule to protest the board’s decision not to sanction a wage offer from the management.

The talks are being held between the National Workers Union (NWU) and the management of Carib Cement.

According to NWU Vice President Granville Valentine, the Board’s action comes after the union and the management of Carib cement had reached an agreement following prolonged negotiations.

CARIBBEAN: Carib Cement Losses Still Climbing

Caribbean Cement Company Limited made a loss of J$608 million in the second quarter, even while cement sales appeared to have stabilised in the period.

Domestic and export sales combined stayed flat at 185,000 tonnes in the June quarter.

Clinker exports, however, dropped to less than half the 2010 levels in the period.

Total revenues also underperformed, falling from J$2.13 billion to J$1.96 billion.

The loss in the quarter was almost triple the losses of June 2010 and it pushes the company's half-year deficit to J$858 million.

Last year, the cement maker lost J$1.56 billion.

The losses continue to weigh on the cement maker's balance sheet, which is now valued at a net J$2.16 billion, down from J$4.4b at June 2010.

CARIBBEAN: Carib Cement cuts price

In an effort to recapture share in the domestic market defined by economic downturn and an insurgence of dumped cement, Caribbean Cement has dropped the price on its main product — Carib Plus — by 7.5 per cent.

Carib Cement's general manager, Anthony Haynes, said the company is also saw this as "an opportune time to be aggressive with pricing and give people an opportunity to rebuild at the lower price", following the effects of Tropical Storm Nicole.

"We are trying to stimulate sales — the dumped cement that comes in from the DR (The Dominican Republic) and the US has been discounted below our product, which has been eroding market share," Haynes told the Business Observer in a telephone interview yesterday. "This is a direct response to win back market share and we also hope to stimulate demand."

Haynes said the new price of $525 per 42.5 kilogram bag of Carib Plus was determined by market surveys and through direct discussions with customers.

"It's not an exact science but $50 (discount) is a nice number... we hope it will cpature the interest and imagination of the people," he said.

Prior to the latest move, Carib Cement had increased the price of its cement by an average of 3.2 per cent in mid-June this year.

However, Lower domestic demand — approximately 18 per cent less than the same period last year and down by 36 per cent since the start of the recession by Carib Cement's estimation — has hurt the manufacturers' sales. While an aggressive export thrust that led to 30 per cent of the company's production for the year thus far being exported did not generate enough revenue to compensated for the loss in domestic revenues.

By Haynes reckoning exporting the product helps bring down the fixed unit cost but he ihopes that "the increased sale wiill compensate for the price reduction and that we will have a net positive revenue and contribution benefit".

The reduction in the local sales volumes has come just after the company invested US$177 million in the modernisation and upgrade of its plant and equipment, which put exceptional pressure on the company's ability to meet its financial commitments.

Carib Cement even kept its new Kiln 5 clinker manufacturing line out of service for 40 days -- starting in August -- to reduce high inventory levels of both clinker and cement.

CARIBBEAN: Carib Cement drops kiln 5 offline

Manufacturer blames weak demand, dumped cement for extended downtime

HIGH inventory levels racked up as a result of weak domestic demand coupled with the presence of “dumped cement” has forced Caribbean Cement Company to stop making clinker through its main manufacturing line at its Rockfort, Kingston plant.

Late last week, the cement manufacturer informed the Jamaica Stock Exchange (JSE), on which it is listed, that it “has taken its new Kiln 5 clinker manufacturing line out of service for a repair job that has arisen and has decided to extend the downtime of the plant beyond that required, to a total of 40 days”.

“This is in order to reduce the high inventories that it is carrying of both clinker and cement,” said the statement to the JSE. “Despite an extensive programme of export activities, the current depressed domestic market and the presence of dumped imported product have resulted in lower than expected plant utilisation and a build-up in inventories.”

Carib Cement managed to more than double its export of cement during the first six months of 2010, increasing its sales to overseas markets from 38,552 tonnes during the comparative period of 2009 to 89,083 tonnes during the June 2010 quarter.

Clinker exports, on the other hand, fell from 80,125 tonnes to 27,457 tonnes over the 12-month period.

Meanwhile, domestic sales of cement plummeted from 343,863 tonnes to 292, 876 tonnes.

“Jamaica’s cement demand has been in decline over the last three years and sales this year have plummeted by 20 per cenmt as a result of the deteriorating economic conditions,” the release continued. “The contraction in sales has been exacerbated by the recent violence and the ensuing state of emergency in the Kingston area. At the same time, cement traded at less than fair value has been entering Jamaica from the Dominican Republic and the USA, the latter with applicable duties waived.”

According to Carib Cement, the Anti-Dumping and Subsidies Commission recently assessed the dumping margin of the cement from the USA as 59.72 per cent and that from the Dominican Republic as 50.90 per cent.

The Company’s General Manager, Anthony Haynes, has indicated that the suspension of the kiln operations will in no way impact supplies to the local market, as current inventories provide more than four months’ cover.

“This decision will not impact in any way the availability of cement in all of our markets as the company will continue with its cement grinding activities,” added the release.

The suspension of this part of the operations will significantly reduce its energy costs over the period and improve the company’s cash flows. Employees who work in that area of the plant will be proceeding on leave over the period.

The company’s recently completed US$177m expansion and modernisation programme increased its cement manufacturing capacity to 1.8m tonnes per annum.

Cement sales also hit by 'Dudus' unrest

CARIBBEAN Cement Company (CCC) blamed the recession and the State of Emergency for its "disappointing" $218 million net loss in its second quarter, despite internal operational challenges related to its Mill-5 plant.

Additionally, the cement manufacturer was operating with negative working capital of $140 million as at June 2010, whilst the deficit on its cash flow worsened some 66 per cent to $100 million compared with the prior year's quarter.

For the review period, revenues were down 8.4 per cent to $2.13 billion whilst expenses were up 14.2 per cent to $2.4 billion compared with the prior year's quarter.

It resulted in CCC recording an operating loss of $344.6 million versus a trading profit of $191.9 million in the prior year's quarter.

"The very disappointing financial performance during the second quarter of 2010 is due in the main to a 19 per cent reduction in local sales volumes. In an environment where the economy and construction sector continue to contract, the civil disorder that led to the declaration of a State of Emergency further constrained sales," said company statements endorsed by Brian Young, chairman and Dr Rollin Bertrand, group chief executive officer.

The statement which accompanied financials posted to the Jamaica Stock Exchange, added that the reduction in total revenues occurred despite more than doubling its export sales volumes. During this quarter CCC exported 50,079 tonnes of cement and 23,006 tonnes of clinker -- equivalent to approximately 80,000 tonnes of cement.

The company stated that compared with 2009, its cost of sales has also been impacted by increased operating lease costs as Mill-5 was not in operation in the second quarter of 2009, and increases in electricity and diesel fuel charges. It added that the civil unrest led to a complete shutdown of the plant "which proved very costly to the company".

CCC, ultimately owned by Trinidad Cement Limited, argued that it would appeal a ruling of the Anti-Dumping and Subsidies Commission which it said found "no threat of material injury to the local industry" regarding a July 2010 final determination on cement dumping.

"Having reviewed the Commission's Statement of Reasons, we intend to exercise our option to appeal the decision. We have a second matter before the Commission with regard to imports from the Dominican Republic. At the time of writing the preliminary determination has not been released," the director's report stated.

Its outlook remains bleak in regard to local sales, but it expects to focus on exports going forward, the company stated.

"With the continuing contraction in the domestic economy and the re-entry of a third importer of dumped cement, we do not anticipate any improvement in domestic sales in the short term. Notwithstanding the foregoing, we continue to achieve increased export sales, including now regular exports to Haiti. We will continue to proactively develop these markets, while at the same time, continuing to defend the local market using all legal avenues available," it stated.