According to the third-quarter earnings released by Brazilian cement producers at the end of November, their performance is not satisfactory. The downturn in the local construction market has led to a sharp decline in cement sales. This was attributed to a 30% decline in real estate financing and a 20% decline in infrastructure projects.
Votorantim's cement sales in the first nine months of 2015 fell 4% year-on-year to 26.7 million tonnes. Sales of cement and clinker by InterCement also decreased by 7.2% year-on-year to 21.1 million tonnes. LafargeHolcim did not specify the amount of decline in its disappointing third-quarter results.
Overall, the country sold 49.2 million tons of cement in the first three quarters, down 7.6% from a year earlier, according to the Brazilian Cement Industry Association (SNIC). In some regions, the decline was even greater, for example, the sales volume in the central and western regions fell by 11.2%, only 5.809 million tons; the sales volume in the southeastern region also fell by 9.4%, only 22.78 million tons. The southeastern region includes Minas Gerais, the country's largest cement-producing state, which has an annual cement production capacity of 20.15 million tons.
Table: Sales volume of cement in Brazil in the first three quarters of 2014 and 2015 by region
Source: Brazilian Cement Industry Association
Votorantim pointed out that its costs rose sharply throughout the year, due to a combination of factors such as maintenance costs, rising energy costs and the depreciation of Brazil's currency, the real. So far, net income is up just 5% from a year ago to $2.75 billion, thanks to growth outside Brazil.
InterCement, which has a new plant in the northeast, saw a 1.7% decline in volume and price in the southern market. It is also suffering from rising energy costs because it is pegged to the dollar. In order to offset the adverse impact, InterCemen is implementing relevant adjustment measures, including suspending the production of two grinding stations and concrete business.
In addition, Camargo Corr Corrêa, the Brazilian construction giant that owns InterCemen, plans to sell a stake in InterCement to repay its debt in the medium term of 2015. At the time, local media reported that Camargo Corr Corrêa planned to sell a 10-18% stake in InterCemen for between $648 million and $1.17 billion. At the end of November, confirmation was received from the CEO Vitor Hallack that Camargo Corr Corrêa was still seeking a buyer. During this period, the company's short-term liabilities expanded to $536 million.
All of this is a reflection of Brazil on the brink of economic crisis. In October 2015, the International Monetary Fund predicted that Brazil's GDP would shrink by 3% in 2015 and continue to decline by 1% in 2016. This situation is affected by the slowdown of the world economy, the slowdown of China's economy and various internal factors.
In July 2015, the Brazilian Cement Industry Association (SNIC) pointed out that the national cement demand will probably shrink by 10% -15% in 2015, and the sales volume will also drop to about 60 million tons in 2016. At present, there are 72 cement integrated plants in Brazil, with an annual cement production capacity of 76.53 million tons. Among them, 9 leading cement enterprises in China have 64 comprehensive factories with an annual cement production capacity of 70.75 million tons. Unfortunately, LafargeHolcim announced in the third quarter that it would continue to "optimize its portfolio" by selling cement assets worldwide to raise $3.5 billion in 2016. At that time, its assets in Brazil may be on the sale list.
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