First, the Brazilian economy
Brazil, together with Russia, India and China, is a member of the "BRIC" and a developing country with rapid economic development. Brazil relied on strong domestic development and exports of raw materials, which enabled it to maintain a mild recession in the 2008 financial crisis. However, Brazil is a country that relies heavily on exports of raw materials. As the lack of international demand for raw materials leads to a decline in exports, the overall economic downturn continues to spread.
According to World Bank data, Brazil's GDP fell from $2.62 trillion in 2011 to $2.46 trillion in 2012, and remained stable at 2012 levels in 2013 and 2014. In 2015, its GDP fell by 28% again, to $1.78 trillion. Brazil's GDP continued to decline by 3.3% in 2016, and the country's per capita GDP is now 16200 US dollars, according to the CIA World Profile.
Brazil's economy is largely dependent on commodity exports, including coffee, steel, cement and food crops. In 2015, Brazil exported US $190.1 billion and imported US $172.4 billion. Brazil currently has a labor force of 110.4 million, of which 71% is in the service sector, while surplus agriculture and industry account for 15.7% and 13.7%, respectively. Brazil's unemployment rate rose to 12.3% in 2016 from 9% in 2015, a further sign of the deteriorating economy.
II. Brief Introduction of Brazilian Cement Industry
The earliest cement factories in Brazil date back to the end of the 19th century. Industrial-scale cement production began gradually with the opening of the Cimento Portland Cement Plant, a Brazilian Companhia Brasileira de, in 1926. It was not until 1933 that domestic cement production in Brazil exceeded imports.
In the 1950s and 1960s, Brazil's economy grew rapidly with huge government investment, including the construction of the new capital, Brasilia. This led to a significant increase in demand for cement in Brazil, with production increasing from 1.4 million tons in 1950 to 5.6 million tons in 1965. Per capita consumption increased from 12.9 kg in 1935 to 67.7 kg in 1962. During this period, the cement production in Brazil can basically meet the domestic demand.
In the 1970s, Brazil's cement industry began to accelerate, with 22 new plants being built. Production increased from 9 million tons in 1970 to 27.1 million tons in 1980, but the oil crisis in the late 1970s caused cement demand to stagnate in the 1980s. At this time, the capacity utilization rate of cement dropped to 45%, and by 1990, the output dropped to 25.8 million tons.
From the 1990s to the beginning of the 21st century, the demand for cement in Brazil rose again. In 2000, Brazilian cement sales increased by 54% to 39.9 million tons, and by 2010, cement sales increased by 20 million tons to 59.1 million tons. Higher housing, real estate incentives, generally rising wages, expanding credit and falling interest rates have all contributed to the growth of the economy and the cement industry in the past decade.
Brazil's cement production peaked at 71 million tons in 2014, before falling back to 65.3 million tons in 2015. Cement sales fell from 70.9 million tons in 2014 to 57.2 million tons in 2016 due to the economic downturn. In just two years, it has dropped by 19.3%.
Figure 1: Brazil's cement production over the years (million tons)
Source: National Cement Industry Confederation (SNIC)
Figure 2: Sales volume of cement in Brazil over the years (million tons)
Source: National Cement Industry Confederation (SNIC)
The breakdown of cement sales by region in Brazil between 2014 and 2016 is shown in Figure 3. From the chart, we can see that cement sales in all regions have declined, such as Brazil's densely populated southeastern region, where sales fell the most, by 7.1 million.
Figure 3: Comparison of cement sales by region in Brazil (million tons)
Source: National Cement Industry Confederation (SNIC)
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III. Brazilian cement manufacturers
There were 71 cement plants in operation in Brazil in 2017, with a total capacity of 87.7 million tons. In addition, there are seven proposed or under construction projects, one mothballed and one closed cement plant. In addition, Brazil has 20 separate grinding stations in operation and one closed grinding station. These cement plants and grinding stations are mainly located near coastal areas with large cement consumption, such as Sao Paulo, the state of Genas Gerais, Rio de Janeiro and Bahia, which are also the most densely populated areas in Brazil.
There are 16 different producers in the Brazilian cement market, including two multinational groups, LafargeHolcim and CRH, while Heidelberg Cement and Cemex Cement are not involved in the Brazilian cement market.
Since the 1990s, the Brazilian cement market has become increasingly concentrated, with the first four plants, Votorantim, InterCement, LafargeHolcim and Cimento Nassau, accounting for 80% of the total capacity of the 71 plants, totaling 70.3 million tons. The remaining 12 different manufacturers are responsible for only 17 integrated cement plants with an annual capacity of 17.4 million tons.
Votlantin: Brazil's largest cement producer, with 22 integrated cement plants in operation, with a total capacity of 36.2 million tons, accounting for 41.28% of the Brazilian market. Founded in 1918, Waterland Pavilion was originally engaged in textile manufacturing, and in 1936 the group began to produce cement. It currently operates aluminium, pulp and banking businesses in addition to cement, as well as cement plants in Turkey, Bolivia, Canada and the United States.
Cement sales at Waterland Pavilion in 2015 fell 6% year-on-year, from 37 million tons in 2014 to 35 million tons in 2015. The company blamed the decline in Brazil's domestic economy. Although it has not yet released a comprehensive performance announcement for 2016, compared with the same period last year, the total profit in the first nine months decreased by 15.8% compared with the same period last year, with a total profit of $262 million. Gross profit on cement sales for the first nine months of 2016 was $146 million, up slightly from $142 million for the first nine months of 2015.
In June 2016, Votlantin opened a new cement plant in Primavera, Par Pará, Brazil, with an investment of $258 million and an annual production of 1.2 million tons of cement. The cement plant mainly supplies the northern and northeastern regions of Brazil. "Primavera's cement plant is an important part of our investment plan," explained Walter Dissinger, CEO of Votrantin. "Despite the current economic challenges in Brazil, we are still advancing our company's development to achieve our vision, and we are confident of Brazil's development."
InterCement (Brazil): The second largest cement producer in Brazil, InterCement (Brazil) is part of the Cimpor investment, but both companies are controlled by the same person. At present, InterCement has 12 integrated cement plants with an annual production capacity of 15.8 million tons, accounting for 18.02% of the national cement production capacity.
The company first established the Eldorado Portland Cement Plant in 1968, which later became known as Camargo Correa. Cement production began for the first time in 1974, after which the company did not expand for 20 years. In 1991, the company added a second production line. Then, in 1997, it acquired a cement plant in the state of Minas Gerais, and in 2001 the company built four new cement plants.
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InterCement sold 28.1 million tons of cement in 2015, down 6.1% from 30 million tons in 2014. Cement sales revenue reached 2.5 billion euros in 2015, down from 2.6 billion euros in 2014. The net loss in 2015 was 20.2 million euros, compared with a profit of 41 million euros in 2014. The company's annual report noted that political and economic uncertainties had led to a contraction in cement demand and an increase in market capacity in Brazil. In 2015, the company sold 10.5 million tons of cement in the Brazilian market, down 16.3% from 12.6 million tons in 2014. Of course, the decline in profits of other foreign companies is also caused by the depreciation of the Brazilian lira against the US dollar.
Although the company has not yet released its performance report for 2016, according to published data, cement sales in the Brazilian market in the first nine months of 2016 fell by 19.2% compared with the same period last year, only 6.5 million tons. The decline in sales was even more dramatic, falling 41% year-on-year to 397 million euros.
LafargeHolcim: Brazil's third largest cement manufacturer and the world's largest multinational cement company. When LafargeHolcim merged in 2015, the cement production of the two companies was as high as 11.3 million tons per year, accounting for 13% of the local market in Brazil. However, due to anti-monopoly issues, LafargeHolcim was forced to sell some assets, including some cement plants in the Brazilian market sold to CRH Group.
In 2015, LafargeHolcim reported that its poor performance in the Brazilian market had dragged down the performance of its entire South American market. The company achieved cement sales of 27.9 million tons in South America in 2015, down 1.2% from 2014, with Brazil down 5.6% from 2014.
Like other manufacturers, LafargeHolcim has not released its latest annual report. Sales figures for the first nine months show that the Brazilian market is still in trouble. Despite the challenging market, LafargeHolcim launched a new line at Barroso in May 2016. At that time, the group explained that the construction of the new line was part of LafargeHolcim's strategy to reduce the cost per ton of cement, and that the new line could improve quality and efficiency in order to make profits in a low investment environment. The company says the new line is now one of the most efficient cement production lines in Brazil.
Barroso's new line is equipped with the world's largest Gebr. Pfeiffer vertical cement mill and FCB Horo's raw material mill. The capacity of the plant will rise to 3.6 million tons per year. The commissioning of the new line will reduce its cost per ton of cement by 25% compared with 2014. Eric, CEO of LafargeHolcim? Eric Olsen, chief executive, said: "The commissioning of the new Barroso line is a key step in our Brazilian strategy, which will enable us to continue to provide high-quality cement while cutting costs, and we will further provide high-quality product solutions to Brazilian customers."
Cimento Nassau: Cimento Nassau was first founded in 1951 by Joao Santos, who was involved in the production and operation of other cement enterprises before founding Cimento Nassau. At present, Cimento Nassau operates 10 integrated cement plants in the Brazilian market, with an annual capacity of 7 million tons, accounting for 7.98% of Brazil's total domestic capacity.
Other producers: Some of the remaining integrated producers and grinding stations are mainly owned by companies in Brazil, with one exception, the CRH Group in Ireland. After the LafargeHolcim merger, CRH purchased some of its assets in Brazil, which were divested due to the need to divest assets, involving three integrated cement plants with a capacity of 2.3 million tons.
IV. Economic and Cement Industry Forecast
According to the data updated in January 2017, the International Monetary Fund predicts that Brazil's economic growth in 2017 will be only 0.2%, which is significantly lower than growth forecast of 3.5% in 2016. Brazil's domestic economic growth is expected to return to 1.5% by 2018, and the construction sector is likely to improve moderately in the medium term.
The Confederation of the National Cement Industry (SNIC), however, is less optimistic. Its new president, Paulo Camilo Pina, a Paulo Camillo Penna, said that 2017 could go down as the "worst year" for the industry. He added that the capacity utilization rate of Brazil's domestic cement industry was 70% in 2015, only 57% in 2016, and is expected to fall below 50% in 2017. At the same time, SNIC predicts that cement sales will decline by 5-7% again in 2017, which means that cement sales in 2017 are expected to be only 53.2 million to 54.3 million tons. In view of this, the Brazilian cement market is likely to adjust further in the short term, and if conditions do not improve, producers who have just launched new lines may regret their decisions.
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