Cement sales collapsed in Brazil last year, and further falls are expected in 2016, writes Patrick Knight.
With the sole exception of market pulp, which has benefited from being particularly competitive at a time when numerous high- cost mills in other parts of the world are closing down, demand for all the other commodities produced in Brazil has fallen sharply in the past couple of years, and none more dramatically than cement.
With construction of all kinds at a virtual standstill, 10%, or 6.4mt (million tonnes) less cement was sold in Brazil last year than the 70.9mt consumed there in 2014. Demand is now falling month after month, it is expected that a further 10–12% less cement will be needed this year, and
that annual sales could soon fall to less than the 60mt of a decade ago. With cement being such a bulky commodity, Brazil exports very little, apart from small quantities to neighbours such as Paraguay, Bolivia and Uruguay and imports are almost insignificant as well.
For the ten years up to 2014, demand for cement increased by an average of 10% a year, and the country’s 95 cement making plants had increased capacity to about 85mt. The expectation was that demand would reach 100mt in the near future.
An estimated 100,000 completed homes stand unsold at the moment, with new starts few and far between, with unemployment shooting up. A large proportion of consumers are having difficulty keeping up with debt repayments, with the result that civil construction, which uses 75% of all the cement sold in Brazil, is almost at a standstill. When the economic downturn began a couple of years ago, the government’s plan was that state spending on infrastructure would fill the gap, and that long-postponed road, rail and port building programmes would be speeded up. But with tax revenues falling fast, both the federal and local governments are having difficulty paying salaries nd wages, so there is little or nothing left for investment.
The high cost of transport in Brazil has meant that the cost
of getting the soya, maize and sugar produced in areas far from the sea, to ports, eats into profits. Because of this, the leading
grain trading companies had prepared plans for investing in new
railways. But with world soya and maize prices down sharply in
the past few years and sugar prices still to rise significantly, the
trading companies have also been forced to shelve their plans as
Numerous foreign companies are taking advantage of the fact
that many Brazilian companies are facing financial difficulties, to
buy them up. It is hoped that some of the newcomers may have
the funds to make the investments which are badly needed if
some Brazilian goods and commodities are to remain
competitive in world markets.
Most of the 22 companies which own cement plants in Brazil,
have slowed expansion plans or shut high cost plants.
Votorantim, the largest, and which owns 26 plants in 14 of
Brazil’s 26 states, has shelved expansion plans at several plants
and closed four. The number two ‘Intercement’ company, in
which the Odebrecht construction company has a large
shareholding, has also cut back. The fall in demand has affected
the entire country, including the North East region, which had
long been Brazil’s poorest region, but which has been catching
up fast in the past few years, as many manufacturing companies
in labour-intensive industries, such as textiles, footwear, and even
car manufacturing have re-located plants there, encouraging the
cement industry to build new plants there.
About 10% of all the cement used in Brazil is bought by the
owners of small houses, who build them themselves, or make
improvements to accommodate more family members as time
passes. In addition, it is estimated that Brazil has a housing deficit of about 5.5 million homes, while much needs to be spent
on improving main drainage. But with unemployment rising, and
wages being squeezed, the bottom segment of the market has
been hit even harder than average.
The Brazilian economy is expected to shrink by up to 3% this
year, on top of the 2.5% fall in 2015. With no end in sight to the
current political deadlock, which is preventing the strenuous
action which is needed to get finances in order being taken, it
seems unlikely that the situation of the cement industry will
improve much for another year or two yet. The only bright spot
is that following the 50% fall in the value of the Brazilian
currency in the past 18 months, the cost of imported goods has
fallen by substantially more than the earnings from exports have
risen. The result has been that for the first time in a decade,
Brazil’s trade has generating a surplus in the past couple of