Colombia's road ahead
In a week that has seen LafargeHolcim announcing the start of construction of a new 0.5Mta cement plant in Buga and Cementos Argos reporting a significant fall in profits for 3Q16 ICR looks at the road ahead for the Latin American country.
Some six months ago Colombia’s cement industry appeared to have nothing but a sparkling future and recent news that LafargeHolcim is investing in a new US$30m production in Valle del Cauca seemed to support this view. However, recent months have seen Cementos Argos hit by Colombia’s infrastructure slowdown with 3Q16 profits down 22.7 per cent down YoY, arguably taking the shine off this forecast. Therefore, this week ICR takes a closer look at the latest developments in the Colombian market.
After two decades of below-par infrastructure investment, Colombia’s government is moving toward implementing its infrastructure master plan, with a special focus on expanding the country’s road network – its US$25bn 4G (fourth generation) road concessions programme, which aims to rehabilitate and build around 8000km roads throughout the country.
However, the sharp falls in oil prices have challenged Colombia’s macroeconomic scenario, including a current account deficit, GDP performance and credit outlook. As a result the implementation of the infrastructure programme is expected to roll out at a slower pace. The first evidence of this has been witnessed by Cementos Argos in terms of its domestic profits although the company’s profits were also affected by a transportation strike in July.
But cement producers are not to despair. The first two waves of 4G are underway and a third wave is also moving on – all are expected the generate an extra 6-7 per cent of cement demand. In the longer term, it is expected that projects such as the upgrade of 51 airports and investment into Bogota’s metro system, will only add to cement demand.
Therefore, it is not surprising that companies such as LafargeHolcim are gearing up with the expansion of production capacity – one of several projects that will see cement capacity rise in phases from 2H17 by around 4Mta. Cemex Latam Holdings is expected to bring its 1.1Mta Maceo plant online in 2H17 while Cementos Argos is forecast to bring an additional 1Mta of capacity online by 2019 following its recent commissioning of 0.9Mta expansion at its brownfield Rioclaro plant. Cementos Molins of Spain is also entering the market with joint venture partner Corona, a local multinational tile, flooring and bathroom firm. They will be building a 1.35Mta cement works in Antioquia.
