Votorantim gets cold feet in Chile

This week saw a change in the stakeholder share in Chilean producer Cementos Bio Bio with Brazil-based Votorantim selling 13.1 per cent of the shares in the company to the Briones family. The divestment leaves Votorantim with an approximately 3.6 per cent stake in the Chilean cement producer, while the Briones family sees its interest increase to 39.52 per cent. The move signals that Votorantim is looking to extract itself from a market that no longer appears attractive to the Brazilian major.

Industry under pressure
With cement demand declining in Chile (-9 per cent fall over the first nine months of 2017), the domestic cement industry has been under pressure. Cementos Bío Bío has suffered to the extent that it ceased clinker production at its Talcahuano plant in July and made 40 redundancies. The company's 3Q17 results have seen revenues fall by 9.8 per cent to CLP199.721bn (US$310.5m) when compared with 3Q16. Third-quarter pretax profits were down 42.2 per cent YoY to CP11.356bn. 

Meanwhile, the Peruvian Brescia family, which owns Cementos Melon, has indicated that the company's decline in profits from January to September 2017 resulted from lower cement and concrete dispatches due to the contraction of Chile's construction market. Cementos Melon’s profits at CLP5bn were 56.8 per cent lower than the CLP11.59bn recorded in the same period last year. The producer has since looked to reduce production costs to safeguard margins.

And Votorantim is not the only overseas cement producer getting cold feet. Votorantim’s move to virtually exit Chile follows that of another multinational pulling out of this market. LafargeHolcim had announced it would divest its majority stake in Cemento Polpaico in October 2016.

Family businesses seize gap in the market
The departure of two multinationals in a relatively-short period of time has seen domestic family businesses seize the opportunities on offer. Hurtado Vicuña and its subsidiary Inversiones Caburga Ltda, which had interests in Cementos Bicentenario SA (BSA), agreed to buy the LafargeHolcim stake, leading to a majority interest of 54.3 per cent in Polpaico.

However, turning around the fortunes of Polpaico will not be easy. The cement producer reported losses of CLP2.281bn in the January-September 2017 period. The result goes on record as the worst 9M loss since 2011 and also compares unfavourably with the profit of CLP4.153bn reported in only a year earlier, in 9M16. Company sales fell 11.35 per cent to CLP96.337bn in 9M17 when compared to the CLP108.669bn achieved in the first nine months of 2016.

Meanwhile, the Vicuña family is a shareholder in Gamma Cementos SA, a new venture which was formed in May 2017 and is now the parent company of BSA. As a result, BSA is expected to increase its influence in the domestic concrete market. The new set-up will see BSA and Polpaico act as part of the same group with spare capacity in Polpaico’s cement grinding units in Coronnel and Mejillones able to supply the BSA premixed concrete plants that previously relied on imported cement for their concrete production. In the central region, BSA also has logistical advantages to produce cement with imported clinker and last year it invested US$70m in a new 50,000t clinker dome at its 0.95Mta Quilicura plant, near Santiago. BSA is also investing at its El Bosque plant in Santiago, having commissioned a new FLSmidth OK™ 30-4 cement mill this year. It is also likely that Polpaico and BSA will see greater integration through a merger or acquisition to benefit from greater synergies going forward.