Brazil's cement market has been the focus of much attention in recent weeks firstly, with the completion of the CRH cement assets in the country to Companhia Nacional de Cimento (CNC), and more recently the unconfirmed reports that Banco Itau BBA is preparing to advise on the divestment of LafargeHolcim's Brazilian unit.
The sale of the Swiss multinational's cement interests in Brazil is expected to raise up to US$1.5bn, according to analysts UBS European Building Materials. These funds are likely to be reallocated into LafargeHolcim's drive to acquire more sustainable building material assets in construction products in European and North American markets. The divestment trend for LafargeHolcim began with sales in Indonesia and Malaysia, and further sales could be required by the group to reduce its carbon footprint at a faster rate.
The Brazilian cement assets of LafargeHolcim include four integrated plants and four grinding plants with a total cement capacity of around 11.71Mta. The largest cement plant in these operations is the 3.6Mta Barroso plant in Minas Gerais. Most of the facilities are located around the large urban centres of Belo Horizonte, Rio de Janeiro and São Paulo.
A case for investment?
It could be described of somewhat of a gamble to invest in Brazil's cement market at any time, but the country remains one of the largest cement-producing countries with capacity approaching 100Mta. However, cement consumption remains half of this total at around 56.6Mt in 2019, down from a peak of 72.7Mt in 2014, according to Sindicato Nacional da Indústria do Cimento (SNIC) and Associação Brasileira de Cimento Portland (ABCP). Imports remain minimal at around 0.15Mt in 2019, but competition remains high with 24 companies operating 62 integrated plants and 38 grinding plants. Idle plant capacity reached 46.4 per cent in 2018 while 2019 had seen the reopening of some closed plants before the COVID-19 pandemic hit.
The coronavirus led to the first lockdown in April 2020, which resulted in cement sales falling by seven per cent compared with April 2019, say SNIC and ABCP. While large construction projects and the inventory for residential construction has decreased, repair and maintenance projects from consumers who stayed at home resulted in a pick-up in cement sales. There are still risks from unemployment and inflationary costs, and the pandemic is still prevalent in the country. The government's reaction to keeping the economy open has also resulted in the further uncontrolled spread of the virus.
Outlook
The country has seen a 'V-shaped' recovery since the 2Q20 due mainly to President Jair Bolsonaro's objection to continued lockdowns. The economy is forecast to grow by 9.9 per cent YoY in April-June 2021, according to a median poll of 16 economists, and by 3.2 per cent over the whole of 2021 falling to 2.3 per cent growth in 2022, reports Reuters.
However, consumer prices are on the rise and the healthcare system has been on the verge of collapse. Inflation could top 7.5 per cent in the 2Q21 while unemployment is above 14 per cent.
SNIC has still forecast cement volumes reaching 60Mt in 2021. Early indications have seen a spike in cement sales with the domestic market expanding by 34.2 per cent to 5.48Mt in March 2021 compared to March 2020, reports SNIC. First-quarter 2021 domestic cement sales totalled 15.16Mt, up 18.7 per cent YoY.
Importantly, in Brazil's largest market of the southeast, where LafargeHolcim is looking to make divestments, 1Q21 cement sales rose by 17.5 per cent to 7.11Mt in 1Q21. It may be a good time to sell, but the number of buyers may be thin on the ground for a quick sale.