World Cement Contributing Editor, Paul Maxwell-Cook, outlines the impact of the pandemic on a struggling region.
There has been no escape. The rapid rise of the COVID-19 pandemic, which began during the early part of this year, set the region, as one commentator remarked, “on course for the biggest recession in modern day history”. At the beginning of 2020 there was a feeling of optimism about the start of positive growth in Latin America. At the time, it was estimated that it would gradually increase over the next decade. COVID-19 has shattered the dream, certainly for the foreseeable future. The International Monetary Fund (IMF) in April predicted that GDP across the region will be lower this year than in 2008. GDP per capita began falling in 2019 after populists won power in Brazil and Mexico and protest movements caused disruption in Chile, Colombia and elsewhere in the region.
Alejandro Werner, Head of the IMF’s Western Hemisphere Dept., painted a stark picture during a press conference at the height of the crisis. He predicted yet another “Década Pedida” with no growth from 2015 to 2025 for Latin America and the Caribbean. As will be seen in this review, several countries in the region will not be able to access sufficient resources on their own to cover large external financing. Out of some 100 countries that have requested emergency financing from the IMF, 16 are from Latin America and the Caribbean.
The IMF and the World Economic Forum believe that regional GDP will shrink by 9.4% this year. While it is likely to climb in 2021, it will take longer than just one good year to become significant. The region’s construction industry as reported earlier this year in World Cement, and predicted by GlobalData, will contract by 5.5% during 2020.
The popularity of Brazil’s far-right president, Jair Bolsonaro, plunged dramatically this year following his early refusal to take seriously the threat of COVID-19. Early in April, he dismissed his Health Minister, Luiz Henrique Mandetta, over a disagreement about the country’s COVID-19 strategy. Later in the same month the Justice Minister, Sergio Moro, resigned, sending political shock waves across the country. His departure signified what Ilona Szabzó, Executive Director of Igarapé, suggested was “a seismic event in Brazilian politics”. Then in May, the new Health Minister, Nelson Teich, after only a month in the job, resigned over a disagreement with Bolsonaro. Meanwhile, the number of infections in the country became world’s second highest after the US.
As COVID-19 spread, containment measures soon began to cripple the services sector as well as the manufacturing, automotive and tourism industries. Business and consumer sentiment plunged to record lows. Focus Economics indicated that the country’s public debt remains one of the highest among emerging market economies. It foresees the fiscal deficit widening to 10.3% of GDP this year and narrowing to 6.3% of GDP in 2021. The International Monetary Fund (IMF) predicts the economy will fall 5.3% this year, while Focus Economics estimates it will grow 3.3% next year.
In 2018, the cement market was 52 million tpy and was followed by a rebound in consumption to 54 million t in 2019. Analysts suggest that this will ease off this year as cement sales decline sharply. InterCement is facing tough competition and pricing weakness as capacity utilisation rates decline throughout the industry. The company has strong business positions in Brazil and in Argentina. Its cash flow, however, has varied greatly as it operates, in addition to these two countries, in other volatile markets such as Paraguay, Egypt, Mozambique and South Africa.
In April Votorantim announced a donation of R$50 million to combat the effects of COVID-19. The Votorantim Institute is distributing funds to health institutions, municipal authorities and social organisations.
In mid-April, The Yucan Times said that Mexico had become the Latin American epicentre of the economic crisis due to COVID-19. The second largest economy in the region will contract by 7.7% this year based on projections made earlier by the IMF. The economy could grow by 2.6%. next year, while Focus Economics concurs there will be a much sharper downturn than in 2019. Social distancing has hit private consumption hard and exports have been sinking on muted global demand. The collapse of global oil prices and the knock-on effects from the halt in activity in the United States pose additional risks. The country’s construction industry contracted by 6.9% in 2019 and there are fears of a sharper decline this year as a result of COVID-19. While on the topic of construction news, the building of the ‘Trump’ border wall between Mexico and the US has continued throughout the pandemic. The US administration is said to be on track to complete 450 miles of the wall by the end of this year or by early 2021.
After it said it would cease operations on 6 April, the very next day CEMEX resumed production in the country, claiming it had followed government guidelines to support the economy. At the same time, the three plants of Grupo Cementos de Chihuahua (GCC), and nine of Interceramic, closed their operations for a month. In October 2019, Holcim announced that it would invest US$40 million in the construction of a new grinding plant at the Mérida plant.
The country’s GDP fell by 2.2% in 2019 having been hit by the downfall in manufacturing, retail and financial services. The construction industry contracted by 5.5%. There are suggestions that the COVID-19 outbreak could derail Argentina’s troubled economy by damaging domestic and external demand and drying up external financing sources. Since 2018, the peso has lost 68% of its value and with the pandemic further damaging the country’s economy inflation is running at over 50%. In April President Alberto Fernández’s government launched an offer to restructure US$83 billion of its foreign debt and asked investors to accept a suspension on all debt payments for three years. Analysts have suggested that the economy will contract 6.9% this year before rebounding by about 3.5% next year.
Cement demand in the country was contracting at about 30% earlier this year and the lockdown was expected to lead to a more profound recession which has reduced construction activity. The expansion of Loma Negra’s L’Amalî plant to 2.7 million tpy was expected to be completed by the middle of this year. As a result of the COVID-19 outbreak, Molins suspended its operations not only in Argentina but also in Uruguay, Bolivia and Colombia.
The Colombian economy is the fourth largest in South America, but the impact of COVID-19 and the oil price shock has hit hard this year. GDP has been contracting for the first time since 2000 and the IMF has predicted GDP growth to fall to -2.4% but subject to a post-pandemic economic recovery, GDP could well pick up to 3.7% in 2021.
At the beginning of April as COVID-19 began to spread, President Iván Duque applied to the IMF for renewed access to a US$11 billion credit line to help boost the country’s economy.
At the beginning of the pandemic outbreak, the CEO of Grupo Argos, Jorge Mario Velasquez, announced that the company would defer investments and cut spending by US$245 million following uncertainty surrounding the virus. The company has investments in Panama, Honduras, Haiti and the Dominican Republic. It exports cement and clinker to 27 countries. Lockdown in the cement industry ended on 27 April. At the beginning of May, Cementos Argos said that domestic demand was at 50% of pre-lockdown levels. CEMEX Latam, as reported by Valora Analitik on 13 April, resumed partial operations in the country “for works associated with transport infrastructure and public works that could not be suspended.” At the end of March, Elementa announced that it had suspended its operations in the country and in El Salvador until May.
The stifled global economy will result in lower demand for the country’s exports. In particular the pandemic has hampered Chinese demand for the country’s raw materials. From the beginning of this year copper prices have been falling. Government restrictions have had a major impact on domestic activity. Focus Economics analysts predicted that GDP will fall by 2.5% this year but have forecasted a rebound of 3.5% next year. In April, however, Bloomberg reported that Chile had been identified by analysts and investors as one of two countries in Latin America, (the other is Peru) best positioned to weather the pandemic storm. The country unveiled a US$11.75 billion stimulus package worth up to 4.7% of GDP to confront the pandemic.
At the beginning of the outbreak, the Chilean Chamber of Commerce (CChC) said that the country’s construction sector was facing a significant downturn this year. For example, KHL’s International Construction reported that CChC had forecasted a 9% fall in infrastructure and a 13.2% decrease in house building. The president of CChC said, “We are facing a recession scenario that could be more severe than the 2009 subprime crisis and the 1999 Asian crisis”. Of course this will affect the country’s cement industry where demand has been reduced and investment put on hold. Social unrest in October last year has also had a knock on effect on the industry.
In April, the Iberian Lawyer reported that the Chilean law firm Larrain Asociados had advised Cemento Polpaico and Gamma Cementos on their merger, in which Polpaico bought out Gamma. The merger was the first in Chile carried out remotely by the shareholders of both companies, as dictated by the movement restrictions imposed by COVID-19.
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