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Brazilian cement industry: adapting to market demands

World Cement,

Economic overview

In its latest Global Economic Prospects report, the World Bank forecasts ‘modest but sustained growth’ for Latin America’s largest economy, estimating that Brazil’s GDP will grow by 2.4% in 2014, 2.7% in 2015 and 3.7% in 2016 (at market prices). Despite some of the social, political and logistical challenges presented by the upcoming World Cup and the 2016 Olympic Games in Rio de Janeiro, investment in the country’s infrastructure ahead of these events is listed as one of the key drivers of economic activity over the next few years, alongside exports growth.

Infrastructure development

When it comes to Brazil’s infrastructure sector, international attention has focused on the country’s preparations for the 2014 FIFA World Cup as the final push to complete work at host stadiums and necessary transport network upgrades steps up a gear ahead of the opening match on 12 June. In addition to investment in infrastructure related to both this year’s World Cup and the 2013 FIFA Confederations Cup, an estimated US$2.3 billion in public spending will go towards projects directly related to the Olympic Games in 2016. This figure is an initial estimate, released in January 2014, which excludes legacy projects. The estimate will be updated as more projects receive approval.

Meanwhile, the second phase of Brazil’s Growth Acceleration Programme (PAC 2) continues apace. At the close of 2013, R$583 billion had been invested in infrastructure under the programme and 82.3% of the projects planned for 2011 – 2014 were complete. The programme centres around six principle areas: Transport; Energy; Better Cities; Bringing Citizenship to the Community; My House, My Life; Water and Light For All.

The housing initiative ‘Minha Casa, Minha Vida’ (My House, My Life) has delivered 1.51 million units since the start of the programme, benefitting more than 5 million people. In terms of transport, around R$43.8 billion worth of projects were completed as of 31 December 2013. This includes work on 3080 km of roads and 639 km of railways, as well as 21 ports projects. Following the completion of 22 projects, airport capacity has increased by 15 million passengers a year. A number of transport plans are still in progress. For example, work is underway on roads spanning a further 6915 km, 4367 km of which is being built or paved, with duplications or adjustments being carried out on the remaining 2548 km.

Cement and minerals markets

Brazil’s national mining association, Instituto Brasileiro de Mineração (IBRAM), estimates that the value of mineral production in the country in 2013 was US$44 billion, compared to US$48 billion in 2012. IBRAM expects the value of mineral production to decline further in 2014, dropping by around US$1 billion to US$43 billion. However, IBRAM’s 2012 – 2022 forecast predicts long-term growth for the aggregates industry, boosted by preparations for the World Cup and Olympics. As such, demand for aggregates, sand and gravel is expected to rise from 696 million t to 1.12 billion t over the forecast period.

Meanwhile, preliminary results from the Sindicato Nacional da Indústria do Cimento (SNIC) indicate that some 70 million t of cement produced in the country was sold on the domestic market in 2013, up 2.4% y/y. Although domestic cement sales volumes in the final month of 2013 remained in line with December 2012 levels, the first two months of 2014 have experienced year-on-year growth. In January this year, preliminary figures put total sales on the national market at approximately 5.91 million t, 6.8% higher than in January 2013. February saw domestic sales rise from 5.075 million t in 2013 to an estimated 5.626 million t in 2014. Accumulated sales on Brazil’s national market increased by 8.7% y/y to 11.5 million t in January – February 2014.

As indicated by the figures above, the Brazilian cement sector continues to grow, albeit at a subdued rate. In 2012, cement consumption grew by 6.7% y/y compared to 8.3% y/y in 2011 and 15.6% y/y in 2010, reflecting the economic situation both in Brazil and worldwide. Of the 69.3 million t of cement consumed in 2012, just 977 000 t was imported into the country. Some 68.373 million t of cement was dispatched that year (68.347 million t for domestic consumption and 26 000 t in exports), 67% of which was sold bagged, with the remaining 33% delivered in bulk form.

In its 2012 annual report, the SNIC pointed out that the Brazilian cement industry continues to invest in increasing capacities and new facilities to meet consumption requirements, despite the slowing growth in demand. In 2012, production reached 68.809 million t, 7.3% higher than in 2011. As SNIC President José Otavio Carneiro de Carvalho notes in his introduction to the 2012 report, ‘The performance shows that the cement market is prepared to face the challenge to invest heavily in Brazilian infrastructure, the construction of which is still in its initial stage’. Investments in the cement industry are ongoing, with a number of announcements made over the last year regarding new contracts, project progress and plans for further expansion.

Read part two of this article – 'Brazilian cement industry: projects and contracts snapshot'.

Written by .This is an abridged version of the full article, which appeared in World Cement’s May 2014 issue. Subscribers can view the full article by logging in.

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