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Brazilian cement sector faces challenging 2017

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World Cement,

The Brazilian cement industry is experiencing one of its worst moments, according to National Union of the Cement Industry (SNIC) President, Paulo Camillo Penna. Falling demand and rising overcapacity in the sector have hit the industry, as political and economic challenges continue to weigh the country down.

Sales of cement in Brazil reached 57.2 million in 2016, according to (SNIC), an 11.7% fall on the previous year. The decline is expected to continue into 2017, albeit at a slower pace, with SNIC expecting a 5 – 7% fall in sales.

SNIC’s outlook is in line with that produced by independent cement market analysts, IA Cement, which expect a 3 – 6% contraction in the industry in 2017. “The support from the Rio Olympics is now behind us,” said IA Cement in its latest cement market report. “Industrial and construction spending remains very weak.”

In addition to falling demand, overcapacity in the industry is also growing. In 2016, SNIC put the industry’s capacity utilisation at just 57%, down from 70% in 2015. That situation is expected to worsen in 2017 with capacity utilisation falling under 50%, according to Penna, increasing fixed costs and eroding the value of recent investments in the sector.

Deutsche Bank was similarly downbeat in its assessement of the Brazilian cement sector. In a recent report, the bank said it expected “little demand growth before 2018”, while overcapacity would keep prices low. Only LafargeHolcim – with its new line at its Barroso plant – might seem some upside.

The new Barosso line would reduce the cost of sales into the significant Sao Paulo market compared to competitive plants, potentially boosting regional earnings for the Swiss-based company to the CHF15 – 35 million range.

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