Jun 2010 Financial News

Samuda orders cement price probe

Jun 16, 2010

The Jamaican Government has ordered the Fair Trading Commission (FTC) to launch an investigation into the pricing structure of Caribbean Cement Company Limited, a day after the manufacturer announced an average 3.2 per cent increase in the cost of its products.

The new cost, which takes effect immediately, is the third price hike in the last seven months after the implementation of back-to-back price increases in December and again in January, totalling 15 per cent in aggregate.

"This is a big surprise to me," said Karl Samuda, Minister of Industry Investment and Commerce, as he announced the price probe at a press conference Tuesday.

"Quite frankly, this comes at a time when we are seeing a strengthened Jamaican dollar, when interest rates are declining; at a time when the last quarter has not shown a depreciation in terms of demand," said Samuda.

"In fact it is quite stable," he said of the market countering Caribbean Cement's claim made in its stock market filing that there was currently a significant decline in overall market demand.

Decline in sales

The company saw a marginal 7,000 tonne decline in sales in calendar year 2009, but the last three quarters to March 2010 have seen increases in volume domestic and export sales each period, rising consistently from 173,400 tonnes of cement at September 2009 to 196,600 tonnes at March 2010.

Domestic sales, however, made only marginal gains of about 5,000 tonnes over the same period. And clinker exports, however, have been underperforming, falling from 70,000 tonnes in the March 2009 quarter to 4,451 tonnes at March 2010.

Samuda described as frightening the reasons given for the price increase, which he said were to address higher operational costs and stockpiling.

"What we were made to believe is that these improvements would lead to reduced cost, not increased cost and that was the basis they were given the kind of incentives and encouragement by the government."

Caribbean Cement up to press time had not commented on the probe. But in its market filing, the Trinidad-owned company said its operating expenses were greater than efficiency gains at the Rockfort-Kingston-based plant, and that it was unable to absorb the costs at this time.

It made a loss of J$145 million last year off close to flat revenue of $8.87 billion, due to a near half-a billion dollars of finance charges that erased twice over operating gains of $222 million.

The company is trying to pay off debt incurred from its US$177 million expansion project completed last year.

Caribbean Cement controls more than four-fifths of the local cement market, but said its 82 per cent share was eroded last year by 146,800 tonnes of imports.

The company is seeking new markets in Brazil, Panama, Haiti and Chile to grow sales, even while it continues to challenge importers, with complaints before the Anti-Dumping and Subsidies Commission against local importers Tank Weld for which a preliminary ruling favouring Caribbean Cement was announced in March; and against Buying House and Arc Systems which are now being investigated for cement from the Dominica Republic.

The investigation of the domestic price hikes was announced as an attempt to protect the consuming public.


Source:
mark.titus@gleanerjm.com
Jamaica Gleaner
Wednesday June 16, 2010

http://jamaica-gleaner.com/gleaner/20100616/business/business1.html