Jun 2011 Financial News

Importers feel pinch from cement licence requirement

Jun 15, 2011

IMPORTERS of cement are feeling the fallout of a trade dispute between Jamaica and the Dominican Republic (DR) which recently led Minister of Commerce, Karl Samuda to require all cement importers to have a licence.

ARC Systems, the largest importer of cement, the majority of which comes from the DR, has said the company stands to lose $100 million in potential revenue as a result of the implementation of the license requirement in May to import cement into Jamaica.

ARC at the time expressed its support for the move.

However, Norman Horne, director, ARC told the Business Observer last week that the company has not been able to import cement since the requirement came into effect even though it has applied for the licence.

Horne believes that since the dispute has been resolved, there should be no further need for the license requirement. "The reason for establishing this license is now null and void, vacated," said Horne.

He told the Business Observer that since the requirement was instituted it has become harder to get the information on the availability of licences. "Where do we go from here? We cannot continue to sit in this abyss, not knowing what is going on," Horne said.

In addition to the lost revenue, Horne said ARC is now open to liability for breach of contract with a supplier and charter shipping arrangements. He said the company reviewed in February a contract to purchase 90,000 tonnes of cement from a supplier within the year. He said ARC has not been able to honour that contract since the trade dispute and the licence requirement was announced.

"Without the licence you are not able to import cement. We can't do so, it would be financial suicide," Horne said. Horne said it is troubling that after encouraging construction companies to import cement to Jamaica to bolster local competition, their businesses are now exposed to significant liabilities.

Horne told the Business Observer that the problems with importing the cement does not appear to be linked to any problems with the DR as the company has attempted to import the product from Panama, with the same result. There is no licence so none can be imported into the country from any source. Efforts to get a comment from other cement importers were futile up to press time. Canute Salmon, a principal of Buying House, another cement importer, said yesterday that he had no comment on the issue of licences while Christopher Bicknell, principal of Tankweld, who was said to be travelling did not immediately respond to emailed questions seeking comment.

In the meantime, Carib Cement has seen its cement sales revenue decrease by 14 per cent over the last four years since 2006. Cement sales volume for the company dropped from 843,295 tonnes in 2006 to 748,723 tonnes in 2008. Thereafter, overall volume decline slowed as Carib Cement pushed its export of the locally made product, while the actual sales volume for between the last 12 months (LTM) to December 31, 2009 to LTM September 30, 2010 stayed within a per cent (higher or lower) than year-earlier levels. However, LTM December 31, 2010, saw a two per cent drop in volumes from year-earlier levels and LTM March 31, 2011 saw a three per cent decline year on year.

Carib Cement has placed some of the blame for its performance on a declining local market for cement and competition from what it calls "imported dumped cement" from the DR and the USA.

Indeed, sale of cement in the local market has declined at an increasing rate from 720,260 tonnes, in 2008 to 652,651 tonnes or 9.4 per cent at the end of 2009 to 531,605 tonnes or 19 per cent at end 2010. LTM March 31, 2011 showed domestic cement sales volume drop 18 per cent from year-earlier levels.

Profitability has also seen a decline in consecutive quarters since the first quarter ended June 2009 and the company ended 2010 with losses amounting to $1.6 billion.

In the quarter ended July to September 2009, CCCL saw a $291-million loss, followed by a cumulative year ended loss of $144.5 million. January to March saw a slight uptick in profitability of $4.6 million only to be negated by a loss of $218-million by the quarter ended June 2010 and another massive $925-million loss in the September quarter. Carib Cement ended the year 2010 with $1.6 billion in losses. In the first quarter of 2011, there would be no better results for the cement company as sales of local cement continued to decline and losses grew to $374 million.


Source:
Jamaica Observer
Wednesday June 15, 2011

http://www.jamaicaobserver.com/business/Importers-feel-pinch-from-cement-licence-requirement_8980185#ixzz1PM7lgwgj