Sep 2006 Financial News

Carib Cement warns of two-year shortfall

Sep 27, 2006

Caribbean Cement Company (CCC), faced with what it says is high market demand for cement which exceeds it current production capabilities, has warned that the country will have to cover the shortfall with imports for the next two years.

The admission is likely to strengthen the hands of competitors critical of the safeguard protection granted the cement producer two years ago.

The listed company - which is 74 per cent owned by the Trinidad and Tobago entity, TCL - also admitted that it has been hit with over 1,000 claims arising out of the bad cement released to the market between October 2005 into the first calendar quarter of 2006.

"Carib Cement will be operating in a very highly competitive environment [and] competitive cement will form a part the marketplace for at least the next two years," marketing manager Alice Hyde told analysts Wednesday at Mayberry's monthly Investors' Forum in New Kingston.

Notwithstanding the company's mills operating at 80 per cent capacity, said Hyde, "the current situation is that we are not in a position to meet the current demand for cement because our production capabilities are not able to do so."

LOW-KEY
The company's general manager Anthony Haynes was also at the briefing, but his participation was fairly low-key, though he did apologise again for the faulty cement.

Carib Cement has the capacity to produce about 600,000 metric tonnes of clinker and about one million tonnes of cement on an annual basis, judged against a local cement demand of about one million tonnes.

Since the beginning of the year, the company has imported about 10,000 tonnes of cement to supplement its own projected production of 800,000 tonnes, which means that there will be a shortfall of about 200,000 tonnes for this year.

Two years ago, Government imposed safeguard duties of 25.83 per cent in addition to the 15 per cent common external tariff against cement imports, to protect a US$100 million investment Carib Cement, the sole cement manufacturer, was about to make in upgrading its plant to boost production.

Importers argued bitterly against the move, saying Carib Cement could not meet the demands of the market. The two main importers, ARC Systems and Mainland International, subsequently exited the market.

Last year, however, Jamaica's construction sector was plunged into crisis after a breakdown in quality control procedures resulted in faulty cement hitting the market.

It is estimated that some 100,000 jobs were severely affected as a result of the cement shortage and, in fact, the construction sector contracted by almost five per cent in the first six months of the year as work either slowed or completely stopped on many construction sites.

Carib Cement turned to imports, bringing in up to 80,000 tonnes to June 30.

The two cement importers also re-entered the market after government waived all import duties on the commodity.

Carib Cement said Wednesday it expects a 10 per cent increase in demand next year, which will likely make the shortfalls more acute.

Meantime, Hyde noted that the company had settled about 80 per cent of the 1,000 claims against the company for the faulty cement, saying it has cost the company about the $100 million so far.

"We anticipate that by the end of the year we would be in a position where we have essentially closed off on all of the complaints," she said.

The company's insurers will also settle some of the claims, although CCC has refused to reveal the extent of its exposure.

The provision for the claims - $160 million - has dragged down the company's financial performance, positing a loss of $234.3 million on revenues of $446 million for the six months to June 30.

Source:

Ashford W. Meikle
E-Financial Gleaner
September 22, 2006

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