May 2007 Financial News

Cheap imports, lower demand reduce Carib Cement's sales volume

May 11, 2007

Lower local demand for cement and a higher supply of cheaper product from the Far East led to a decline in sales volume for the local Trinidad Cement Limited subsidiary Caribbean Cement Company, during the three months ending March 31.

While the decline in sales was not significant, a 29 per cent increase in prices applied by the island's sole manufacturer of cement last year offset the decline in revenue.

Sales volume declined from 213,268 tonnes during the three months to March 31, 2006 to 208,453 tonnes during the comparative period this year - a 2.3 per cent decline. The decline followed on last years reduction in sales, which was 18,000 tonnes or 7.8 per cent less than the 231,349 tonnes sold in the comparative period in 2005.
By Carib Cement's general manager Anthony Haynes' estimation, approximately 130,000 tonnes of imported and manufactured cement sits in stock, equivalent to nearly two months of production by the local cement manufacturer.

This led to an "erosion of market share," according to Haynes in response to Caribbean Business Report questions, "by the presence of cheap, competitive product from China and Thailand".
Moreover, the smaller share of the local cement market was met with what the company estimates was a 10-12 per cent shortfall in expected demand.

But a 12 per cent increase in prices last year February followed by a 15 per cent increase in June 2006 to mitigate against the effects of what the firm described as rising input costs, "particularly due to increases in fuel and electricity prices," helped the firm pull out a 23 per cent increase in revenue.
Sales increased from J$1.51 billion during the March quarter of 2006 to J$1.85 billion during the three months to March 31, 2007 - a 22.5 per cent increase.

This resulted in a reversal of the $190 million net loss in the March quarter of 2006 to a $130 million net profit during the period under review. A significant chunk of the last year's loss was due to the $160 million provision made for claims on non- conforming cement.
During that quarter, the firm had to recall by Caribbean Business Report's estimate, some 20,000 tonnes of cement due to low hardening characteristics of the cement made over the course of a week in late February.

At the same time government was moving towards eliminating the 40 per cent tariff on Portland Grey cement, the removal of which by June led to a flooding of the cheaper cement that is now eating into Carib Cement's market share.

Interestingly the reduction in market share led the local manufacturer to start seeking export markets and in February, the firm actually "made a small export shipment" with the view of "developing its export market to keep its mills running".

Continued Haynes: "The domestic market has continued to show growth although the increase is significantly below what many "experts" projected. We expect that the market will continue to grow at a reasonable rate. Until Carib Cement completes its expansion and modernisation programme in 2008, the market will require imports to supplement local production. After completion of this project, the company will be able to supply the entire market and compete on a price basis."

Source:
Camillo Thame
The Jamaica Observer
Friday, May 11, 2007

http://www.jamaicaobserver.com/magazines/Business/html/20070510T230000-0500_122847_OBS_CHEAP_IMPORTS__LOWER_DEMAND_REDUCE_CARIB_CEMENT_S_SALES_VOLUME_.asp