By Al Edwards, Business Co-ordinator
Caribbean Cement Company's General Manager Tony Haynes (left),Trinidad Cement Limited's Group Chief Executive Officer, Rollin Bertrand (centre) and Trinidad Cement Limited's General Manager, International Business and Marketing, Kelvin Mahabir discuss expansion strategy plans at Caribbean Cement Company's Rockfort headquarters earlier this week. - Winston Sill/Freelance Photographer
CARIBBEAN CEMENT is seeking US$100 million to invest in expanding its operations here in Jamaica. The company aims to concentrate on satisfying the local market before considering exporting though it now services the spot market. It has completed a conceptual study on some of the preliminary engineering. It aims to raise this sum locally, regionally and on the international capital markets.
The Government is currently reviewing its decision to raise the Common External Tariff (CET) from 15 to 50 per cent on Portland Grey Cement which Caribbean Cement Company, the country's leading manufacturer of cement, is counting on to protect it from cheap foreign imports.
IMPROVE EFFICIENCIES
Only this week, the Jamaica Manufacturers Association (JMA) came out in support of the increase in CET saying, "We see this as a necessary move to facilitate the local manufacturer of cement in their efforts to re-tool, expand and improve efficiencies so that they will be able to compete on an equal footing with producers from other parts of the world.
"In the interest of Jamaica's industrial development and our local consumers, we welcome the local cement manufacturing company's commitment to meet the current local demand for cement while undertaking a four-year programme of upgrade and expansion, in the order of US$100 million in anticipation of future demand."
Senior managers of Trinidad Cement Limited, Caribbean Cement's parent took the opportunity this week to speak with The Financial Gleaner and explain the importance of the increase in CET on Portland Grey Cement to their company and plans for the future growth of Caribbean Cement.
"Caribbean Cement is on a journey from being a loss making company to being a sustainable, viable company. What people have to recognise is that when we took over, Caribbean Cement was like an old broken down car and what we have done is improve the body work, returned it and put on new tyres. We have upgraded the plant and at the end of this year we will have it at optimum capacity. We are geared to supply 800,000 tonnes of cement to the market next year. What we have to do, and are seeking to do, is prepare ourselves for global trade. As a result we have to retire some of the plant which is some 20 years old. Once we retool and revamp our plant we will reposition ourselves whereby we will become world class competitors as far as cost is concerned. We are looking to attain this position over the next three to four years."
SUPPLYING THE MARKET
One of the concerns of Caribbean Cement's competitors is that it cannot supply the entire market and that with active competition and choice, the consumer can only benefit. They point to a demand for 1 billion tonnes with Caribbean Cement only able to produce approximately 700,000 tonnes.
"Yes, we have heard this but it is erroneous. We can give you real figures. What one has to do to ascertain market demand figures is go down to customs and see what is imported then see what we produce, add them together and there's your demand," said Caribbean Cement's general manager Tony Haynes.
"These people are pulling that figure out of a hat so that they can boost their legitimacy. The idea that this market is well over the capacity that Caribbean Cement can handle is not true. If it were so we would not be in a position where we have mountains of clinker just sitting there. Right now we have 3 million bags of cement not being utilised, so it is very difficult to understand this demand they are talking about. Mainland is out of product right now and when they are, they buy it from us. As we speak it has quality problems with imported Chinese cement and packaging problems with Argentinian cement. There is no way that importers can adequately supply this market. At the end of the day they are shopping in the dustbin cans of the world. Look at where these companies get their product from, Indonesia, Thailand, Egypt, Russia now what is common about these countries? Economic meltdown.
DWINDLING MARKETS
"These companies from which they import are so desperate for cash with dwindling markets that they are selling cement below cost. Now companies like Mainland and Arc are saying they are our competitors. They are not, they are middlemen, the companies from which they buy cement are our competitors," said TCL's Group Chief Executive Officer, Rollin Bertrand.
He says in a liberalised world, Caribbean Cement should be controlling this market, not foreign exporters who are less efficient.
The Minister of Finance, Dr. Omar Davies, has made it clear that without adequate protection the viability of Caribbean Cement's plant could be in question, and that the increase in CET would help in going some way to protect the local market. Caribbean Cement's senior management agrees, pointing to one of the government's largest natural resource being limestone and that its monetisation is an important pursuit of the government. They note that limestone can be shipped in the form of aggregate and an important use of limestone is cement manufacturing. Jamaica has a fifty-year history of cement manufacturing and limestone spells viable possibilities.
"Jamaica has to understand why it is imperative that Caribbean Cement supplies the local market because if the country had to rely on imports you can only imagine what would happen when there are shipment delays, hurricanes just the general chaos that would ensue if there was a shortage in supply. In Jamaica if you want cement, you can just drive up to our plant and fill your truck. People lose sight of that convenience," said Mr. Bertrand.
In Jamaica cement quality control is determined by the Bureau of Standards and Caribbean Cement believes that this is an area that needs to be looked at because the characteristics of the imported cement is constantly changing and customers are unaware of many of these changes.
TESTING PROGRAMME
"You take this Chinese cement, what you have is product that is brought in and stored. With it sitting there for some six months who's monitoring the quality of that product to ensure how it sets and when it is supposed to. With us, every month there is a testing programme that takes place. We monitor for quality. So if you have a market dominated by imports the construction industry would pay the price for the vagaries of quality and price remaining undetermined," said TCL's General Manager for International Business and Marketing, Mr. Kelvin Mahabir.
Many of the larger consumers of cement understand the importance of supply and place their priorities there rather than solely on price. The last thing a construction project needs is to seek completion on a deadline and run out of cement. A stable construction sector is a major component in stimulating economic development. "I think a lot of people lose sight that imports are cheap on a temporary basis because the companies selling that cheap cement will not be around for very long. So you have the scenario where we are forced to shut down here, these companies eventually shut down and the customer is left high and dry. That's why it is important that the Government seeks the long term interest of the consumer," said Mr. Bertrand.
LACK OF INFORMATION
The Government has indicated that the Opposition needs more time to gather information on the issue of increasing the CET but Mr. Mahabir thinks this matter goes beyond cement. He sees the Government faced with the demise of its local manufacturing and agricultural industry. With it having to comply with WTO, FTAA and CSME regulations, the Government has to help industries make the transition into 2006 and 2007. The Government is seriously taking stock of what is going to happen as it approaches this date which will change the way we conduct trade and realises that if the local cement industry is to remain competitive with sufficient investment, something has to be done.
" If it is the case where you have continuous dumping whereby you see between 1999 and 2003 cement imports have increased by 1,400 per cent, if that were to continue and you extrapolate that, it means that whether debt or equity investors will say this company has little probability of repaying its debt in the future. It makes it difficult for us to go to the market and say lend us US$100 million because we want to make this industry competitive but the market is being eroded by unfairly traded product. We are going to find ourselves in a position where potential investors will say we can't lend you money because we won't get our money back. The Government understands the position we are facing and has brought it before Parliament."
Caribbean Cement has given a commitment to the government that if it implements this period of bound rates during that time it will not increase its prices in US dollar terms. As far its plans for a US$100 million expansion of its operations are concerned, it has said that it is prepared to make them readily available for the Government's inspection.
" This means that we will be able to bring our cost structure in line with some of the largest players in the world."
What does Caribbean Cement say to allegations that its prices are too high?
CHEAP CEMENT
"Well, they should explain why their prices are just 2 per cent below ours. If their prices are so low why isn't it at least 20 per cent below ours? Why are they buying a $50 product and selling it for $100? Who is making that $50, the consumer is certainly not benefiting. This concept of cheap cement they are talking about is not cheap for the consumer. They don't want to protect the consumer, they want to protect their huge margins," Mr. Mahabir responded.
"This issue of price is important and I'll tell you why. In 1999 we sold cement for US$129 per ton, today we sell at US$114 per ton. Back in 1999 we were losing money, now we have turned things around and we are making money in hard currency terms yet our prices have come down. We are a manufacturer that takes indigenous material and adds value. We have a value train that directly employs people and provides work for suppliers. Now if you look at higglers they don't add value, they add cost to a product without any long-term commitment or investment in the country," added Mr. Haynes.
TCL is cross-listed on both the Trinidad & Tobago Stock Exhange, the Barbados Stock Exchange and the Jamaica Stock Exchange. The company balks at the perception that it is a Trinidadian company making huge profits out of Jamaica, and says anyone can buy shares that are available, saying it is conceivable that Jamaica could hold the majority shareholding. It proudly declares that it is one of the few Pan-Caribbean companies in existence and that Jamaicans should start seeing it that way instead of dwelling on its connection to Trinidad.
"This temporary period of protection is important for Caribbean Cement because it will give us a bigger cash flow which allows us to make a better return and fund our US$100 million investment," said Mr. Mahabir.
