Commodities
Harder and harder
Almost all cement produced in Uruguay, 96%, is sold into the small domestic market which produced 710,000 tonnes in 2019. One market participant is state-owned Administración Nacional de Combustibles, Alcoholes y Portland (“ANCAP”), which has a yearly production of 200,000 tonnes.
ANCAP is facing mounting pressure from competitors and politicians to decrease production or sell its cement production unit. For each of the last twenty years, ANCAP's losses have oscillated between USD 8 million and USD 10 million. Furthermore, ANCAP has serious efficiency problems in production - its Paysandú plant needs an estimated investment of USD 130 million to reach optimal production quantities.
An executive of an ANCAP competitor in Uruguay began, “We’re facing increasing competition from our Mercosur neighbours, which produce at significantly lower costs. If we continue to compete in a distorted market full of inefficiencies, we will all [cement producers and distributors] be having serious economic problems soon.”
"We’re facing increasing competition from our Mercosur neighbours, which produce at significantly lower costs."
Executive, ANCAP competitor, Uruguay
Last July, the president of the ANCAP Alejandro Stipancic, said that the company had commissioned a report to explore options to stem the losses from cement production. These options include closing the Paysandú plant, a technical transformation of the plant or investment by a private party.
An economist of the Construction Chamber of Uruguay who in the past worked as an independent consultant for ANCAP told us, “It is a complex scenario but ultimately it is a political decision. Closing the Paysandú plant would be a traumatic message for the working-class population and would be a high cost for the government.”
"It is a complex scenario but ultimately it is a political decision."
Economist, Construction Chamber of Uruguay
The economist continues, “[Alejandro] Stipancic [ANCAP’s president] is reportedly considering a search for private investment. Undoubtedly, investors will want reasonable control, not to be mere observers of such a politicised company. Otherwise, they would prefer private initiatives, like Cielo Azul [a cement production company financed by Brazilian investors, which will open a new USD 100 million plant in Uruguay, with the aim of exporting part of its production].”
There doesn't appear to be an easy solution for ANCAP but our sources are certain that the decision will be political rather than economic.
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