When It Comes to Cement, It's All about China

Paul Kedrosky over at Infectious Greed has one of those graphs where truly the saying "a picture is a worth a thousand words" speaks volumes. It truly is amazing how China dwarfs everyone - they are doing 10x more than any peer. In fact if I eyeball it, if you add every other country in the world together as one entity; it appears China would be consuming more. As I keep repeating, this economy is like an out of control Ferrari racing on oil slick mountain roads. How to keep control of the steering while is not something I'd wish on anyone.

(click to enlarge)


One name I've followed for a long time, is Mexican cement maker Cemex (CX), which is one of the world's giants (#3 in the world). Unfortunately they are so intertwined with the US market, the stock has been a disaster for a while. I was getting excited about 6 weeks ago, as the technical condition of the chart began to improve, and it looked like a breakout was happening, but just like that, the chart snapped. However, they do not seem to have major Chinese exposure.

• Cemex, the world's number-three cement maker, cut its 2008 forecast for pre-tax earnings to $5.3 billion on Monday, battered by the weak U.S. housing market and a slowdown in key European markets
• "We continue to face a difficult economic environment in the United States with construction falling more than originally anticipated," Chief Financial Officer Rodrigo Trevino said in a statement.
• Cemex, the top building materials company in the United States, had forecast 2008 earnings before interest, tax, depreciation and amortization [EBITDA] of $5.6 billion. "We now expect EBITDA for 2008 of about $5.3 billion," Trevino added.
• For Cemex, which competes globally with Switzerland's Holcim (HOLN) and France's Lafarge (LAFP), the impact of the U.S. housing crisis comes as Cemex increased its market share through last year's $16 billion acquisition of Rinker, which had 80 percent of its operations in the United States.
• "We now expect domestic cement volume in the United States to decrease by around 12 percent, ready-mix volume to decrease by about 21 percent and aggregates volumes to decrease by around 20 percent for the full year 2008," Cemex said. (sounds like an economy ready to rebound any minute now)
• Housing slowdowns in Spain and the United Kingdom are also hurting Cemex, which has operations in more than 50 countries. (notable - as we've been saying the UK is a mini USA and both countries followed the Americans into lax mortgage standards which led to major housing bubbles - in fact many say Spain has the worst of the bunch)
• In Spain, where the economy is cooling after a decade of high growth levels, the company expects cement volumes to decrease by about 17 percent this year. "This was lower than we expected and a little worrying given that Spain is one of Cemex's top markets," said a Mexico City-based cement analyst who declined to be named.
• The UK housing market is also cooling as the economy falters, feeling the impact of the U.S. credit crunch. The average cost of a UK house has fallen by about 8 percent from a peak in August last year.
• That follows a near decade-long boom, during which the price of the average UK home more than tripled. (easy credit, easy money, lax guidelines - another wonderful US import!) Cemex said it sees British cement volumes falling about 9 percent in all of 2008.

Bottom pickers might find this chart appealing as Cemex (CX) hits March lows and near January lows... again note the false breakout just over a month ago - how vicious the market can be.

Comments

[Stcck Man 15:]

I think Cemex is a great buy at these prices !! You have to remember that once we get thru this whole housing crisis people will build homes and commercial real estate and they will use Cemex's building products !! I am a long term investor in CX and I think its one of these best companies outside the U.S.

2008 Jun 25 12:10 AM

[Joe Blow:]

I think Cemex and Vulcan Materials, and most of the cement companies will do well in the short' and long-term future. Unlike consumer cyclicals, concrete is needed far more for big public works projects, roads, overpasses, dams, almost all building foundations. Even if the global consumer slows spending, the governments have to keep infrastructure from crumbling, or in China's case, simply keeping up with population growth.

2008 Jun 30 12:35 PM