Cement rival eyes bigger quota

Seeing market opportunity in future demand for hotel and housing construction, Buying House Cement Limited is aiming for a larger importation quota beyond the 120,000 tonnes it is now allowed.

It would require convincing the Jamaican government to be less protective of the sole, locally based cement maker, but Buying House, which is aiming for a 50 per cent increase in its quota, believes it might be in a position to do so, based on the recent fee agreement between Kingston-based Caribbean Cement Company Limited and its Mexican owner Cemex.

Their master agreement stipulated royalties of ‘up to 4 per cent’ of Caribbean Cement revenues for its use of Cemex’s trademarks and other intellectual property. The pact implemented in January for year 2022 sets the current rate at 2.0 per cent of sales, amounting to nearly half-billion dollars based on Caribbean Cement’s annualised revenue for 2021.

“We are planning to lobby. We feel it would be good for consumers,” said Mark Hart, chairman of Cargo Handlers Limited, which holds a 30 per cent stake in Buying House. The other 70 per cent is held by Domicen, a Dominican Republic company.

“There are lots of protections, which costs the construction industry,” he added. “With all eggs in one basket, we are at major risk if anything is disrupted.”

Buying House, which operates from Montego Bay, currently supplies nearly 10 per cent of the market with a quota of about 120,000 tonnes, annually. The rest of the market is controlled by Caribbean Cement.

“I think, based on current demand, 150,000 to 200,000 tonnes would be good for the construction industry, leaving Cemex with 85 per cent market share,” said Hart. “It would provide price and supply security and take a lot of load off the road system. It would provide direct jobs for over 100 persons in the west, including port workers, truckers and distribution personnel,” he argued.

CONSTRUCTION INDUSTRY

Hart describes the royalty fee as a tax on the construction industry. Others in the market have been highly critical of the agreement, saying while it compensates Cemex as the parent company, minority shareholders have been denied returns in the form of dividends for many years.

In response to the latter, Caribbean Cement is in the process of devising a dividend policy and has said payouts are likely to begin soon.

Buying House started operations in 2006. At the time, Caribbean Cement had released faulty cement on the market and the fallout created room for import rivals to grab market share.

To avoid its confinement to an import quota, Buying House would have to set up its own cement manufacturing plant in Jamaica. But that’s unlikey, given the current size of the market, which is around 1.2 million tonnes.

“The market demand would need to grow to 1.8 million tonnes at least, as an integrated cement plant would require almost one million tonnes to make it a feasible investment,” Hart said.

business@gleanerjm.com