Loma Negra CEO: Cement manufacturing in Argentina costs 30% more than in Brazil

Reporter: Was the conflict at Barker's factory totally resolved?

Sergio Faifman: Our intention has never been to close the plant, mainly because of the social impact it has on the region. That is why the idea was to restructure the factory with a smaller operation but maintaining it to minimize this impact. More than a year ago, due to capacity issues, Barker's factory was in doubt, but it was decided to leave it open in order to keep up with market developments. And the market has not changed as expected. The ovens in winter stop, with our idea in April to stop the oven and sit down to restructure the factory with the union, the city and others. In this context, four fixed-term contracts expired in March and the decision was not to renew them because we thought we could then sit down to restructure the plant. There, the union started a general strike for these contracts and the conflict began. It took 90 days and we finally managed to find a solution through the intervention of the Ministry of Labor of the Province of Buenos Aires and a very strong order of Governor Vidal; and also because of AOMA Central's intervention because the local union was in an uncompromising or even totally absent position. So we came to a part-time work schedule: 15 days if and 15 days to not employ as many people as possible. Under this program, we now have 180 people between our own contract and those under contract, about 100 of whom work part time, and they receive 70% of the salary. The salary they receive is well above the average salary in Benito Juarez for an 8 hour work. Previously, the plant had the stadium furnace and it remained only the grinding and sending part of the cement. The entire part of career crushing and the oven. Foreseeing that we have a stock of clinker to continue working and once finished, we will get it out of the factory in L & # 39; Amalí and will maintain the factory with grinding and shipping.

Q: You have 9 cement plants, including Barker. What's going on in the rest?

S.F .: In the province of Buenos Aires, we have Amali, Olavarría, Sierras Bayas, Barker, Ramallo and Lomaser. In addition, the factories of San Juan, Zapala and Catamarca. The factories are functioning normally, some more in demand than others, for example Zapala with more activity. In Catamarca, the oven was shut down for three months due to lack of volume. San Juan is small and worked all year round at a very good level of production. In the province of Buenos Aires, L 'Amalí is the most efficient and operates at full capacity. The one that has been a little longer stopped is the plant of Olavarría, mainly due to the decline in demand.

Q: Have they been forced to stop a plant completely?

S.F .: Stop there is no factory. But it is normal that the cement plants do not work 100%, but a little less. In fact, you should think that when you make an investment like the one we make in Amali, it takes between two and three years. Therefore, if the market grew and all the plants were running at full capacity, we would not have the capacity to supply it. which always has a margin of idle in the factory. At L 'Amali, we will increase our capacity by 40% with an investment of more than $ 300 million.

Q: Has the investment been called into question at any time?

S. F.: This investment is almost two years old and despite the decline in the level of activity, we have not stopped, we continue to rely heavily on the country. And it will be ready next year. It will be operational by July 2020. Our main challenge is the project we are developing at Amali and that we have not stopped despite everything that has happened in Argentina. We still hope that it will recover and that volumes will increase.

Q: What is the highest level of activity of the Zapala factory has to do with that?

S.F .: This has to do with Vaca Muerta and all the development that the south has. This is not for public works, which have had more impact in Buenos Aires and something in Catamarca. On the other hand, in Zapala, the demand for cement comes from private works, a large part of Vaca Muerta and another related to wind farms built in the south.

Q: Have you felt any cuts in public works in the last two years?

S.F .: Last year, there was no new public works. All those in the portfolio, the government has moved on and finished. Like the Paseo del Bajo, the viaducts of Miter and San Martín; in Córdoba, all the part of the ring road, also in Rosario. All these works are finished. What there was, is that many of the projects that were on file were delayed. For example, everything related to the PPP, which was going to become a major move and the impact of increasing country risk and the issue of funding, is progressing today, but very slowly .

Q: And how did you reach the devaluation of 2018?

S.F .: This affected many sides. In cement, everything related to costs, the main inputs that are gas and energy, which are dollarized. Subsequently, what has really been affected, particularly since May 2018, was the decline in confidence and the problem of interest rates. All projects related to UVA loans have been stopped. Without credit and with a high dollar, he stopped a lot.

Q: Is it always the same?

S.F .: Today, the one who has money starts to build because the square meter of construction is cheap compared to the value of previous years. In fact, over the past two months, building permits have increased sharply. This is not the case on the credit side: with these interest rates, it is impossible to think of building with credit. In all countries, credit, especially mortgages, is one of the tractors of construction.

Q: How is the cement consumption at the present time?

S.F .: This represents about 12 million tons per year in the industry, which gives about 250 kilos per capita. It is low when compared to the average of Latin America, which exceeds 330 kilos per capita. And there are countries that weigh more than 500 kilos per inhabitant. Cement consumption reached a record in 2015 in Argentina, with a similar level in 2017 and 2018.

Q: Do they export cement to offset the decline in domestic demand?

S.F .: We do not export except for a very minor ton in Chile. It is not exported because the cost of cement production in Argentina is not competitive compared to other countries. In addition, the logistics required to reach an inland port and export it make it totally unsustainable. Today, coming from any factory to any port, you get the same cost as it costs to go from Europe to Argentina. This part of the internal costs, especially logistics, makes it impossible to export anywhere. Similarly, the cost of cement production in Argentina is not among the best. Completely the opposite. Today, for example, the cost of producing one ton of cement in Brazil is 30% lower in dollars than in Argentina. In Egypt, 50% less.

Q: What costs influence: tax, work?

S.F .: This concerns the internal taxes, the costs of energy, gas, with many inputs, including the cost of labor and all fixed costs of national, provincial and municipal taxes on cement .

Q: What was the lawsuit against Loma Negra in New York?

S.F .: This is the beginning of a clbad action lawsuit armed by lawyers who are dedicated to monitoring highly volatile stocks and bringing together shareholders who want to sue the company. Two shareholders claim that Argentina's risks have not been disclosed. The company has already given its answer. And now, a hearing is scheduled for October. And after listening to the parties, the judge must determine whether the clbad action lawsuit begins. The truth is that there is still no trial but an application request. In October, the judge can accept or refuse this request. This is the placement made by Loma Negra. Logically, all Argentine badets have collapsed. This badertion is due to the fact that the company in its outlook has not shown all the risks of Argentina. It had nothing to do with anything specific to society but with Argentina in general.