Deep cracks in the cement industry

After beating all production records in 2007, Spain's cement industry has returned to the humble, pre-development days of the 1960s, a situation that Ramón Ibáñez, the head of research at the industry association Oficemen, describes as "dire."

While cement consumption in Spain in 2007 amounted to a record 56 million tons, the country is estimated to need just 14 or 15 million tons this year. The situation has reached such extremes that Morocco will outstrip Spain in cement use this year, with 18 million tons. The scenario for 2013 is even worse, with consumption forecast to drop 20 percent to about 11 million tons.

"This is unacceptable," says labor union representative José Antonio Guijarro, who is a member of the works committee of the Spanish division of Cemex, the Mexican cement manufacturing giant. "You have to remember that cement consumption is used as a development indicator." Spain still has 36 cement plants, but as Guijarro points out, only half of these are fully functional.

The industry workforce of 7,300 in 2007 has now shrunk to 5,200, and is expected to fall to 4,300 next year once the labor force adjustment plans of Cemex, Swiss producer Holcim, Spain's Portland Valderrivas and Brazilian manufacturer Votorantim's Corporación Noroeste unit have been fully implemented. Cemex's plan, which was unveiled in October, calls for the closure of three plants after the lay-off of 900 workers this year.

Industry players reckon that even if the economy does start to pick up again, annual consumption is unlikely to surpass 28 million tons. "We are not going to recover the levels of building activity seen six or seven years ago," one industry executive says. "But we had at least hoped that public works contracts would remain at acceptable levels."

Only half of Spain's 36 cement plants are now fully functioning

This has been far from the case, as the government has stepped up the pace of its austerity drive. "In the first nine months of this year, the state has invested less than 6 billion euros in public works," says Oficemen's Ibañez. "There were years in which the amount was over 30 billion."

A restructuring of the electricity sector has also dealt another blow to the industry. "In the past five or six years the cost of electricity has risen 120 percent. This has not happened in any other country," Ibáñez says. Oficemen estimates that a draft bill on further reforms to the sector could push the price of electricity up by a further 15 percent. Electricity represents about a third of the variable costs of the cement industry.

The rise in costs is undermining the industry's only alternative to the domestic crisis: exports. Exports are estimated to rise this year to 6 million tons, but that is still well below the 15 million tons shipped overseas on a yearly basis in the 1980s.

The crisis in the Spanish cement industry has coincided with problems in many other markets. Cemex was hit by the fallout from the subprime crisis in the United States, which depressed homebuilding activity. That came at a time when it was sitting on enormous debts taken on to finance previous acquisitions. The cost of servicing that debt, along with lower sales and sales prices, drove the world's largest cement manufacturer into the red for a number of years, including 2011.

Cemex maintains seven cement plants in Spain, but its workforce has been reduced from 3,365 in 2007 to 1,700. The new labor force adjustment plan will reduce the number of its workers to little more than 1,300. The Mexican company's sales in Spain dropped by 37 percent between 2008 and 2011 in dollar terms from $900 million to $540 million. By contrast, turnover worldwide was only down by 2.4 percent. Cemex España, which at one point drove the group's operations in Europe, now sells less than Britain, France and Germany.

The situation has become so extreme that the big players in the industry might enter into a national restructuring exercise, in which assets are swapped as part of a process that would inevitability lead to more factory closures. "Some of them will have to stop operating," Guijarro said.

The labor union representative points out that some plants are situated near small towns or villages and are the main source of income for these places, generating three to four external jobs for every job in the plant. "For some counties such as Toledo, Palencia and Cantabria, what has happened has been absolutely dramatic," Guijarro says.