Global cement manufacturer, CEMEX SAB de CV (CX), announced that it has inked a contract to supply 500,000 tons of cement that will be used to construct the third set of locks of the Panama Canal expansion project. It has been awarded the supply contract by “Consorcio Grupo Unidos por el Canal”, the primary contractor for the construction of the third set of locks of the Panama Canal expansion project, run by the Panama Canal Authority.
Panama has embarked on a $5.25 billion expansion of the Panama Canal, expected to be completed in 2014. The 49 mile canal, which currently handles about 5% of world trade, has been under Panamanian management since Dec 31, 1999. The expansion program will build a new lane of traffic along the Panama Canal through the construction of a new set of locks, doubling capacity and allowing more traffic and longer, wider ships.
The construction of the new set of locks is the largest and considered the most significant contract in the expansion program. The Panama Canal Authority, a government agency that manages the waterway, awarded the $3.12 billion contract to Consorcio Grupo Unidos por el Canal in July 2009.
Consorcio Grupo Unidos por el Canal has in turn awarded the supply contract to CEMEX under which the latter will supply cement and provide specially designed products for the engineering requirements of the expansion.
Over the last two years, CEMEX has invested approximately $300 million in its Panamanian operations, including its plant where it has tripled its cement production capacity. This expansion puts CEMEX in a position to ably meet the needs of the contract for the Panama Canal expansion project as well as requirements of other projects lined up in the Panamanian Government’s investment plan.
CEMEX has been struggling with weak cement volumes in the United States due to the global economic crisis and the collapse in the housing market. The recovery in the U.S. market continues to be the foundation of the company’s anticipated turnaround in fiscal 2010.
The company expects high, single-digit growth in cement sales volumes in the U.S. in 2010. Moreover, the company expects consolidated domestic cement volumes to increase by approximately 3%, ready-mix volumes to decline slightly and aggregates volumes to increase by approximately 1%. We expect the supply contract to provide a much needed boost to the company.
However, CEMEX has been struggling with high debt levels after it acquired Rinker Group Limited in 2007. It is strategically aligning itself as a leaner and more agile company following its debt refinancing, equity capital issuance, sale of Australian operations, non-core assets, and through cost-reduction efforts. We maintain a Hold Rating and Zacks #3 Rank on CEMEX awaiting recovery in its markets and its initiatives to bear fruit.
Shares of CEMEX, which competes globally with France’s Lafarge SA (LFRGY) and Switzerland’s Holcim Ltd. (HCMLY), rose 2% or 22 cents to $9.87 on the contract-win news.
Mexico-based CEMEX, through its subsidiaries, engages in the production, marketing, distribution, and sale of cement, ready-mix concrete, aggregates, and other construction materials. It sells its products primarily to distributors in the construction industry.
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