New York - LafargeHolcim, the world’s biggest cement producer, is confident that a rally will continue in emerging markets this year even as others see raw materials from oil to iron ore faltering.
Higher cement buying in countries such as India, Indonesia, the Philippines and Vietnam is offsetting slower growth in China, leaving LafargeHolcim Chief Executive Officer Eric Olsen optimistic about continued expansion in markets that represent about 55 percent of his company’s footprint.
Read: Strong interest for LafargeHolcim's India plants
“Our volumes in emerging markets are fantastic,” he said on Monday at Bloomberg’s offices in New York. “Things are growing and growing well throughout large parts of the world.”
Raw materials such as oil, iron ore and gold are oversupplied and a recent commodities rally is temporary, according to Jeffrey Currie, an analyst at Goldman Sachs Group.
Local markets
While cement producers’ customers are similar to those buying steel, aluminium and oil, companies such as Zurich-based LafargeHolcim are protected from roiling seaborne commodities markets, said Krostoffer Inton, an analyst at Morningstar. Because cement is made and sold locally, its producers get the benefit of regional growth without the volatility of commodity prices.
“The China story only matters for cement in China,” he said. “It doesn’t affect your plants in Africa and the Middle East. Your plants in Latin America, your plants in North America are not affected by China.
The company was formed in July, when France’s Lafarge SA and Switzerland’s Holcim merged to create the world’s biggest cement company. Olsen has promised to sell $3.5 billion in assets this year to streamline the company’s portfolio and comply with regulators, while committing to an additional $1 billion of internal cost savings.
Olsen, who is selling assets in India that had been owned by Lafarge, said the divestiture will be sealed in three to four months. Building growth is picking up after years of stagnation, boosting optimism about the country’s economic recovery, he said.
“It’s a great time to be marketing assets in India,” Olsen said.
LafargeHolcim’s shares have tumbled 39 percent in the last 12 months amid slower growth in China and Brazil, key markets for the combined company.
“No one will debate that growth in the emerging markets will come at some point,” said Inton, of Morningstar. “At some point they will develop and they’ll need the cement. The bigger question is how long it will take.”
BLOOMBERG