Public Law, Project Finance and Regulatory

Brazil cement industry adopts pessimistic outlook

The downturn in Brazil’s cement industry is likely to continue this year due to inflation and high interest rates.

“Throughout the year, with the successive worsening of the economic environment, high interest rates, inflation and commodity prices added to geopolitical instability, caused by Russia’s war on Ukraine, have impacted the economy and the entire Brazilian industrial sector,” the president of cement producers association SNIC, Paulo Camillo Penna, said in a statement.

“Because of that, the cement industry’s expectation of securing the gains obtained from 2019 to 2021 is heading toward an undesirable frustration,” he added.

SNIC expects sales to contract 1% or 2% this year. During the first half, domestic sales dropped 2.7% year-over-year to 30.5Mt.

The industry is also facing cost pressures. Prices of key input petroleum coke rose 73.5% in the last 12 months, while the IPCA inflation index rose 12%, according to SNIC.

Various sectors are facing difficulties in renegotiating IPCA-based contracts in this scenario, forcing players to create new contract models.

“Given the volatility of the Brazilian and the global economy, it is difficult to predict all the hypotheses [of price changes] in a contract,” Paulo Dantas, an infrastructure and project finance specialist at law firm Castro Barros Advogados, told BNamericas.

According to Dantas, negotiations are not aggressive despite the pressure.

“The best solution now is the adoption of alternative dispute resolution methods, especially dispute boards, which tend to isolate legal issues and focus on more technical aspects,” he added.

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