Chile
Q&A

Building sustainable facilities to offer competitive prices

Bnamericas Published: Friday, June 12, 2009

The Chilean cement market is currently shared by three firms: Cementos Bío Bío, Polpaico and Lafarge. The scenario, however, will change next month, when Cementos San Juan - owned by Spanish group Cementos La Unión - starts operations in the country.

BNamericas spoke with Juan José Córdova, general manager of Cementos San Juan, to learn about the firm's strategy for entering and positioning itself in this new market. Córdova also spoke about the firm's expansion plans in Latin America.

BNamericas: When will the new cement plant in Chile begin operations?

Córdova: Cementos San Juan will launch operations in July this year.

This is a Spanish investment and the main shareholder is Cementos La Unión. About US$35mn has been invested in this first phase. We will have an installed capacity to produce 300,000t of cement per year. This represents about 8% of the national market.

BNamericas: Will that installed capacity be available in July?

Córdova: Yes. We will have that amount in July.

We will offer cement in regions V, VI and the metropolitan region, which represent about 60% of the Chilean cement market. We will have two cement products available, in sacks and bulk cement, with different strategies for each one.

This plant is going to be a very efficient facility. We were named the world's most modern cement plant operators by Cement Review in 2009. Only 10 people will operate the plant. Our company is an organization with about 35 employees, which helps us reduce labor costs and enter the market with a competitive advantage.

BNamericas: Does the fact that the plant is so modern imply it has technologies for cleaner production?

Córdova: Of course. Modernity in any industrial plant is tied to two major factors: one is to produce less carbon dioxide emissions and the other is to use less energy. These two issues, environmentally speaking, are very positive for our planet. The fact that the plant consumes less energy leads you to produce less contamination and, on the other hand, there are less carbon dioxide emissions.

Aside from that, our plant is the only facility in Chile that has all of its production line covered, so the little suspension dust that could be produced will be trapped in the facility itself, it cannot get out.

BNamericas: The plant is located in region V, right?

Córdova: Yes, it is located 7km from San Antonio port and some 120km from capital Santiago.

BNamericas: Was the plant designed just for the local market or with plans to export cement sometime in the future?

Córdova: We always thought about the local market. Markets where energy is very expensive, like Chile, force us to focus only on local production. There are countries that specialize in exporting commodities such as cement, like in Asia. Our focus is 100% local.

BNamericas: How do you view the fact that the local market is pretty much shared equally by three companies? How do you expect to make room for yourself in this market?

Córdova: When you look at the global picture, there are about 10-15 players in each cement market. Chile, however, is different because there are only three players in a market that is not "very reduced." So, it is not necessarily a very competitive market, because there are only three players.

On the other hand, we have to enter the market with a strategy to differentiate ourselves and position ourselves with a better product. How do we do that? Either by leading in costs or by differentiating our product through its packaging.

If I'm not going to change the product, because I will sell the same product - the same dust - the packaging will be totally different, with certain competitive advantages compared to the other firms. Also, the quality of the service we offer must be better.

We have to seek certain tools that differentiate us from the rest, and these tools must generate a value for the clients so they will accept us. If I try and gain market share by offering the same as the rest, I don't think I will sell a single bag of cement.

We have a cost advantage by being a very small, very modern company with low energy costs. This helps us to have very attractive prices for the Chilean market.

BNamericas: You mentioned this was your first phase of operations in Chile. Are there plans to expand operations here in a second phase?

Córdova: Yes. We have a project to increase annual production from 300,000t to 800,000t. If we reach an adequate level of sales or production in the next 12 months, we can "push the button" and start building the second base.

BNamericas: How long would the construction of a new production line take?

Córdova: Once we push the button by making the decision to launch a second line, it would take 12 months. So, I think that in 24 months we could have the second line operating. That is as long as we get to where we want to during this first phase.

BNamericas: How do you think the financial crisis has affected the Chilean construction sector?

Córdova: It has been a disaster, especially in Chile. Construction has fallen by an accumulated 15% between January and March. Cement and steel are good indicators to measure this. In fact, when you make investments like these, they are long-term investments. Sometimes you are down and sometimes you are up and expanding.

We expect to enter the market when the depression is ending and recovery is beginning. If we had entered the market in January, it would have been the worst of times, because we would have already faced six months of recession. We are entering the market in July, when everything seems to indicate that the economy will begin to recover in Chile in the second half of the year.

BNamericas: Do you operate in other Latin American countries?

Córdova: Yes, we have operations in the Dominican Republic and a project in Mexico, in Pachuca.

BNamericas: How far advanced is the project in Mexico?

Córdova: It is currently under evaluation.

BNamericas: Are you always looking for expansion opportunities?

Córdova: Yes. There are a number of projects in Latin America we are looking into but cannot comment on. There are at least three other countries where we are evaluating starting projects.

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