Thursday, August 7, 2008

Morocco Cements Its Future

The expansion of Morocco's cement industry seems likely to be sustained over the medium-term, driven by growing demand from the construction sector. Despite some worries over the economic outlook, cement firms and financial institutions remain confident in the market's future, as indicated by a recent loan deal.

On July 9, construction materials manufacturer Ciments du Maroc sealed a $274m loan package from a consortium of five banks to fund the construction of a new factory near Agadir. The project will cost $480m.

The five banks involved in the deal are Moroccan players Attijariwafa Bank and BMCE Bank, BMCI, Crédit du Maroc (subsidiaries of France's BNP Group and Crédit Agricole respectively) and French outfit Société Générale.

Ciments du Maroc, the local subsidiary of Bergamo-based Italcementi, the world's fifth largest cement producer, aims to start production in March 2009. The plant will have a capacity of 2.2m tonnes of cement and 1.6m tonnes of clinker annually.

The new Agadir plant is designed to meet surging demand for cement in Morocco, and to ensure that Ciments du Maroc keeps pace with its two main challengers on the local market, France's Lafarge Ciments and Holcim of Switzerland, which are also making large investments into their production capacity in the kingdom. Indeed, Lafarge is in the process of doubling its output at its Tetouan base, while last year Holcim opened a new $390m plant with an output capacity of 1.7m tonnes near Settat, 70km south of Casablanca, with the aim of serving the city's market.

The firm's sound performance last year, with its net profit growing 17% to $83.7m at the end of December 2007, partly explains how Ciments du Maroc has managed to secure a sizeable loan in a period of tighter credit.

Besides, the Moroccan cement market grew by some 12.6% during the same period, having averaged 8% growth since 2000, according to international reports. Ciments du Maroc executives expect another double-digit result this year, and are eager to keep up with growing demand.

Cement producers benefit from the booming real estate and construction markets. Some $1.3bn is being invested in the rural road network, while the motorway system is being overhauled. The government has pledged to build 150,000 new low-cost housing units a year and to pour a total investment of $4.4bn into the tourism sector by 2010. The plant at Agadir, located on the coast, seems particularly well suited to supplying resort developments.

Whether the government can match its annual 150,000 residential unit pledge is uncertain, given both the scale of the undertaking and the fact that material prices remain relatively high, but a concerted drive to increase the housing stock remains a priority.

The wider impact of the global economic slowdown and the credit crunch on the local construction sector is still uncertain but it seems to bode ominously for project finance, while low growth and higher interest rates in Europe could damage Morocco's export and tourism markets.

Taking into consideration these adverse developments in the international economic environment, Morocco's government trimmed its growth outlook from 6.8% to a very healthy 6.2% in June. On the bright side though, tourist arrivals grew 11% in the first five months of this year compared to the same period in 2007, while estate agents have reported an increased interest in holiday property. Meanwhile, with global steel futures and oil prices falling back somewhat, both construction costs and overall inflation look likely to ease.

In the long term, as the current construction boom tails off and real estate supply catches up with demand, growth will moderate from current highs. For the time being though, a strong market should support the investments in capacity being made.

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