Study shows that price of cement has not risen significantly

A.M. Costa Rica file photo
Bags of cement on a pallet ready for delivery

The Ministerio de Economía, Industria y Comercio has released the results of a study demonstrating that the price of cement has not changed significantly since one company abandoned Costa Rica and left the industry again in the hands of just two firms.

The departing company, Cementos David, purchased full-page advertisements in numerous Spanish-language newspapers May 1 to publicly announce its opinion that Costa Rica is a bad climate for investment and that it was moving operations to Panamá.

A week later, the ministry was touring stores and collecting data on Portland cement to determine if the price was rising now that only two competitors remained in the industry. Cementos David had called the firms a duopoly.

The study showed that prices, although higher than in the United States, were not going up dramatically, and the ministry would not have to step in and regulate.

“It did not produce a distortion,” said ministry press officer Evelyn Arroyo Santamaría when asked how the departure affected cement prices.

Expats who build their homes here are big users of cement because many homes have poured walls and floors.

Cementos David started up in Costa Rica in 2007. The company negotiated almost unceasingly with various government ministries and courts for the right to operate the business.

The company sold bags of cement at a slightly cheaper price than its more established competitors, Cemex and Holcim. As of May it claimed to have sold 4 million bags in the 18 months it operated.

However, the Tribunal Contencioso Administrativo voided Cementos David’s permits and ordered it shut down, prompting the company to dramatically announce its departure from Costa Rica through newspaper advertisements.

A week later, the ministry began a two part survey on the price of cement, checking prices in 47 stores in early May and rechecking 44 of them in early July. These stores were located in seven Costa Rican cities.

The goal of the study was to look specifically for changes in price of 46 kilogram sacks of type-one Portland cement, the key ingredient in making concrete that hardens when it is combined with sand and water. The sacks in question are pure Portland cement that must be mixed with water and sand or gravel to make concrete, unlike some pre-mixed products where one must only add water.

While Cemex and Holcim do large projects using concrete batch mixing trucks that are common in the United States, cement is usually sold and transported differently in Latin America, according to Henrick Van Oss, a U. S. Geological Survey mineral commodity specialist who focuses on cement.

“You may instead have a market for bag cement,” said Van Oss.

Although Van Oss mostly looks at the U.S. cement industry, he said that it is common in many Latin American countries, and Puerto Rico which falls within his area of study, for people to build houses, businesses and other smaller-scale projects by buying the cement in bags and mixing it with the other components on-site rather than using a mixing truck. For many consumers of cement, this means that the price per sack is more informative than the price per ton.

The survey found that the price of cement has not changed in the three months since Cementos David announced its departure, making it unnecessary for the ministry to intervene in the market to stabilize the price.

The ministry has the power to regulate prices,” said Ms. Arroya.

The survey concluded that the average price of a 46-kilogram (101-pound) bag of Holcim cement was 5,362 colons, and a bag of Cemex cement of the same size was 5,334 colons. Both are about $10.65, with a price difference of less than $.06 between the two.

Since Cementos David left, the survey found that the price of a Holcim bag had gone up .9 percent and the price of a Cemex bag had gone down .54 percent, about half a percent

According to the ministry, Cementos David sold 46-kilogram bag for 5,172 colons.

Despite Cemento David’s price being only about 40 U.S. cents cheaper than its competitors, the company still takes pride in lowering the price of cement for a while, said José Araya, the company’s press representative.

“Most important is price, the cost for the consumer,” said Araya.

According to the prices on the Web site of Lowe’s, a U.S. home improvement store chain, bags of type-one Portland cement in the United States can vary as much as $3. A store in Austin, Texas sells a 94-pound bag of Quikrete Portland cement for $7.47, while the same bag costs $9.98 at a store in Brooklyn, New York.

Despite discrepancies in price based on location, Van Oss estimates that cement in Costa Rica is about 30 percent more expensive than it is in the United States, but he said that the prices are determined more by the Costa Rican industry’s circumstances than price-setting on the part of Cemex and Holcim.

“That doesn’t sound like an alarming price to me,” he said. “There’s nothing nefarious. It’s just the economics of what’s going.”

Van Oss listed a variety of factors that could contribute to the higher prices, which include taxes, number of competitors, and the size, age, equipment, energy efficiency and capacity of the factories producing the cement.

Additionally, Van Oss pointed out that a market that consists primarily of bagged cement will be pricier because of the cost of the bags themselves and the transportation of those bags.

The price of a metric ton (about 2,200 pounds) of cement in Costa Rica is much higher.

Although most companies do not give out prices of cement by the ton to anyone other than clients, one of Costa Rica’s producers charges 95,000 colons per metric ton (approximately $190) plus a 13 percent tax. According to the U.S. Geological Survey, the average price of a metric ton of cement in the United States is $91.

Van Oss also explained that these estimates do not take into account transportation costs, which drives the actual price higher.
However, even with a price that is more than 100 percent higher in the States, buying a metric ton of cement in bulk is slightly cheaper than buying a ton in bags. The price for a metric ton of cement in 50-kilogram sacks comes out to be approximately $213.

Although Van Oss said the price of cement could be a little lower if there were more companies producing it, the price is naturally going to be more expensive in small, developing countries like Costa Rica than in the United States.

“You can’t just wish there were more cement companies, because there has to be a market,” he said.

Even so, the study indicated that cement prices had been on the decline from approximately 5,700 colons in January 2011, when Cementos David closed down. During that period, Cementos David’s prices had gone down 9.68 percent, while the prices of Holcim and Cemex had declined 7.39 and 6.33 percent respectively.

The full results of the study are available on the ministry’s Web site.

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