Mexican Cement Maker Poised to Profit From Trump’s Wall
Source: Bloomberg | By Andrea Navarro, Oliver Sachgau, and Thomas Black
Cemex has operations close to both sides of the border
Isolationist plans meet reality of international industry
President Donald Trump’s plans to build a Mexican border wall are boosting the prospects of builders and material suppliers from Alabama to Frankfurt, but there may be no bigger winner than a giant cement maker based in Mexico.
Cemex SAB would be one of the companies best-positioned to profit from a wall that could cost $15 billion or more as it has operations along both sides of the border. Cemex’s share price jumped as much as 2.6 percent Wednesday and is the best performing among its peers this year, with its stock up 18 percent as of Tuesday, according to Bloomberg Intelligence analyst Sonia Baldeira. The outlook for its U.S. business has also been aided by Trump’s plan to spend as much as $500 billion on roads, bridges, tunnels and airports.
“We are fairly optimistic on the company’s U.S. operations,” Barclays analyst Benjamin Theurer wrote in a note to clients, naming Cemex the top regional pick. “We expect a Trump-boosted pick up in volume.”
The possibility of profit for a south-of-the-border industrial giant, which is the largest cement maker in the Americas, shows the tight interweaving of the U.S. and Mexican economies. The U.S. is Cemex’s biggest market, representing a fifth of its revenue last quarter, and a windfall from the wall would help complete its comeback from near-bankruptcy after the recession.
The Mexican peso’s 12.6 percent depreciation over the past 12 months would have meant bad news for Cemex, as most of its debt is dollar-denominated. The story seems to have changed as Trump moves to fulfill promises made during his campaign.
The Republican painted a picture of a nation beset by undocumented immigrants, and said only a physical barrier — paid for by Mexico — could end the onslaught. The plan didn’t recognize that illegal entries have fallen and that many undocumented immigrants arrive legally, but overstay their visas.
Trump’s statements set off widespread fury in his own nation and beyond, with Mexican President Enrique Pena Nieto saying “of course” his country wouldn’t pay. On Wednesday, Cemex spokesman Jorge Perez declined to comment on whether the company would be involved in the construction of the wall.
“It seems dishonorable for Mexican companies to participate,” Manuel Bartlett, a senator from Mexico’s Labor Party, said in an interview. “They would be putting money above national interests. Obviously the wall construction is an offense to Mexico.”
Alejandro Poire, dean of social sciences and government at the Tecnologico de Monterrey university, said he doesn’t see how helping a Mexican company make money would jibe with Trump’s pledge to “buy American, hire American.”
“It just won’t be consistent,” he said.
In his inauguration speech, Trump also proposed a vast remake of crumbling U.S. infrastructure. “He is going to deliver,” Commerzbank AG analyst Norbert Kretlow said by phone. “The possibility for infrastructure investments is now a lot higher.”
Shares in materials suppliers reflected optimism that a Trump construction boom is ahead.
Birmingham-based Vulcan Materials Co., the biggest U.S. sand and gravel supplier by market value, advanced 1.74 percent in New York. Cement makers Martin Marietta Materials Inc. and Eagle Materials Inc. also rose, extending gains that began after Trump’s election. Germany’s HeidelbergCement AG, which has said it would benefit from a border wall, surged the most in two months.
The wall’s cost could vary widely depending on its size and the materials used, said Garik Shmois, an analyst at Longbow Research who covers Martin Marietta, Vulcan, Cemex and other building-materials makers. At the midpoint of Shmois’s estimate, the wall would use about $1.2 billion of cement, concrete and aggregates.
“So many companies have exposure around the border that it would be divided up fairly evenly,” said Shmois. “No one company is going to be disproportionately impacted by this.”
Because moving all that gravel requires heavy machinery, shares of equipment makers have risen as well. Caterpillar Inc., the biggest manufacturer of construction and mining equipment, climbed 16 percent since the election and gained 2.3 percent Wednesday. Titan International Inc., whose tires keep heavy equipment rolling, rose 8.1 percent.
HeidelbergCement Chief Executive Officer Bernd Scheifele has said his company would be well positioned in Texas and Arizona to supply cement for a border wall. The shares rose 4.5 percent to 91.50 euros in Frankfurt, the biggest gain since Nov. 9. Swiss rival LafargeHolcim Ltd. climbed 3.1 percent to 54.75 Swiss francs.
“Whether it’s money flowing into infrastructure or the wall, they need cement, and they need the building materials that these guys are providing,” said Phil Rosenberg, an analyst with Bernstein. “Any incremental demand for building materials would be very positive for these.”
Another winner could be Nebraska’s Werner Enterprises Inc., whose shares are up 4.4 percent since Monday. The company began operations in the border town of Ciudad Juarez, Mexico, in August.
It is a manufacturer and distributor of ladders.