The wall is rising.
Invest in cement.
Less than a week into his presidency, Donald Trump has fulfilled a key campaign pledge by signing paperwork that will allow construction of a new wall on the Mexican border to begin. Congress would still need to appropriate the majority of funds for the project—which could cost as much as $25 billion—but there’s apparently enough money in existing federal accounts to break ground.
Mexico’s president, Enrique Peña Nieto, says the wall is an affront to his country. But there could be a consolation prize: fresh new business for Mexican contractors, especially cement companies.
Trump’s wall would require around 7 million cubic meters of concrete and 2.4 million tons of cement, according to investing firm Sanford C. Bernstein & Co. And guess who produces just those materials, in the vicinity of the Rio Grande? “Most of the cement producers in North America are Mexican,” says Nariman Behravesh, chief economist at forecasting firm IHS. “As an infrastructure program, [the wall] could boost the Mexican economy. It could benefit Mexican companies.”
Of the 20 biggest cement producers in the world, Mexico’s Cemex is No. 7, according to trade magazine Global Cement. There are no American companies among the top 20. Trump, of course, could decree that all cement poured into The Wall must be American. But guess what: Cemex has extensive US operations, with dozens of plants in the United States and more than 10,000 US employees.
Trump might find a way to exclude Cemex and other suppliers headquartered outside the United States from contracting on The Wall, but that would be depriving such firms’ American employees of work. Or, not. If all the sourcing for The Wall went to firms with an American HQ, then those companies might be unable to fill orders for other clients – leaving companies like Cemex to fill the gap. If global demand for anything goes up, it usually benefits most sellers, because firms are loath to add costly capacity when a bump in demand is temporary. Instead, they ramp up production as much as possible at facilities already online, even if it allows competitors to grab part of the pie.
The Bernstein analysis estimates Trump’s enhancements to border security (a wall already exists on portions of the 1,989-mile border with Mexico) could cost as much as $25 billion. Concrete, made of cement, would be the cheapest likely material. The huge project could boost cement demand, currently growing around 4% per year, by a full percentage point once construction gets underway. That’s a big jump for a mature industry in a slow-growing global economy. And since cement is costly to ship, it would make sense to source it as close to the border as possible.
Cemex (CX) has many facilities in the region that fit the profile—on both sides of the border. So does another Mexican company, Grupo Cementos de Chihuahua (GCC.MX), whose CEO told Reuters last November that he’d be happy to supply cement for Trump’s wall. Cemex’s stock price plunged after the election, but it has since rebounded and is slightly above levels of Nov. 8. GCC’s stock is up 46% since then.
Other cement producers in the region include CalPortland, which is owned by a Japanese company, and Alamo Cement Company, which has an Italian parent. Both subsidiaries do have large US operations, and could benefit from the wall as well. “As ludicrous as the Trump Wall project sounds (at least to us),” Bernstein wrote in its July report, “it represents a huge opportunity for those companies.”
Trump continues to insist Mexico will somehow pay for his wall, assuming the project moves past the paperwork stage. Mexico says no way, so that fight seems likely to fester. Whoever makes money off the wall probably shouldn’t spend it right away.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.