Cementos Argos S.A. (CEMARGOS) Earnings Call Transcript & Summary

Good morning. My name is Indira Diaz, Cementos Argos IRO, and I welcome you to our third quarter results release. On the call today are Juan Esteban Calle, our CEO; Felipe Aristizabal, our CFO; María Isabel Echeverri, VP of Legal Affairs; Bill Wagner, the VP of the U.S. division; Carlos Yusty, VP of the Colombia division; and Camilo Restrepo, VP of the Caribbean and Central America division. Please note that certain forward-looking statements and information during the call or in the reports and presentation uploaded at www.argos.co/ir are related to Cementos Argos S.A. and its subsidiaries, which are based on the knowledge of current facts, expectations, circumstances and assumptions of future events. Various factors may cause Argos' future results, performance or accomplishments to differ from those expressed herein. The forward-looking statements are made today, and Argos does not assume any obligation to update such statements in the future as a result of new information, future events or any other factors. Today, after the initial remarks, there will be a Q&A session. [Operator Instructions] We will record this Q&A session and upload it in our webpage. It is now my pleasure to turn the call over to Mr. Calle.

I would like to start by highlighting the approval of the $1.2 trillion Bipartisan Infrastructure Deal in the U.S. last Friday, including $550 million in infrastructure and more specifically $110 billion of investments in roads, bridges and major transformational projects. The increased demand from this bill in the U.S. will have a great impact in our performance and strategic plans in the near future, taking into account the relaunch of this market within our footprint. Now moving on to the third quarter results. We evidenced a strong performance of our volumes and prices in the cement and ready mix segments in most of the countries where we operate during the third quarter. Market dynamics continue to be positive in all regions with the strong signals of economic reactivations as macroeconomic indicators in most of our markets continue to evolve favorably. In this context, that has also generated cost inflation pressures. Argos holds a privileged position given its capacity to locally produce clinker and cement in each of the regions where we operate. Additionally, the strategic geographic location of our network of ports and our own fleet of vessels facilitate the integration of the Cartagena plant, which is one of the most efficient in the Americas with the grinding station and ready-mix operations in the U.S. and the Caribbean. I would also like to take advantage of this opportunity to mention that we recently affirmed our commitment towards the sustainable development of our company and the communities we serve, which is particularly important in these times of accelerated economic growth. Our company has reduced CO2 emission by 14% during the last 10 years from the base, and it's committed to improve further by cutting its CO2 emissions by 29% on the cement operations by 2030 and offer carbon-neutral concrete by 2050, in line with the GCCA Roadmap. Our successful track record on developing green products, such as the calcined clay cement in Colombia, together with our ambitions, projects on development of new technologies, leave us well positioned to achieve these ambitious goals. Now referring to our consolidated results, I would like to mention that all the reference made to EBITDA, ready-mix and cement volumes and their percentage evolution versus last year are made on a comparable basis, excluding the adjustments that are explained in more detail in the presentation that is currently being displayed and in the report that is available on our IR website. Cement dispatches reached 4.2 million tons during the quarter with a year-over-year increase of 11.9% on a like-for-like basis as a result of the positive evolution in all 3 regions. Ready-mix volume accounted for 1.9 million cubic meters, increasing 5.7% and versus the same quarter of 2020 on a like-for-like basis and meets the combination of recovery of the industrial segment in Colombia and challenging work conditions in the U.S. Revenues accounted for COP 2.5 trillion during the third quarter, posting an increase of 5.3% year-over-year as a result of better pricing and improved volumes in most of our markets. The adjusted EBITDA for the period was COP 473 billion, increasing 2.4% on a like-for-like basis versus the third quarter of 2020, benefited by the strong performance of revenues and partially affected by one-off adjustments in the U.S. and inflationary pressure on cost in all 3 regions. Year-to-date, the adjusted EBITDA stood at COP 1.44 trillion, reflecting the strong dynamic of the current year. Now to start with our results in each region, I would like to invite Bill to provide more context about the performance of the U.S. region and our view for the market.

Thank you, Juan, and good morning, everyone. I would like to start by highlighting the outstanding commercial performance in our markets, as evidenced by the increase of our cement and ready-mix volumes by 11.6% and 1.5%, respectively, versus the third quarter of 2020 on a like-for-like basis. These results are particularly positive, taking into account the challenging weather conditions that we experienced in our Houston and Georgia markets, where we faced during the quarter the highest number of bad weather days in the last 4 and 5 years, respectively. The improving economic conditions, particularly in the oil industry and the tourism sector, were the main drivers behind the positive volume evolution of the quarter. On the cement business, the Carolinas were the best-performing states with a 20.4% growth in volume when compared to last year, while the city of Houston and the state of Florida were the best-performing areas on the ready-mix segment with the year-over-year growth of 8.2% and 3.1%, respectively. Prices behaved accordingly, increasing 1.1% in cement and 2.3% in ready mix versus the same quarter of last year. The EBITDA for the quarter remained strong but was affected by one-off adjustments related to a process of assets and inventories clean-up that the company has been carrying out for the last 18 months. Particularly on the third quarter, this generated a nonrecurring expense of $4.6 million that affects the EBITDA but does not represent any cash flow (sic) [ outflow ] for the company. This cleanup process that involves a physical count of inventories and assets was concluded during the quarter for the ready-mix business and will be concluded before the end of the year for the cement business. It's important to highlight that these write-offs are carried out amidst our initiatives of continuous improvement and our normal in a company like ours that is the result of several processes of acquisitions and divestitures over the last 15 years. The worldwide economic reactivation... [Audio Gap] On the cost per cubic meter in fuels is even higher, increasing 32% when compared to the same quarter of last year. As a result, the quarterly EBITDA in the U.S. stood at $62 million, decreasing year-over-year 9.7% on a like-for-like basis, affected by weather conditions, noncash adjustments and cost headwinds, as explained before. Year-to-date, our adjusted EBITDA stands at $191 million, which represents a 2.1% improvement on a comparable basis versus the same period in 2020. The approval of the Bipartisan Infrastructure Deal, as Juan previously mentioned, is a constructive announcement for the presence of Argos in the U.S. Preliminary market expectations indicate that the incremental demand will add around 4% to 5% of cement consumption per year that, in already tight supply conditions, will set out the proper market environment for improved profitability over the coming years. Additionally, increased investment arising from this bill, which is significantly higher than the previous infrastructure program known as the FAST Act, will also boost employment as well as other macroeconomic indicators, ending an additional benefit for our company. In terms of market dynamics, the evolution of the indicators surrounding the construction industry is (sic) [ in ] the U.S. suggests further growth in the midterm that, together with efficiencies implemented in our operations and the strategic divestitures carried out recently, should translate into additional improvements in profitability for the coming periods. On the residential segment, housing starts and building permits increased during the quarter 8.7% and 6.2%, respectively year-over-year, which, combined with the decrease in unemployment and the general positive outlook for the U.S. economy, should continue to perform well in the short term. The commercial segment, on the other hand, continues to reactivate as evidenced by the Architectural Billings Index that in September stood at 56.6 points, one of the highest scores seen in 2021. Similarly, the Dodge Momentum Index posted solid gains in September in both commercial and institutional components after slowing planning activity reflected on readings from the previous months. On this segment, during the quarter, Argos started to supply a large manufacturing campus project for the global compact equipment manufacturer Doosan Bobcat that would represent a volume of around 17,000 cubic meters with the majority of the concrete expected to be poured by March of 2022. In this same line, we were recently awarded with the ready-mix supply contract for a new Cinemark Theater in Jacksonville that will use around 4,000 cubic meters of a special blend of concrete, where we use a specific fly ash blend to create a low-carbon, environmentally friendly product, reinforcing our commitment towards sustainability. We expect this constructive trend to continue in the midterm, followed by a suitable international environment that -- the continuation of the cement super cycle in the U.S. The concentration of our U.S. cement and ready-mix operations around big urban areas, together with the ability to integrate our Cartagena plant with a portion of these operations and the import capacity of our ports, will be our main strategic advantages to capture all the growth derived from this upcoming cycle.

Thank you, Bill. We are fully convinced of the potential of our U.S. operations to fully capture the future value of our growing market in the U.S., especially taking into account the recent approval of the infrastructure deal. Now moving to Colombia, I would like to highlight the improvements in the local market after a social unrest experienced in the last quarter. Carlos will now provide additional color on this region.

Thank you, Juan, and good morning. On the third quarter of the year, the industry experienced full recovery of demand across the country and reached the highest quarterly cement dispatches so far in 2021. As condition improved, we were able to continue ascertaining dispatches with a special focus in the retail segment, which continues delivering strong results supported by self-construction. Cement volumes grew 14.4% versus the same period of 2020, benefited from the overall market growth and our strategy of increasing exposure to the retail segment. Meanwhile, on the ready-mix business, volumes grew 9.3% year-over-year as formal construction gained traction and continues closing the gap versus prepandemic levels. During the quarter, we also experienced inflationary pressures. In the cement business, cost per ton increased year-over-year 13% in fuels and 4% in electric energy as of September. In order to partially mitigate this inflationary trend, we renegotiated a contract with one of our main freight companies, generating savings in cash of approximately COP 14 billion for the year due to a change in accounting treatment of the contract, which went from a leasing under IFRS 16 to a regular transportation contract. We also have to incur additional operational expenses that will affect our yearly 2021 EBITDA in COP 8 billion. From this total amount, COP 6 billion were registered during the third quarter, affecting the comparability of our figures. EBITDA was 24.2% higher than the previous year despite the cost pressures previously discussed. EBITDA margin stood at 20.7% in the quarter, at 21.5% year-to-date, 220 basis points higher than 2020. These outstanding results reflect the successful deployment of our commercial strategy as well as the plans that we have executed to mitigate inflationary pressures as much as possible. In terms of pricing, the cement segment remained stable sequentially while ready-mix prices were 1.9% lower than the second quarter of 2021. We consider that recent dynamics in fuel cost inflation, higher land and marine freights and global cement trading dynamics, which have resulted in higher import parity prices, will continue to influence the national industry and prices will gain traction over the following months. Market dynamics in formal construction continued on a strong footing as indicators provide positive signals on the residential and infrastructure segments. Year-to-date, social and nonsocial housing continued posting strong sales, growing 48% and 47%, respectively, year-over-year. And housing starts reached in July a new all-time high monthly figure, signaling a strong second semester for the consumption of building materials. On infrastructure, we are proud to announce that we will be suppliers of the Patio Taller of the Bogotá metro, where we will provide approximately 100,000 cubic meters of concrete over the next 14 months. We were also awarded the contract to provide the second module of the Guillermo Gaviria tunnel, which is part of the mark 1, where we will provide close to 200,000 cubic meters of concrete. For the rest of 2021 and for 2022, we expect infrastructure construction in Colombia to continue accelerating. In road construction, infrastructure projects, such as Santana-Mocoa-Neiva and Malla Vial del Meta, are expected to begin structure in 2022. On the same line, Malla Vial del Valle, the first 5G project, is expected to begin in the second semester of the same year. Additionally, urban projects, such as the Bogotá metro and 2 Transmilenio lines, will start their construction phase this year, providing positive support for the cement demand forecast. In terms of our sustainable product portfolio and as part of our comprehensive strategy to deliver sustainable solutions to our clients, we launched our green cement in the northern zone of the country. Distributors and construction sites in 6 departments will start receiving this product, which, in each production process, reduces close to 35% of CO2 emissions. We are optimistic that we will finish 2021 with a strong performance as the industry continue displaying its resiliency and strong demand condition despite the challenges it has recently faced.

Thank you, Carlos. We are pleased with the evolution in terms of volumes in formal construction in Colombia and are fully committed with increasing our profitability in the foreseeable future. Moving on to Caribbean and Central America, I would like to highlight the positive pricing dynamics on the region. Camilo will provide additional information on this subject.

Thank you, Juan, and good morning, everyone. The Central America and Caribbean region exhibited good commercial dynamics during the quarter in most of our markets, derived from the economic reactivation that led to stable local volumes and better pricing environment. Cement dispatches increased during the quarter 10.1% versus the same period of last year mainly due to the improvement of trading volumes that increased 71.3% as an indirect effect of the exports to the U.S., which have grown consistently compared to the previous year, accounting for 109,000 tons during the quarter and 272,000 tonnes year-to-date. Honduras continues to exhibit positive market dynamics, improving in both prices and volumes year-over-year. Volumes in the country displayed a 2.2% growth versus the same quarter of last year despite the rainy season of the country. Dominican Republic has steady volumes and continues the trend of improving prices year-over-year. The market also continues to display the positive commercial dynamics that have been present since the reopening of the country last year after the shutdowns during the pandemic. Panama, when compared to the same quarter of last year, is the country with the highest percentage improvement in terms of volume with an increase of 26.1% due to the recovery of the country after the pandemic that has been more noticeable on the current year. Nevertheless, the local construction materials industry continues to face challenges associated to high housing inventories and the lack of infrastructure projects in construction phase, which has led to a poor pricing environment within the country. Some of the major infrastructure projects, such as the third line of the Panama metro, are now starting and will start to improve market dynamics in the country. Haiti, on the other side, exhibited significant price improvements, but cement dispatches have been low due to a political and social stability (sic) [ instability ] in the country, in addition to some technical difficulties in the plant derived from the earthquake that occurred on August 14. Puerto Rico also had positive price performance followed by a 7.4% year-over-year decrease in volumes explained by a higher comparison base for last year resulting from the pent-up demand experienced after shutdowns. The French Guiana experienced growth in both prices and volumes, posting a 6.6% increase in cement dispatches versus the third quarter of 2020. I would like to highlight the finalization of construction and inauguration of the Ariane 6 space launch platform, a marvel of modernity located in the middle of the French Guiana, close to the town of Kourou that has its inaugural flight on September. For this project that makes for the European Space Agency, we dispatched around 54,000 tons of 3 different types of cement with high levels of performance and advanced technical specifications. One product that was introduced to the space complex portfolio was the road binder, a soil and road stabilization solution with broad application possibilities in the region. Across the region, average prices increased 6.1% year-over-year, reaching the highest average quarterly price of the last 2 years. This positive evolution caused by the combination of recovering local markets and the increase in import parity prices are strong signals of the economic recovery in the region. Costs were also impacted in the CCA region due to the inflationary pressures affecting the global economy, especially prices of the fossil fuels that are commonly used in most of these countries to generate electricity for both the residential and industrial sector, and CFI (sic) [ CIF ] costs that had a significant increase during the third quarter and impacted some spot cargoes. Total EBITDA for the CCA region stood at $32 million during the third quarter, decreasing 7.9% year-over-year as a result of the challenges in Haiti, the incremental costs in fuels, freights and raw materials as well as the maintenance of the Cartagena plant that affected the volume of exports in favor of the volumes of trading during the quarter. Year-to-date EBITDA accounted for $117 million with an increase of 32.4% and year-over-year, explained by the strong performance of most countries. We expect inflationary pressures to continue in the short term in the CCA region given the macroeconomic conditions, but market dynamics with positive pricing trends should lead to positive results in the following quarters.

Thank you, Camilo. I would like now to make reference to our balance statement. As of September 2021, our net debt-to-EBITDA plus dividends ratio remained stable in 3.1x despite the dividends paid during the quarter. For the end of the year, we maintain our guidance of a leverage ratio below 3x given the positive forecast on EBITDA and cash generation that we expect for the last quarter of the year. On October 20, we attended the [indiscernible] bell ringing ceremony on the Santiago Stock Exchange, officially launching the cross-listing of our stock in the Chilean market, which resulted from the agreement made between the Colombian and the Santiago Stock Exchange. With this initiative, together with the market maker contract that we have signed with Larran Vial to provide liquidity to our stock in this market, we expect to attract new investors to our company to enhance and diversify our investor base. Before ending my intervention, I would like to welcome [ Felipe Aristizabal ], who has been recently appointed as CFO of Argos and has joined our Executive Committee. Felipe is an economist from Universidad de Los Andes in Colombia and has an MBA from London Business School in the U.K. He has held several positions in investment banking in the past and, before joining our company, was the M&A Managing Director of Grupo Argos. We believe that Felipe is a great addition to our team and his talent and skills will be key for the development of our company in the coming years. Thank you all for your attention. Indeed, we can now start with the Q&A session.

[Operator Instructions] First question comes from Juliana Aguilar from Bancolombia.

I have 3 questions. My first one is regarding your energy matrics. I was wondering if you could tell us how is the energy matrics currently composed. And how do you expect it to be in 2030 in accordance with your goal of reducing CO2 emissions by 29%? My second question is given the cost pressures you're experiencing, do you expect consolidated EBITDA margin to remain below 20% in the coming quarters? And last one, just to be sure, the $62 million EBITDA figure for the U.S. in this quarter is not excluding the nonrecurring expense of $4.6 million? Thank you very much.

Thank you for your questions. I mean our energy matrix is basically composed of coal, natural gas and pet coke. We are using alternative fuels at more or less a consolidated level of 5% to 6% right now. Our goal to comply with our target of CO2 emissions to 2030 is to increase the use of alternative fuels to at least 30% in our energy matrix. And that, together with increasing the use of alternative cementitious materials, will allow us to reach that goal of 523 CO2 tons per equivalent ton of cement that we have targeted for 2030. Second question in terms of cost pressure, yes, I think that the impact of the cost of fuel inflation in the quarter was more or less 1% of our revenues, impacting our EBITDA margin. Our goal going forward is still to have margins -- EBITDA margins in excess of 20%. We see a very favorable pricing environment going forward that would allow us to mitigate the cost inflation that we are facing currently. So in all of our projections, our margins will still be in excess of 20% on a consolidated basis going forward. And can you please, Juliana, remind me the third question?

Yes. I just want to be sure that the EBITDA figure for this quarter, the $62 million, is not excluding the nonrecurring expense of $4.6 million you mentioned from the cleanup process.

Yes, Juliana, that is correct.

Next question comes from Rodrigo Sanchez from Davivienda Corredores.

I've got 2 questions. The first one is, could you please comment on your commodity prices hedging strategy going forward? And as of today, how much of the expected consumption is under any type of hedging? And my second question is related to CapEx. And how much are you expecting to invest in the U.S. to upgrade or update your port infrastructure to be able to use its full potential?

Thank you, Rodrigo. I mean currently, we are not using hedge on our fuels. I mean what we have is some contracts in place. And that way, I mean, we are mitigating in some way the increase in fuel prices that are currently going on in the market. But we are not using hedging strategies. In terms of CapEx for 2021, we're still working the numbers for the 2021 budget, so we are still not giving any guidance on the CapEx for 2021. Thank you for your question.

Next question comes from Nikolaj Lippmann from Morgan Stanley.

Sorry. Basically, a question on pricing. If you could provide any color on the pricing dynamics in the United States during this quarter. It looks -- when we look across the different reports from different companies, there have been very different dynamics depending on the markets. We'll be very interested to hear what you've been seeing. And also, if you can provide any color on what kind of pricing -- price increases you're looking at for early 2022.

Thank you very much, Nicolaj, for the question. I would like Bill Wagner to answer that question.

Yes, Nicolaj, thank you very much for the question. What we're seeing in the U.S. is some pretty strong headwind, as you know, with inflation. And our goal, like we've said in the past, is to stay above inflation, and that's why we did announce a second increase this year. We're monitoring that closely also going into next year. And our goal will be similar. Now there's still a lot of headwind, although I think some inflationary costs may lighten a little. Our goal is to stay ahead of inflation. So we'll do that through the revenue side of the business and the pricing side of the business. But we do expect to stay ahead of that.

But all our competitors have talked about double digits, anywhere from $12 to $15 in January. Is that something -- I mean, is that sort of the ballpark number that you're thinking about?

Yes. Nicolaj, I don't really comment on specific pricing like that. So like I said, I mean, our goal is to stay ahead of inflation, and we expect that pretty strong demand next year. And I think we've done a pretty good job this year on the pricing side. So our expectation is to stay in that same ballpark or stay a ahead of costs.

Next question comes from Steffania Mosquera from CrediCorp Capital.

My first question is regarding infrastructure plans in Colombia, the U.S. and Panama. I would like to know how much dispatches you are expecting from this segment in the 3 regions compared to what we have been seeing in 2021. The second question is regarding metal prices. I'm wondering if you are seeing high metal prices as a risk for the demand in the residential sector. And my third question is regarding port capacity. I saw on local media that you are planning to expand the Cartagena plant further to 2 million tons export capacity. So I would like to have more color in that front.

Thank you, Steffania. I mean we are expecting solid growth in infrastructure in all of our regions. Demand in Colombia has been really strong. I mean we're expecting the market to close to -- very close to 13 million tons of demand in 2021, and we see further growth in 2022. So we expect the infrastructure segment of the market to continue performing well in Colombia into 2022. In the U.S., similarly, we are expecting solid growth in our volumes in the U.S. going into 2022. We expect the impact of the infrastructure package to start materializing more into 2023. But in any case, we are expecting the segment to continue growing at least in the mid-single digits in 2022. In Panama, so far, things are starting to improve a little bit, and we are confident that the major infrastructure projects that are in the pipeline in Panama will start to materialize in 2022. Being that segment one of the main drivers of demand in Panama, we expect volumes to grow at least high single digits in Panama next year. In terms of adding capacity to Cartagena, we have been doing that for quite a long time already. We are planning to grow export out of Cartagena between 35% and 40% next year, I mean, going from 1 million tons to close to 1.4 million tons. We are finalizing the expansion of the Cartagena port. So that will help in a significant way. So that is basically the expansions that we are planning in Cartagena to take advantage of the major opportunities that we are seeing not only in Houston and all the markets in the U.S. but also in Central America and the Caribbean. And in terms of cost inflations impacting the residential sector in Colombia and other markets, I mean, up to now, we still see a very good dynamic in terms of housing starts and sales, but one of the major challenges going into 2022, I mean, things will be of the cost inflation. But so far, the dynamic is still very positive.

Next question comes from Vanessa Quiroga from Crédit Suisse.

Thanks for taking my questions. The first one is a quick one about the cleanup process in the U.S. Just wondering if this will continue in coming quarters in terms of the inventory and assets evaluation. The other one is about the Central America region. Can you remind us what each of the main countries there is contributing to revenues and EBITDA if possible? And wondering specific about your outlook for IT. And finally, just reviewing your strategy to mitigate the cost inflation -- energy cost inflation in each region beyond pricing strategy. I mean what are you doing in terms of contracts or flexibility of the use of fuels and increasing in alternative fuels?

Thank you, Vanessa, I mean [Audio Gap] in our processes that we have been carrying out for the last [Audio Gap] [indiscernible] to finish that process, broadly you see an impact similarly to the one that we recorded in third quarter. In terms of [indiscernible] in the CCA [indiscernible] [Technical Difficulty]

Excuse me, you're breaking in. I don't think I can hear you well.

I'll take for the answer in lieu of Juan on the -- on CCA. So the situation in Haiti, as you might have read on the news, Vanessa, is complicated in terms of political and the situation overall in the country. We expect it to, of course, improve. I think that Haiti has had this in the last years recurring, of course, not in the same way that is happening this year, but we expect the country to fully recover and have a good performance over the last quarter or at least the last few months of the year and then next year. So there's a good demand for cement in Haiti, growing population, and there's a lot of opportunity in Haiti. So we still think that it's a potentially good country and with a lot of growth. You also asked about individual countries. I don't know if we have them specifically in the numbers. But for the quarter, it's around $10 million EBITDA for Honduras, $3 million for Panama, $6 million for Dominican Republic and $3 million for Puerto Rico. That's some of the largest sources of EBITDA in the region.

That's great. Thank you very much. I don't know if Juan is back to discuss about energy strategy.

I think I'm back. And Vanessa, at least you can hear me now. Sorry about the issue. So I would like, I mean, Carlos, Camilo and Bill just to talk about the mitigating strategies that we are putting in place for cost inflation.

Okay, Juan. Vanessa, I'm glad to hear you. In -- related to Colombia, we are -- first, we are trying to increase the use of alternative fuels mainly in Rio Claro. I mean our plan of Cartagena. As well, we are trying to mix different kind -- different types of coals, which is possible in Colombia because we have different sources for this product. In the case of the Cartagena, we usually use the coal from the Cúcuta region, but we are missing with other sources as well. But the first objective is to increase the alternative fuels in the long term.

Thank you, Carlos. Bill, on...

Yes, Vanessa. On the U.S. side, I mean, I think a couple of things that we've been doing that we're mainly focusing on now is because of the increase in natural gas, we've begun, I guess, a month or so ago shifting some of our plants back to using coal, which has reduced our cost to some degree. And I think along with Carlos' point, the alternative fuels has become a focus of ours and has been for some time, and we continue to move into a more positive direction with alternative fuels.

And Vanessa, for the Caribbean region, we also have the project now in place or starting in the short term for increasing alternative fuels in Honduras. That will, of course, give us a little bit better pricing or better cost just on fuels. But we have implemented already various alternatives there in Honduras with respect to trying to get the best possible fuel cost. And that's using high-sulfur fuel in combination with fluoride, which is a mineralizer, which allows us to use high-sulfur fuel pet coke, which is lower cost than normal pet coke and coal. And the other thing that we did is we increased our capacity of storage in our Rio Blanquito facility that also gives us the possibility to bring in much higher volumes of pet coke and decrease our cost. Also, we've implemented photovoltaic energy for Honduras, and we're planning to expand that. And other than that, we are negotiating contracts that will include more for electricity in other countries such as Dominican Republic that will include more PV as well. So in the mix, we'll try to ease up on the inflation costs both for fuel and electricity.

Thank you, Camilo. Finally, Vanessa, I would like to repeat my answer to your first question because the connection wasn't stable. So I was mentioning that we are in the final stage of the cleanup process in the U.S. We expect to finalize that process by the end of the fourth quarter. It has been an ongoing process for the last 18 months, I mean, to start doing physical counts of fixed assets. Because of the -- all the activity of acquisitions and the divestments in the U.S., we wanted to -- like a physical count of all our fixed assets in the U.S. So probably, you will see like a similar write-off in the fourth quarter. But that will be the end of that process.

Next question comes from Francisco Suarez from Scotiabank.

The question that I have is, now that you are expanding your overall port capacity in Cartagena, is there any constraint from your [ melting ] terminals in the U.S. to match the overall import capacity that you have in the United States? And second, a question related also with your overall set of grinding mills that you have in the U.S. that clearly are prepared to blend lots of types of different cements across the region. Is there any regional challenge in terms of permissions of approved blended cement products in Florida relative to, say, South Carolina or North Carolina? Is there any meaningful differences on the type of the blended cement products that you may allow to sell in those markets? And how do you see the overall reception on the market of switching more to blended cements compared to the Portland Cement product? And lastly, one of your levers that you described to mitigate or to cut emissions on your 2030 goals relates with the -- increasing the share of alternative fuels. But what about the overall intensity in energy? Is that a lever that we should be seeing to potentially cut emissions as well and if that might imply additional CapEx in your plans and perhaps more CapEx in certain regions compared to others?

Thank you for the questions. In terms of the -- any constraint in the U.S., we currently have like an import capacity of close to 4.5 million tons in our ports and terminals. What we will do and what we are doing to match the increased capacity out of Cartagena is to increase the capacity of the imports in our Houston port. We will be able by the end of 2022 to probably double the import capacity that we currently have at that terminal in Houston. So that is an important piece of our strategy going forward. And we will continue investing in our ports and terminals in the U.S. because we see that those assets are a very important strategic advantage that we have in the company going forward. In terms of blended cement in the U.S., we are extremely excited about the potential of IL cement in the U.S. I would like Bill to give you more color on our strategy with 1L going forward.

Yes, Francisco, thank you very much for the question. As of now, you brought up the challenge of acceptance. And I think there's been a lot of movement towards accepting blended cements in the U.S. Most of the states now have moved towards full acceptance. There are a few, none of which are in our current footprint, that are still questioning to some bit. So we think there's a lot of opportunity there. And we're moving our strategy very quickly to that effort. As of right now, we feel like next year, somewhere between -- maybe upwards of just over 30% we could end up blending, which I think would be a big benefit to the company and our results. And again, it stays in line with our overall strategy. So yes, we're pretty excited about the opportunity.

As part -- in terms of the levers, I mean, to reduce our CO2 impact, emissions, I mean, sure, I mean, it is not only to increase the use of alternative fuels, it's reduce the clinker-to-cement ratio with not only the growth of 1L cement in the U.S. but also the increased importance of alternative cementitious materials such as calcined clay, which has been a real success for us in Colombia, and we see a huge potential for that type of green cement in all of our geographies. And of course, I mean, improving the energy efficiency of our process is a all-important lever in that goal to reach the target in 2030.

That's very clear. If I may, just an additional question on overall pricing dynamics in Colombia. Now clearly, costs are on the rise for FOB clinker cement -- sorry clinker costs. I guess that now your overall import -- the overall capacity to -- for you to match the import parity costs that you see in the region have increased by the increase in tariffs as well. Do you -- is it fair to assume that the prices in Colombia are likely to increase, including the coastal -- in the northern zone of Colombia in the coast?

Paco, yes, I mean, we are bullish on the prices in Colombia going forward. I mean import parity prices are increasing in a significant way. FOB prices are still way lower than the -- in our opinion, it's a clear [indiscernible] for the market. So we are very optimistic about prices in Colombia going forward.

Juan, we don't have any more questions.

Okay. So once again, thank you very much for your interest in Cementos Argos and looking forward to our final conference call next year for the closing of 2021. So see you soon. And to everybody, have a great day.