adminCEMENT volumes at PPC had been hit by “intense” competition despite the marked decline in cheap imports from Pakistan, SA’s largest cement maker said in its latest operational update.Core cement volumes in SA (excluding Safika Cement) declined by 4% in the first 11 months of the 2015 financial year, while margins were put under pressure by the group’s inability to raise selling prices to offset rising input costs.
Average selling prices fell 2% during the period.
Other major players in SA’s cement market include Afrisam, Lafarge and Sephaku Cement, a subsidiary of Dangote Cement, Africa’s largest producer of the building material.
Companies set to enter SA include Chinese-backed Mamba Cement and German firm HeidelbergCement, the third-largest global cement producer, according to Bloomberg.
Since May, when local import authorities applied provisional anti-dumping duties against cement from Pakistan, only two vessels carrying cement from that country had entered SA compared with 11 before the duties were enforced, PPC said.
However, this failed to offset pressures from local producers that “led to substantial customer churn” in a saturated market.Sibonginkosi Nyanga, an analyst at Momentum SP Reid Securities, said SA’s economy needed to grow at an annual pace of more than 2.5% for PPC to experience meaningful cement sales growth. Without a catalyst to increase volumes, SA’s cement demand growth was “likely to remain in low single digits”, boding ill for PPC’s future prospects.
This week, the Reserve Bank lowered its growth forecast for SA’s economy this year to 1.5% from 2% initially. Growth in the next two years was also cut by half a percentage point to 1.6% in 2016 and 2.1% in 2017.
PPC’s rest of Africa operations recorded a mixed performance in the period.
Cement volumes in Botswana and Rwanda improved, but a stronger dollar, pricing pressures and increased competition in Zimbabwe resulted in lower production and a 10% drop in exports from that country.
“We believe that we are at or near the bottom of the cycle, however, increasingly competitive forces in SA, Zimbabwe and Botswana weigh on the near-term outlook,” PPC said.
Although the production ramp-up of its Cimerwa plant in Rwanda would offset some of the headwinds, “increasing finance costs (related to the project) will counteract these initial revenue gains”, the company added.An initial investment of $170m was made in the plant, which is set to produce 600,000 tonnes of cement a year.The dollar-denominated debt, which makes up 61% of the finance, bore interest at 6.5% above the London interbank offered rate and would be paid over eight years, PPC said.The balance of 39% comprised Rwandan franc debt at a fixed annual rate of 16%, also to be paid in eight years.PPC is also constructing plants in the Democratic Republic of Congo, Zimbabwe and Ethiopia in line with its strategy to deepen its African footprint. – Business Day
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