Local cement market flooded, says PPC

21 Nov 2014

Business Report, page 1
Roy Cokayne

Cement and lime producer PPC is cautiously optimistic about the roll-out of the government’s multibillion-rand infrastructure expenditure programme but believes the domestic cement market is oversupplied.

Ketso Gordhan, the chief executive, confirmed yesterday that imported cement from China continued to be a problem. A dumping complaint had been lodged in the past month with the International Trade Administration Commission.

Gordhan said about 1.1 million tons of cement, accounting for 8 percent of the local cement market annually, was imported into South Africa.

He said Lucky Cement was “the main player in that space” and had the advantage of Chinese government subsidies and of not paying tax on exported cement.

Historically, Gordhan said, it took about six months before there was any result from a dumping complaint.

The industry also faced increased competition because Sephaku Cement this year became the first new entrant into the market since 1934. In addition, Mamba Cement, backed by the Jidong Development Group of China, is building a cement plant in the country.

Gordhan said the domestic cement market was definitely oversupplied but, based on a few assumptions, the entry of Mamba Cement into the market was logical.

These assumptions were that the existing players would not increase their capacity; the government infrastructure expenditure programme would be rolled out; and cement demand would grow by between 6 percent and 7 percent a year, resulting in domestic cement capacity starting to run out by 2018, he said.

However, over the next 18 months PPC would increase its cement capacity by 1 million tons a year through an upgrade to its slurry kiln 8, he said.

In addition, the government’s infrastructure expenditure programme might not proceed as expected. Gordhan said roll-out of the programme had been slow but PPC had become more optimistic because it had seen increased activity over the past three to four months.

“There has been a definite increase in tenders issued for dams, roads, school buildings and RDP housing. There is reason to be cautiously optimistic.”

Gordhan said that if “some problematic issues” around municipal capacity and the platinum strike were resolved “there could be a measurable improvement”.

PPC is countering the threat posed by increased local competition through its expansion into the rest of Africa. Its target is to generate 40 percent of its revenue from outside South Africa by 2017.

Construction of new cement plants is under way in Rwanda, the Democratic Republic of Congo, Zimbabwe and Ethiopia, with construction in Algeria likely to commence by the end of this year.

PPC gave notice yesterday of a review of its dividend policy. Gordhan confirmed this was prompted by the need for PPC to retain more cash to fund its expansion plans but stressed the firm would continue to pay dividends, although it might have higher dividend cover.

PPC reported yesterday that total cement sales volumes improved by 2 percent in the six months to March and group revenue grew 9 percent to R4.16bn on the back of increased export volumes, the consolidation of sales from Safika Cement and its Rwandan operations, improved pricing and the favourable impact of the devaluation of the rand.

Headline earnings a share grew by 50 percent to 96c. Normalised earnings a share were 4 percent higher than the prior period at 86c.

Operating profit improved by 15 percent to R865m.

PPC declared an unchanged interim dividend of 38c a share.

Its shares lost 4.86 percent to close at R31.35 on the JSE yesterday, but were off an intraday low of R30.97.