South Africa: waiting for the upturn

South Africa: waiting for the upturn
Published: 15 January 2011

South Africa has reported a decline in sales for full-year 2010 as a continued slowdown in the construction industry and low levels of residential sector activity hamper demand. According to figures by the Cement & Concrete Institute (C&CI), consumption in 2010 amounted to 10.87Mt, down 7.8% YoY from 11.78Mt in 2009, when it decreased 13%.

The current decline in consumption is mainly due to a depressed housing market, which has been the major contributor to demand in recent times. This has been exacerbated by lower activity in the construction sector since the completion of projects associated with the 2010 FIFA Soccer World Cup, followed by delays and cancellations on government infrastructure projects.

The country’s leading cement producer, Pretoria Portland Cement (PPC), recently reported that it has had to contend with a third consecutive year of declining cement demand in its principal markets as sales dropped more than 20% below 2007 levels. In the group’s full-year financial statement to 30 September 2010, it recorded a 13% fall in South Africa and Botswana. The Western Cape and Gauteng provinces, where the bulk of infrastructure projects have taken place, were the worst affected. As a result, PPC stopped production at a number of older, less-efficient kilns across its operations. In addition, it announced a review of its Western Cape expansion programme and the resultant withdrawal of its environmental application for the original project. The revised plan will see PPC upgrading and increasing capacity at its existing Riebeeck and De Hoek facilities in the Western Cape, resulting in a 50% rise in capacity.

PPC predicts that cement demand will increase only marginally in the 2011 financial year with no growth expected in the interim. However, the company highlights: “Our longer-term outlook is still positive and this is reinforced by the South African government’s continued commitment to infrastructure development and job creation. Record-low lending rates should encourage the resumption of residential and commercial activity in due course.”

A recovery in demand relies heavily on a revival of the residential building sector, and particularly the government’s social housing programmes. In fact, Frost & Sullivan claims that this will be the largest single driver behind cement consumption growth, with the government expected to deliver an estimate 630,000 housing units over the 2010-15 period.

South Africa’s public sector’s infrastructure spending programme, involving some ZAR800bn in investments, is also a key driver in demand. Around 54% will go to public enterprises with cement-intensive projects, including water, health, transport and power generation. However, continued deferral of these projects has meant that the programme has not proved to be the stable demand driver on which producers can rely. Resumption of these projects is needed to help reverse the current decline in demand.