Pretoria Portland Cement (PPC), said yesterday it would hike the price of the building material for the second time this year as manufacturers feel the squeeze of higher input costs. PPC, which has already increased the price of its cement 8,5% this year, said the hike of about 5% in July was meant to bring cement prices in line with March’s producer price inflation of 11.8%.
The increase is set to escalate construction costs and drive up the government’s infrastructure spending programme. PPC CE John Gomersall said the increases were needed due to higher input costs, such as electricity, fuel and transport, which he said had risen well above producer inflation. He said the rise in the price of cement was a global phenomenon, and prices were being pushed by rising energy costs. Our electricity costs have increased 14% already; coal has gone up 30% on average; diesel is up 28% and our delivery costs have gone up 19% for the year to date. We expect another increase in July to bring our overall increase for the year above 11%, he said.
An increase in the price of cement is set to result in a further escalation in construction costs and, in particular, drive up the cost of the government’s infrastructure spending programme now worth more than R500bn, as well as projects such as the Gautrain. In the case of the government’s infrastructure projects, increased costs will put a heavier burden on the national purse. Higher prices could also have further inflationary effects on the economy. Higher costs are also likely to contribute to a slowdown in the residential property development sector, which is already feeling the pinch of higher interest rates and the National Credit Act. The price of cement and other building materials have soared considerably in the past couple of years due to a boom in Continued on Page 2 the construction sector, driven largely by government investment in infrastructure in preparation for the 2010 Soccer World Cup.
The increase in prices prompted the Competition Commission in October last year to look at the building materials and construction sectors with a view to investigate anti-competitive practices that might have driven up the costs of the government’s spending. The commission has been concerned by some trends, including price increases in construction running substantially above inflation. At the time, the commission noted building material prices were up about 80% since 2000 and across a range of items, from bricks to cement to steel.
Yesterday PPC announced healthy results for its half-year to March, despite a slight decline in regional demand for cement. Revenue grew 13% to R2,9bn, and operating profit rose 9% to R1 077m compared with the same period last year. Headline earnings per share improved 16%, boosted partly by a reduction in the effective normal taxation and secondary tax on companies. The company declared a dividend of 45c a share. PPC said demand for cement in southern Africa fell 1,3% for the period due to the combination of high rainfall, the Easter holidays falling in March this year and a softening of demand from the residential sector.
The residential sector had largely been hit by the combined effects of the National Credit Act and higher interest rates, while high rainfall had slowed expansion projects.
The company said the decline in residential construction was likely to limit industry regional cement demand growth this year to between 2% and 4%. However, Gomersall said the effects of the slowdown in the residential sector had been offset by the continued increase in government and private sector infrastructure spending. PPC’s share price gained 69c, or 1,8%, to R39,64, yesterday, valuing it at about R21bn.