Circle Cement has won a reprieve as a court ruled the company had the right to increase its prices in line with input costs. The immediate reaction was for the share price to rise dramatically.
The company has been in limbo in the past with the government regarding its product as equivalent to bread, hence the price controls. On the other hand the producer was not liked by investors because it is seen as a single product play and so investors thought it was too risky to invest in the company lock, stock and barrel.
At a time when South African fund managers believe their cement producers are fully valued, Zimbabwean listed cement and lime manufacturers present an opportunity for some still interested in the sector.
For a start South African producers have, by and large, exhausted their excess capacity to produce cement and so to produce an extra tonne they would need to sink a lot of money into a new plant. It can easily cost upwards of US$100 million to set up a medium-sized plant and so the South African players are not up to it because demand for the product may not be sustained enough to warrant such a significant capital expenditure.
In order to satisfy the increasing demand of the product in South Africa in the build up to accelerated growth initiative implementation programme, South African companies have resolved to import cement from regional players running below capacity.
The current economic situation in Zimbabwe then places Circle in an enviable position as an exporter of cement to regional players. The company can export up to 160,000t of cement by some estimates and this would provide a healthy stream of foreign currency for the company.