South African construction costs to soar with cement price increase

South African construction costs to soar with cement price increase
Published: 13 November 2006

Increases in the domestic price of cement appear imminent and will raise the cost of major construction projects, including the government’s infrastructural expenditure programme and 2010 soccer World Cup projects.

This comes after both PPC, Barloworld’s listed cement and lime subsidiary, and Lafarge South Africa, admitted they would make little if any profit, or even a loss, on imported cement at current prices.

The government aims to spend about R370bn between April 2005 and March 2008 on its ambitious infrastructure investment programme, while R8bn has been set aside for stadiums and infrastructure for the World Cup.

John Gomersall, PPC’s chief executive, said PPC’s first shipment of imported cement arrived last month, but it looked as if the firm did not make any margin on the shipment. "If hypothetically the rand were to weaken dramatically, we’d be importing and selling at a loss," he said. "We’re not doing this [importing] for benevolent reasons. Either contract activity dries up or people pay the price."

Gomersall said PPC increased its cement prices by seven per cent at the beginning of the year but had elected not to increase prices again in July because of "noise" about how the price of cement had risen.

Carl Grim, the chief executive of Aveng, the listed construction, steel and cement group, said construction companies were compensated for an increase in cement or steel prices and clients ended up paying more. "If it’s the public sector, it’s the taxpayer that ends up paying more."

Aveng has a 46 percent shareholding in cement producer Holcim South Africa, in which Swiss-based Holcim, the world’s second-biggest cement maker, holds the remainder of the shareholding.

Grim said Holcim SA imported its first load of cement last year and lost money on it, but there was a steep learning curve to importing cement. "We found that out with our first shipment of cement last year and had substantially lower costs on our second shipment, and suspect the same will happen on the third [shipment]."