South African producers continue to smile

South African producers continue to smile
Published: 10 April 2006

South African cement companies are sitting pretty at the moment, and the positive sentiment surrounding them is going to be around for a few more years. While there is the widely shared concern that government is not moving fast enough to honour some of its infrastructure commitments, these are not enough to dampen the optimism in the industry.

Cement maker Pretoria Portland Cement (PPC) embodies the state of the cement industry. Merrill Lynch says that PPC’s share price has soared 35 per cent in the past year and by 23,7 per cent since the beginning of this year.

Merrill Lynch says that there is no risk of a weakening share price "in the foreseeable" future. One of the reasons for such a bright forecast is that the price of cement is unlikely to be disrupted until 2008.

There are concerns about government spending levels however. Government has set itself a target to increase gross fixed capital formation levels to the emerging market norm of approximately 25 per cent of gross domestic product (GDP). As any industrial company will tell you, government has not moved as fast as industry had expected. But it may be too soon for the likes of PPC to press the panic buttons yet.