South African producers and price increases

South African producers and price increases
Published: 02 February 2006

Climbing cement and concrete prices are pushing up the cost of building and property ownership – but South Africa’s cement companies won’t comment on prices. According to local analysts, the price of cement has soared 10.1 per cent in recent months.

With prices and volumes soaring, PPC, the only listed cement producer, last year reported a 19 per cent headline earnings increase and recently put out a trading statement projecting even higher profits this year. PPC has generated huge amounts of cash and paid more than a billion rand in dividends and special dividends in the past two years.

PPC is to spend R1.3bn on a new cement plant. Meantime, building supply companies say it is cashing in on a shortage. PPC refused to comment yesterday, saying it would make a statement when it publishes its results soon.

Holcim’s Wandile Zote said transport costs and fuel costs influence price increases. The company said last year Spoornet increased its transport tariffs and “we use fuel on our kilns in the manufacturing of cement”. “Transport is the biggest cost for Holcim.”

“Much of the overall building cost inflationary pressure comes from a skilled labour shortage, while strength of demand for contractors’ services has also raised the pricing power of building contractors in recent years.” He adds that the current supply squeeze in skills as well as certain materials, therefore, could be putting the brakes on property development in the coming years.

John Sheath, marketing manager of Cement and Concrete Institute, says cement sales were up 11.6 per cent in 2005 and are set to increase this year. “For 2006 we are looking at growth of about eight per cent,” said Sheath.

According to Sheath, the main driver of cement sales was the intense activity in the residential and commercial development industries and the government’s infrastructure projects such as the Expanded Public Works Programme (EPWP). But the institute declined to comment on cement prices. (abstracted from Moneyweb South Africa)