Rail tariff increase will affect cement industry

Rail tariff increase will affect cement industry
Published: 27 October 2004

South African rail tariff increases will affect the local cement industry - Aveng SA’s largest construction group, Aveng, has warned that the mooted 40% increase in rail tariffs will have a significant effect on the domestic cement industry, creating uncertainty among investors (reports Business Day, Johannesburg).

The cement industry is on the verge of making major decisions about potential multibillion-rand investments in new production capacity as current capacity will be sufficient only until about 2007.  A decision by even one of SA’s four large cement producers not to install new capacity could affect economic growth, as a cement shortage would delay building projects.

Cement demand has outstripped the most optimistic forecasts over the past year, and is set for continued growth if government implements planned infrastructure upgrades worth R165bn over the next five years.  Aveng chairman Richard Savage has also alluded to the implementation of the proposed rail tariff hike, prompting Aveng subsidiary Holcim - SA’s second largest cement producer - to switch some transport from rail to road.

"With transport being the single largest cost item, the bottom line implications (of the tariff hike) for the business (Holcim) are going to be significant," Aveng CE Carl Grim said in the company’s latest annual report, released last week. Savage said in the report that Aveng welcomed the shake-up at Transnet, but continued to be concerned about ongoing operational hitches and the pending tariff increase. He said that the company did not believe that the tariff hike was in the best interest of "SA as a whole". The increase creates uncertainty in the minds of investors, he said. More importantly, he warned that it would result in more heavy traffic to overburdened roads .