Cement makers to benefit from construction boost

South Africa’s cement producers are anticipating bumper profits as the government invests billions of rand in infrastructure, and as work starts on a big rail link-up and the 2010 soccer World Cup facilities. The country has seen a surge in building activity, especially residential, on the back of lower interest rates and a series of tax cuts over the last several years that have boosted the spending power of South Africa’s middle class. Demand for new houses is seen slowing, but experts say spending on infrastructure should compensate.

"Cement demand is higher than we had previously anticipated, and all but one of our members are able to meet it and are all investing in additional capacity," Naude Klopper of South Africa’s association of cement producers said.

Africa’s biggest producer, Pretoria Portland Cement (PPC), said this week it expected earnings for the first half to jump as much as 60 per cent, ahead of the company’s own expectations, and predicted rosier times ahead.

PPC, which is 71 per cent held by industrial giant Barloworld, expects demand to reach 16.7Mt by 2010, up from the current 13Mt. Second-ranked Holcim, which is 46-percent owned by engineering group Aveng, plans to spend 500 million rand between 2004 and 2006 to increase production to meet demand.

South Africa’s government has promised to spend over 320 billion rand over the next three years upgrading infrastructure, which will include construction of new dams, roads and power stations. The government has previously failed to deliver on promises to spend on infrastructure due to financial constraints, and some experts said this was still a risk to prospects for the sector.

Prospects for the industry also got a boost when South Africa won the bid to host the 2010 Soccer World Cup, which meant infrastructure spending would rise.