Cement plant expansion anticipates change in SA

The massive expansion on the cards for SA’s cement industry may appear a little ambitious, especially as cement sales growth rates are expected to taper off from this year. PPC and Lafarge said recently they would each bring on board an additional million tons by 2008. And Natal Portland Cement will add about 600000 tons at about that time. These are sizeable expansions. 

But these plans are only partially based on the steep increase in demand for cement over the past year or two. More importantly, the expansion plans are based on what is expected to happen in SA over the next few years following the structural shift in the economy. PPC says the industry’s capacity is now about 13-million tons a year. The cement makers’ expansion plans announced to date will push that figure up to 15,6-million by 2008. That covers the expected demand of 15,3-million by that date, but falls short of the 16,7-million forecast demand by 2010. So, whereas the expansion programmes may appear ambitious, there could be a shortfall of more than a million tons in five years’ time. All eyes are on the only remaining producer, Holcim, which has not yet announced any major expansion plans. The million-ton shortfall by 2010 would justify an expansion by Holcim of similar magnitude to those of PPC and Lafarge. Some analyst say, however, that Holcim has no such plans. 

Even if cement demand fails to live up to PPC’s forecast growth based on things such as government’s R160bn infrastructure plans cement producers are unlikely to find themselves in a huge surplus predicament. Their new kilns will be a lot more cost effective than the ones that were built several decades ago. So they will be able to switch off older plants as they have done in the past to cut capacity, and enjoy lower operating costs using new plants.