Demand triggers record cement sales

Last year was a record year for South Africa’s cement industry as it rebounded from the virtually stagnant situation that characterised the 1990s. Demand from the region, which includes South Africa, Lesotho, Botswana, Namibia and Swaziland, exceeded 12Mt for the first time, according to the Cement and Concrete Institute. Demand in SA alone jumped a solid 17,4 per cent, to more than 10Mt, compared with 2003. This was the highest rate of growth that leading industry figures had seen in the cement sector, they said.

The bulk of the increase in SA came from the booming building sector, where demand for residential, retail and, more recently, office block developments, was driven by low interest rates. The cement institute says investment in residential and nonresidential buildings last year was about R44bn. Another R28bn was spent on projects such as infrastructure and mine expansions.

Domestic cement producers have benefited handsomely from the strong rise. An "outstanding" trading year to September enabled leading cement producer PPC Cement to declare total dividends of more than R1bn. PPC is considering a project that would add 1Mta in annual capacity. SA’s second-largest producer, Holcim, said last year that the high level of market activity was reflected in "excellent" profits and cash flows. Holcim and SA’s other large producer, Lafarge, are also looking to bring forward expansion programmes on the back of growth that exceeded expectations. An analysis of cement sales shows that much of the benefit from interest rate-led growth in building was reaped by small and medium companies.

The Cement and Concrete Institute says in its latest annual review that there was a 28 per cent increase in demand from blenders. These are companies that buy cement and combine it with other products. The bulk of the blended product is used mainly by small to medium-sized buildings, emerging contractors and DIY users. The institute’s analysis also shows the growth was not dominated by Gauteng, where sales were 19 per cent up on the previous year. Sales rose 25 per cent in Western Cape, 19 per cent in Mpumalanga and 28 per cent in Eastern Cape, where the massive Coega harbour and industrial development zone accounted for most of the increase.

Exports dropped more than 40 per cent mainly as a result of the strengthening rand, but increased domestic demand compensated for the decline. Industry players expect the rate of growth in cement demand to level off this year, but sales are still expected to increase 6-10 per cent. Government’s R165bn infrastructure development plan also bodes well for the sector. Preparations for the 2010 Soccer World Cup will also boost demand. The cement institute says that, given favourable forecasts pertaining to economic growth and lower than predicted levels of inflation, the residential building sector is expected to enjoy "continuing boom conditions" this year and next. Report abstracted from Business Day.