Local producers under pressure

Local producers under pressure
14 September 2004

South Africa may face a shortage of cement by 2007.  SA’s leading producer, Barloworld subsidiary PPC Cement, recently brought forward its expansion plans, announcing last month that it would add a million tons to its production base in a R750m project that it aims to complete by 2008 – reports The Business Day, South Africa

Natal Portland Cement (NPC), the largest producer in KwaZulu-Natal, has already imported some cement to meet demand, as it was operating at full capacity. NPC is also looking to build a new production plant in about 2007. "We’re running flat out to meet demand," says NPC MD Piet Strauss. Another of the country’s four large producers, Holcim, which is 46% owned by listed group Aveng, says it has sufficient capacity only until 2008. Holcim, previously known as Alpha, added about 12% to its capacity earlier this year through the refurbishment of its Dudfield kiln. Lafarge also confirmed last week that it had started planning for a new kiln by 2008. Lafarge CE Frederic de Rougemont says that in the meanwhile the company could add about 30% in capacity through smaller projects.

"The cement market is going very nicely and we can’t see any reason for it to go down," De Rougemont says. A shortage could not easily be resolved through imports. This is because cement is a high-weight, low-value product and therefore expensive to import or export.

John Sheath, of the Cement and Concrete Institute, estimates production capacity in SA, including its customs union partners, is between 13-million and 13,5-million tons. There is demand for between 11-million and 12-million tons a year at the moment. If the market grows by the forecast 15% this year, demand will rise to about 12,8-million tons next year. If it grows by the forecast 10% in the following year, demand will reach about 13,2-million in 2006, says Sheath, almost equalling the country’s current capacity. Sheath says the full effect of interest rate cuts last year was bigger than expected. "We estimated demand this year to grow 4%-4,5% - we were about 10% out," he says. Demand is led by residential development, and not by major capital projects. Large capital projects such as new mines were put on hold when the rand strengthened, but some of the major private sector projects are widely expected to come back on line next year. Government infrastructure spending is expected to grow in line with its aims of stepping up fixed expenditure as a percentage of gross domestic product.

In addition, construction of the multibillion-rand Gautrain rail link in Gauteng is expected to get under way in June next year. The effect of the rail project would not be felt significantly in cement sales next year, says Sheath. But it would absorb substantial volumes after that. Demand for cement over the past year or so has been slightly distorted because of substantial consumption at the Coega industrial development zone in Eastern Cape. Merrill Lynch says domestic cement sales have risen about 14% in the year to date, excluding Eastern Cape sales.

Published under Cement News