South African market challenges
Full-year data for South African cement sales released this week show that dispatches edged ahead in 2012, but the growth rate remained tepid. Producers will hope that the government's new infrastructure plans will deliver a new growth impetus to the market. Meanwhile, the country's leading cement producer is pursuing additional opportunities across sub-Saharan Africa to bolster profits.
South African cement demand has been rising gradually since 2010 and data released on Wednesday by the Cement and Concrete Association shows calendar year 2012 sales rose by 2.9 per cent YoY to 11.6Mt. The first five months of the current fiscal have shown some encouraging trends with a good recovery in the Western Cape due to more building and road projects, while the strongest growth areas have been Rustenburg and Nelspruit. Volumes in the Eastern Cape, however, declined due to heavy rains and imports.
To spur much-needed momentum in the construction sector, all eyes are now on the government's new infrastructure plan. Announced in October 2012, the new package includes an investment of US$462bn to be spent over the next 15 years and focused on 'critical' infrastructure projects. Up to US$100bn is due to be sent over the next three years on upgrading roads, ports, access to utilities and exploiting coal and other mineral deposits. The spending forms part of the South African Infrastructure Plan and with energy and transport at the top of the list for funding but education, health, manufacturing and housing also in-line to benefit.
The infrastructure plan will certainly go some way to sustaining cement demand going forward, with growth rates of between 3-4 per cent now forecast for 2013 and 2014.
Influx of new capacity
The need for an acceleration in demand is even more pronounced given the 5.2Mta of new cement capacity that is due to come on-stream in South Africa by 2016. Projects by incumbents include upgrades at PPC's De Hoek and Riebeeck plants, while AfriSam is planning to build an integrated facility and grinding works as well expand its Dudfield plant with a new kiln line.
Meanwhile, new market entrants by 2015 will include Dangote subsidiary Sephaku Cement, which is set to bring 2.5Mta of cement capacity on-stream by 2H14 and a 3000tpd integrated works is reported to be on the cards. Wiphold and China-based Jidong Cement are also constructing a 0.75Mta plant in Limpopo, and Kenya-based ARM Cement is exploring the possibility of a plant in Mafikeng, North West province.
Expanding into new markets
With competition set to intensify and domestic demand hardly bounding ahead, PPC is now focussed on expanding its international business. The group plans to grow revenue earnings outside South Africa from the current 20 per cent to 40 per cent by 2016 in markets where there is high potential for infrastructure development, a low per-capita demand and supply shortages.
The company has recently taken significant steps in its "Rest of Africa" strategy, including the acquisition of a 47 per cent stake in Habesha Cement Share Company (HSCo) of Ethiopia which is in the early stages of constructing a plant 35km northwest of Addis Ababa. Last year, PPC also acquired a 51 per cent stake in Rwanda's sole cement producer, Cimerwa, and plans are underway to raise capacity at the 100,000tpa plant to around 600,000tpa to solve the country's cement shortage and reduce reliance on imports. The receipt of PPC's Zimbabwean indigenisation certificate in November 2012 is also an important step in the company's strategy and its subsidiary there, Portland Holdings Ltd, is building a 1Mta plant to coincide with the construction of a separate grinding facility in the neighbouring territory of Tete in Mozambique.
On its near-term outlook, PPC said in a recent trading statement that while visibility on major infrastructure projects in Zimbabwe‚ Botswana and South Africa remains limited‚ the group's expectations for cement demand in these three territories gives it reason to remain "cautiously optimistic" and anticipates to make further announcements regarding its African expansion strategy this year.
