The sustainability of South Africa’s cement and concrete industry is being threatened by multiple challenges.
These embody financial decline, low-cost imports, rising enter prices and the disaster within the building industry attributable to the actions of the development mafia and lack of main initiatives.
The latter has been exacerbated by the deliberate huge expenditure by authorities on infrastructure to kick-start the economic system publish the Covid-19 pandemic largely failing to materialise, inserting about 35 000 native jobs and billions of investments within the cement industry’s worth chain jeopardy.
Read: Engineering physique points dire warning over collapsing public infrastructure
Cement and Concrete SA CEO Bryan Perrie mentioned the industry has been underneath big stress as a consequence of a poisonous cocktail of things.
For starters, native cement manufacturing capability is about 20 million tons, however the industry is at present producing solely 12 million tons, whereas greater than 1,000,000 tons of cement imports – the equal of a complete cement plant – enters the South African market annually.
“More is required to secure the sustainability of a sector impacted by both the global pandemic and a decade-long slowdown in South Africa’s planned infrastructure build,” he mentioned.
Imports
Elsie Snyman, CEO of building market intelligence agency Industry Insight, mentioned cement imports decreased by 30% year-on-year to 712 161 tons within the 11 months to November 2022. They had elevated by 9% year-on-year to virtually 1.1 million tons in 2021.
Snyman mentioned greater than 90% of the cement imports in 2022 have been from Vietnam, by way of Durban.
She estimates that complete cementitious gross sales declined by 0.7% year-on-year to eight 093 026 tons within the 11 months to November 2022, which implies imports symbolize about 8.8% of home volumes at present,
and estimates that the industry is working at lower than 40% of its full capability.
“At a nationwide degree, imports at lower than 10% could not appear too critical however imports are centralised across the coastal areas, the place the influence is extra extreme for the native producers, equivalent to NPC [Natal Portland Cement in KwaZulu-Natal] and PPC within the Western Cape.
“One can argue that there is also limited local competition in these areas, but the balance still has to be in favour of local producers considering their contribution to investment and employment in the area,” she mentioned.
The challenges going through the industry have led to engagements between it and the International Trade Administration Commission of South Africa (Itac) and Department of Trade, Industry and Competition to take optimistic motion to prioritise its native cement industry.
Perrie mentioned the cement industry has lodged a common import tariff utility with Itac.
This follows the gazetting in June final 12 months of anti-dumping tariffs on cement imported from Pakistan.
Perrie mentioned the industry can be conducting an investigation with a view to presumably lodging an utility with Itac for anti-dumping tariffs on cement imported from Vietnam.
The drawback with anti-dumping tariffs is that they’re country-specific and the minute the industry proves to Itac that dumping is happening, the importers are inclined to import cement from a distinct nation.
“Then you have to go through the same [anti-dumping application] process again,” he added.
“That is the reason the industry is looking at a general import tariff on all imported cement, which, if granted, will mean it doesn’t matter where the imported cement comes from and whether it’s dumped or not.”
Short-lived increase
Cement was designated by National Treasury from 4 November 2021, that means using imported cement on all government-funded initiatives was prohibited from that date.
Read: Treasury bans use of imported cement on all government-funded initiatives
However, this increase to native industry cement was short-lived, with the Constitutional Court subsequently ruling that particular person state-owned corporations and authorities departments should make commitments to make use of native merchandise quite than being instructed to take action by National Treasury by way of preferential procurement guidelines.
Perrie mentioned the federal government and National Treasury can now solely make procurement suggestions to municipalities, provinces and state-owned enterprises, which has undone the brief time period profit the industry acquired from the designation of cement.
He is just conscious of the SA National Roads Agency (Sanral) having a requirement that each one the cement used for all its initiatives be domestically produced.
Perrie mentioned the Constitutional Court ruling has made it tougher for the cement industry as a result of it means it should individually strategy each authorities division, each province and each municipality in an try to get them to make use of domestically produced cement.
“Most municipalities are totally dysfunctional anyway so I’m not sure how successful that will be,” he added.
“That is why the industry is rather looking at the general import tariff, which will hopefully cut out a lot of imports and do away with the need for designation.”
However, the federal government has requested cement producers to decide to “no price increases” in return for presidency approval of “safeguard action” in opposition to low-cost cement imports, which raises critical doubts concerning the success of the appliance to Itac for a common import tariff on cement.
Snyman mentioned Statistics SA knowledge point out that South African cement costs elevated by 13.7% year-on-year as at November 2022, in contrast with a median enhance of seven.1% in 2021.
She harassed {that a} country-specific tariff safety will largely be ineffective as a result of importers have already embedded themselves firmly available in the market and can greater than seemingly discover different supply nation.
Snyman believes pricing shall be a key focus level to find out how profitable producers shall be of their utility for a broader tariff safety.
“But capping price adjustments will be highly unfair given the impact of, for example energy prices on cement production, that is not a major consideration for importers,” she mentioned.
PPC CEO Roland van Wijnen mentioned in November that cement costs in South Africa are too low-cost and want to extend by an additional 15% for the native industry to be viable.
Van Wijnen confirmed PPC’s cement margins in South Africa decreased as a consequence of its power prices growing a lot it was unable to get better all these prices by means of worth will increase.
Read: PPC laments lack of cement gross sales development from SA infrastructure programme (June 2022)
Listen: Roland van Wijnen on PPC’s HY outcomes (Nov 2022)
Impact on producers
Perrie is uncertain whether or not South Africa’s cement industry is in disaster and if there’s a threat of some cement producers failing.
Snyman mentioned cement producers managed to hold on by means of the final recessionary interval and decreased their capability in keeping with demand; she subsequently doesn’t imagine any of them are going to fail.
Van Wijnen mentioned in November that PPC is effectively positioned to provide any enhance in demand because the roll out of the South African authorities’s infrastructure improvement plans acquire momentum whereas, on the identical time, it has a powerful monetary place and the precise focus to climate the present financial cycle.
Similarly, Sephaku Holdings (SepHold) CEO Neil Crafford-Lazarus mentioned in its interim monetary outcomes launched in November that the group is effectively positioned to outlive the present constrained buying and selling atmosphere and stays cautiously optimistic.
Snyman is hopeful the industry is nearing the decrease turning level and is barely extra optimistic about authorities spending for this 12 months.
“If Treasury’s October Medium-Term Budget Policy statement is anything to go by, we should see an increase in infrastructure spending, with an average nominal increase of 17% over the three-year period [2023-2025], ” she mentioned.
“The forthcoming election in 2024 will certainly provide some motivation, given the dire state of the country’s infrastructure,” she added.
“The challenge remains on how successfully government can implement these budgets, as we have seen, time and time again, that budgets are always underspent.”
However, she stays cautious concerning the outlook for the constructing industry as a result of influence of upper lending charges on the personal sector and financial development, including that authorities’s focus will greater than seemingly be on financial quite than social infrastructure.
