Monday, August 23, 2010

AFRICA: Cement market to shrink further as construction stagnates

Lafarge South Africa, the cement and construction materials producer, anticipates that cement volumes in South Africa will decline for the third consecutive year this year and has devised a strategy to protect its market share in the face of increased competition from new entrants to the market.

However, Thierry Legrand, the chief executive of Lafarge SA, yesterday dodged a question about whether the company had applied to the Competition Commission for leniency in relation to the investigation into anti-competitive market-sharing arrangements in the cement sector.

Legrand would only confirm that Lafarge SA was collaborating with the commission.

"It's an ongoing process. We are collaborating with the commission and will further collaborate with them. But it will be a long process and a legal process," he said.

Legrand also declined to provide details about the outcome of the internal investigation launched by the company to determine whether it had been involved in any inappropriate activities and ensure it was adhering to the Competition Act. 

The internal investigation would continue alongside the full legal process with the commission, he said.

Pretoria Portland Cement, the listed cement and lime producer, confirmed in November that it had been granted conditional leniency from prosecution in exchange for disclosures about all cartel activities between it and its competitors.

The commission confirmed in May that a second one of the four major domestic cement producers had approached the commission and made a commitment to co-operate with its investigation, but refused to identify the company.

Legrand said yesterday that there was a lot of expectation about the growth prospects of the cement market this year. But volumes had decreased further and year-to-date were 5 percent lower than last year.


He expected volumes to decline by about 8 percent this year compared with last year after declining 10 percent last year and 2 percent in 2008.

He said the reality was that Lafarge SA was not using all its cement production capacity. 

But he stressed the recent investment of R1.2 billion in a new clinker line in Lichtenburg and grinding station in Randfontein southwest of Johannesburg were medium- to long-term investments rather than short-term moneyspinners.

He said there had not been any recovery in the residential building market. 

This market would only recover in the second half of next year despite the "huge potential" in the affordable housing market.

Legrand said there was potential in the construction market, especially roads projects, with about 20 percent of this market comprising new roads and 80 percent rehabilitation projects.

Lafarge SA had developed new products, such as Buildcrete and RoadChem - a new soil stabilisation product - to serve this market.

Legrand said Lafarge SA's strategy to protect its market share from new entrants was to have good products and good service to the customer. He said the company's new facilities and product innovations formed part of this strategy.

"We have taken notice of the intention of new competitors to enter the market. We think we are well prepared to face competition."

Sephaku Cement, part of listed Sephaku Holdings, plans to establish new cement plants in North West and Mpumalanga at a total cost of R3.3bn. 

A joint venture, including Woman Investment Portfolio Holdings, South African Continental Cement, Chinese cement group Jidong Development Group and the China-Africa Development Fund, plans to invest R1.65bn in a new cement plant north of Brits in Limpopo.

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