SOUTH AFRICA: Cement sales jump as smaller builders buy

South Africa’s first quarter cement sales jumped more than 15% as demand from smaller players made up for the slump in the building sector led by bigger companies, analysts said.

Sales rose to 2.87 million tonnes in the first quarter of 2015, according to the report released by PPC on behalf of the country’s eight major cement producers on Wednesday.

With the order books of the major firms not looking healthy, the jump in cement sales could be the result of smaller companies such as Afrimat attracting more business or individual builders seeing an uptick, Imara SP Reid analyst Sibonginkosi Nyanga said.

Cement producing newcomer Sephaku has said that it had a very good first quarter this year, and could also be a substantial contributor to the 15% rise in sales, Nyanga said.

Despite the increase, listed construction firms mostly struggle to increase profit since the end of the building boom for the 2010 soccer World Cup.

Shares in Aveng, the largest company in the sector, has fallen 67% in the year to date, while Murray & Roberts has shed more than 40% of its value.

“While higher cement sales is a good sign for the construction sector, it is not necessarily good for the large listed companies,” Nyanga said.

Aveng flagged a 50% drop in its full-year earnings last month citing a slump in demand in its home market that shrunk its building orders by 10% since December.

SOUTH AFRICA: PPC Earnings Decrease 38% as South African Cement Prices Fall

PPC Ltd., South Africa’s largest cement maker, said first-half profit declined 38 percent as domestic prices for the building material fell.

Earnings per share before one-time items dropped to 0.60 rand ($0.05) in the six months through March from 0.96 rand a year earlier, the Johannesburg-based company said in a statement on Tuesday. Sales advanced 9.2 percent to 4.5 billion rand.

“Cement selling prices declined in South Africa and Botswana while limited growth was recorded in other territories,” the company said in the statement. “The delivery of the expansion projects remains a critical focus.”

Chief Executive Officer Darryll Castle, appointed in December, is working to reduce costs as the company expands in Africa to offset sluggish demand in its home market. PPC is building new plants in the Democratic Republic of Congo, Rwanda, Zimbabwe and Ethiopia, and has a target of 40 percent of sales from outside of South Africa by 2017.

PPC has begun a performance-improvement program aimed at increasing sales and reducing costs in order to boost profit by 400 million rand, it said. The first-half divided was reduced to 0.24 rand a share from 0.38 rand.

The past year for PPC has been turbulent, after its previous CEO resigned amid differences with other executives that turned into a protracted public dispute and resulted in a shake-up of the board. The company also held merger talks with fellow South African cement producer AfriSam Group (Pty) Ltd. before negotiations were called off in March.

The turmoil has been reflected in PPC’s shares. The company has dropped 36 percent in Johannesburg this year, the fourth-worst performer on the 170-member FTSE/JSE Africa All-Share Index.

SOUTH AFRICA: PPC welcomes imposition of anti-dumping duties on Portland cement

PPC, SA’s premier listed cement maker, says it welcomes the imposition of provisional anti-dumping duties on Portland cement.

This follows the International Trade Administration Commission of South Africa’s (Itac’s) investigation into dumping of cement from Pakistan. PPC says there were more than 1-million tonnes of dumped cement imports from Pakistan in 2014.

In terms of the preliminary determination, provisional anti-dumping duties of between 14.29% and 77.15% have been imposed on Pakistani cement imports up to and including November 13.

Reuters said that PPC shares made their biggest intraday gain in more than six years in JSE trade on Friday, jumping more than 8%. At 3.08pm they were trading at R18.

"We are very pleased with the imposition of dumping duties on cement products from Pakistan," PPC CEO Darryll Castle said on Friday.

"We believe that strong local competition exists, supporting fair industry pricing, quality products and job creation on a sustainable basis," he said.

He also said PPC and other industry players had engaged with the Department of Trade and Industry and other stakeholders regarding this "unfair practice".

He said dumping caused significant "injury to the local cement manufacturing industry, including job losses and underutilisation of production capacity, especially in coastal areas".

As part of their application to Itac, local cement producers representing the industry in the Southern African Customs Union (Sacu) said on Friday that there was a more than 80% increase in volume of dumped imports from Pakistan between 2010 and 2014.

They said cement was being dumped in Sacu at about 48% less than the ex-factory selling price in Pakistan. Also, that Pakistan cement manufacturers enjoyed structured tax benefits and subsidies.

"Such growth has been at the expense of Sacu producers’ sales volumes over the same period," the producers said.

"In 2014, dumped Pakistani imports accounted for more than 98% of all cement imports."

Echoing PPC, they also said that "significant injury has been caused to the cement manufacturing industry in Sacu, including job losses, underutilisation of production capacity and reduced return on assets employed".

SOUTH AFRICA: New cement giant in the making

The merger of South Africa’s two biggest cement producers, PPC and AfriSam, could be approved by the competition authorities if assets were sold, according to ex-PPC chief executive Ketso Gordhan.

PPC yesterday confirmed its board had received a conditional, non-binding proposal from AfriSam Group that proposed, among other things, a merger between the two cement producers.

The company said its board was considering the proposal and would make a further announcement in due course once it had concluded its consideration of the proposal.

News of the proposal lifted PPC’s shares off the three-year low of R23.47 reached on Tuesday. PPC climbed as much as 6.46 percent to R25.55 but closed up 2.25 percent at R24.54.

Not hostile

Shares in the company have slumped following an acrimonious battle between PPC’s board and Gordhan, who was attempting to get himself reinstated as chief executive after resigning.

“It just seems opportune for AfriSam, striking while the iron is hot,” Sasha Naryshkine, a fund manager at Vestact, said.

Gordhan said he did not see AfriSam’s proposal as hostile and at the right relative valuation could be a good deal for PPC. However, he said the challenge would be to get approval from the competition authorities, because the combined market share of the merged companies would be about 50 percent.

Gordhan said the merger was possible if AfriSam sold parts of its business separately.

He said AfriSam’s Kimberley plant and its business in Tanzania, which would be fantastic for PPC’s African expansion, made perfect sense in terms of the proposed merger.

But Gordhan suspected AfriSam’s Mafikeng plant would have to be sold to reduce the combined market share of the merged business to below 40 percent.

This would make the proposed merger “do-able” with five players in the cement market, he said.

Gordhan agreed the timing of AfriSam’s merger proposal could be linked to the slump in PPC’s share price and the imminent intensification of competition in the South African cement market, with Sephaku Cement getting up to full production next year and Mamba Cement entering the market.

Gordhan, who owns 1.4 million PPC shares to make him one of the largest individual shareholders in the company, said he would support the merger subject to the relative valuation of the companies.

“PPC is at a historic low value. PPC’s market capitalisation when the proposed merger was announced was R14.5bn. When I left PPC it was R20bn.

“It depends on the price at which they value the business. As two equals, no. When PPC’s value is correctly taken into account, yes,” he said.

Offshore debt

AfriSam, previously known as Holcim South Africa, was taken over by the Government Employees Pension Fund (GEPF) in December 2011.

The Public Investment Corporation (PIC), the managers of the GEPF, obtained a 20 percent stake in AfriSam in June 2008 when AfriSam shifted its senior offshore debt of about R10 billion to the local market to reduce its exposure to exchange rate risk.

Fidelis Madavo, the PIC’s acting chief investment officer, yesterday confirmed the corporation currently held 12.57 percent of PPC and 66 percent of AfriSam. He said the PIC believed AfriSam was now a well-run and a significant South African cement producer.

“We think a potential merger between PPC and AfriSam would create a formidable cement player on the continent that will contribute meaningfully to South Africa and the continent’s developmental plans.

“We also think there could be significant synergies and value-unlock to be realised from a transaction of this nature,” he said.

SOUTH AFRICA: PPC shareholder says new board needed to pursue Africa strategy

Foord Asset Management will send a second letter to PPC to demand a special shareholder meeting to elect a new board within a month.

PPC, South Africa’s biggest cement maker, needs a new board to keep expansion plans on track following the resignation of Chief Executive Officer Ketso Gordhan, according to shareholder Foord Asset Management.

“It’s critical that the board be replaced with a functional board as soon as possible to restore continuity to the operations strategy and employees at PPC,” Carolyn Levin, a portfolio manager at Cape Town-based Foord, said by phone today. “We aren’t siding with former CEO Gordhan.”

Gordhan resigned on September 22 after less than two years as CEO, citing differences of opinion with fellow directors over matters including his intention to fire an unidentified senior executive. He said on September 29 he would return to his post if he had the backing of shareholders. The Public Investment, PPC’s biggest investor with a 12% stake, said Sept. 30 it was in “total support” of the board and the company’s strategy.

Foord, which Levin said owns more than 5% of PPC, plans to send a second letter to the company this week to demand a special shareholder meeting to elect a new board within a month. A request sent earlier in October was “rebuffed,” Levin said.

“We want a new board and will leave leave it to them to choose a new CEO,” she said. Foord has met with Executive Chairman Bheki Sibiya and Gordhan in recent weeks.

Africa expansion

PPC shares traded 2.7% higher at R28.51 as of 4:18 p.m. in Johannesburg. They declined about 15% after Gordhan’s resignation to the close on October 17.

“It doesn’t send a positive message to the investors in the short to medium term,” Andy Gboka, a London-based analyst at Exotix Partners LLP, said by phone. “Although Bheki Sibiya has now become Executive Chairman, we think Ketso’s resignation leads to a void in strategic decision making and weakens the company’s ability to react quickly.”

Under Gordhan’s leadership, PPC has expanded its presence in Africa to offset slowing growth in its domestic market. The company has boosted its presence in countries such as the Democratic Republic of Congo, Algeria and Ethiopia as it targets 40% of sales outside South Africa by 2017.

“PPC is below average when it comes to communicating on the company’s strategy and business,” Exotix’s Gboka said. “We still lack regional breakdown, precise guidance on expansion to better gauge the company’s intrinsic value.”

The company has “nothing further to add to what has been said,” a spokesman said in an e-mailed response to a request for comment.

PAKISTAN: Shadow over South African cement exports

With export avenues narrowing down for Pakistani cement, news about filing of an application against dumping in South Africa comes as rather discouraging. To recall, South Africa is the leading export destination for cement exports from Pakistan via sea. 

Amongst cement exporters from Pakistan, Lucky Cement Limited (KSE: LUCK) stands as the leading supplier of Portland cement to South Africa. LUCKs cement costs up to 18 percent less than the ex-factory price charged by PPC, one of the leading cement manufacturers in South Africa. 

Industrial reports indicate that LUCKs exports to South Africa stood at 0.6 million tons during FY14. This accounts for a 24 percent share in the company's total exports and a seven percent share in total industrial exports from Pakistan. During FY14, LUCKs market share in terms of exports was around 20 percent. 

Given these statistics, how would imposition of the duty, if it were to happen, affect LUCK, whose total market share in the cement sector currently stands at 30 percent. 

According to Sajjad Hussain, Research Analyst at BMA Capital, imposition of anti-dumping duty of 48 percent would nullify the entire price differential offered by LUCK compared to local players in South Africa. 

Every 10 percent decline in exports to the country could bring down LUCKs earnings by one percent, while in the advent of no exports to South Africa, earnings could be hit by as much as 10.3 percent, Hussain notes. The situation could be aggravated in case other African countries follow suit and impose similar duties on Pakistani cement, as capacity expansion is also underway in the region. 

On the other hand, Ali Amin, Research Analyst at KASB Securities, posits that LUCK is likely to turn up safe in the anti-dumping case since protection to the local industry would significantly reduce consumer surplus. Local industry in South Africa also raised cases against import of Pakistani cement earlier which were put down by the government for lack of evidence, he notes. 

However, LUCK itself has reportedly been in the process of establishing a plant in the Democratic Republic of Congo which will likely go online next year with a capacity of 1.2 million tons per year. One assumes that the plant would also be delivering to other emerging export destinations in the region, including Angola, Kenya and Madagascar. 

Regardless of the result of the anti-dumping case, LUCK seems to have a plan in place. But, does the Pakistani cement industry have one, particularly at a time when exports seem to be getting more challenging?

SOUTH AFRICA: Sephaku Cement gets behind training goals

Sephaku Cement has affirmed its support for the North West provincial government’s regional job creation and artisan training targets and initiatives.

Pieter Fourie, the chief executive of Sephaku Cement, said yesterday that as it moved into the operational phase of the Aganang plant, the company’s employment numbers would reach 170 people, with an additional 300 employment opportunities created through subcontractors.

The majority of the semi-skilled employees would be recruited from the adjacent communities, he said.

Aganang is an integrated cement plant located in Lichtenburg in the North West and one of two major projects undertaken by Sephaku Cement, a 64 percent-owned subsidiary of Nigeria’s Dangote Cement and an associate of JSE-listed Sephaku Holdings.

The other major project is a milling plant in Delmas, Mpumalanga, where commercial production began in January.

The two projects involved an investment of R3.3 billion. Commissioning of the Aganang plant commenced at the beginning of this year.

Fourie said Sephaku Cement’s project contractor spent about R500 million with local subcontractors during the plant’s construction phase, of which the majority were from the North West.

He added that as Sephaku Cement’s business grew, it would do what was in its power to support the people of the North West and Mpumalanga to make a real difference.

Fourie said the company had to date recruited more than half of the employees at its flagship Aganang plant from local communities, most of whom had never been employed or were unemployed prior to the commencement of the project.

Sephaku Cement’s commitment to job creation and artisan training follows North West Premier Supra Mahumapelo setting a target to create 7 407 job opportunities through infrastructure development, the green economy and social economy during the 2014/15 financial year. Mpumalanga Premier David Mabuza is targeting the creation of 78 000 jobs a year over the next five years.

Fourie said Sephaku Cement invested in artisan development while it built its plants and had supported the training of 10 fitters and electricians, of which seven had been employed at Aganang.

The company would also source youth from further education and training colleges in the two regions to build its pool of learners for recruitment.

SOUTH AFRICA: Lafarge regroupe ses filiales sud-africaine et nigériane

Lafarge va regrouper ses activités en Afrique du Sud et sa filiale nigériane cotée Wapco , a annoncé mardi Guillaume Roux, directeur général de cette dernière.

La nouvelle entité, qui sera cotée à Lagos et prendra comme nom Lafarge Africa, pèsera plus de trois milliards de dollars (2,2 milliards d'euros), a ajouté Guillaume Roux.

Le cimentier français détiendra 73% de Lafarge Africa.

Une fois créée, la nouvelle entreprise entend augmenter sa capacité de production de 5,5 millions de tonnes, à 17,5 millions.

"La consolidation permettra à la nouvelle entité d'accélérer sa croissance sur le continent (..)", a poursuivi Guillaume Roux.

Lafarge est confronté à une rude concurrence en Afrique, en particulier de la part de son rival Dangote Cement, détenu par Aliko Dangote, l'homme le plus riche du continent.

Dangote, première capitalisation boursière de la place de Lagos, entend multiplier la construction d'unités de fabrication de ciment en Afrique. (Chijioke Ohuocha, Benoit Van Overstraeten pour le service français)

SOUTH AFRICA: Analysts foresee higher production costs as cement grade war persists

As the battle for cement grade applications rages on, research analysts have foreseen higher production costs on the part of cement makers, which will translate into higher cement prices and lower product availability.

According to them, the restriction in the manufacture and use of 32.5N grade of cement will create further unwarranted and unexpected problems in the industry, stressing that all stakeholders should be more concerned with poor construction practices, the most common of which is the addition of water to improve workability of the concrete. Stakeholders and regulatory bodies need be perturbed by inappropriate mixes and/or excessive extension, both of which occur as a result of ignorance and possibly fraudulent intent on the part of builders, they add.

“The key implication on manufacturers is they will need to increase the amount of clinker in their product, and blend in a lot less additives. In addition, the purer clinker would need to be milled even finer than before, implying higher fuel electricity costs than previously. This clearly puts those manufacturers close to full capacity utilisation at greater risk, as it would negatively impact on available volumes. Higher electricity tariffs become more relevant in this scenario as well,” says Oyindamola Olanrewaju, research analyst at Renaissance Capital (RenCap), a research and investment banking firm.

There have been complaints in some quarters right from early part of the year that 32.5 grade is largely responsible for building collapses around the country. Recently, the House of Representatives ad hoc committee on cement composition and pigmentation held a public hearing, consequent upon which the Standards Organisation of Nigeria (SON) issued a directive that cement with strength rating 52.5R be used for bridges; 42.5R for casting of columns, beams, slabs and for moulding blocks, and 32.5 can used for plastering only.

The war has become so fierce that the anti-32.5 group, which includes Dangote Cement (DangCem) and Cement Standardisation Advocacy Group, among others, insist that the pro-32.5 group which includes Lafarge WAPCO, United Cement Company of Nigeria (UniCem) and Ashaka Cement (AshakaCem) do so for pecuniary reasons and do not have the interest of the country at heart.

But Lafarge Cement WAPCO and others insist that professionals at different fora have maintained that 32.5 grade has never been associated with building collapses, adding that the new standard advertised by SON on the pages of newspapers has not been made available to them. Lafarge claims that “a leading manufacturer in Nigeria and proponent of restriction produces 32.5 cement grade in South Africa under the brand name Sephaku, and recommends the same for various construction activities including concrete work and block making.’’

Currently, there are several court actions challenging the link between building collapse and cement quality as well as processes followed by SON in arriving at the new standard, says Lafarge.

Adding its voice to the confusion in the industry, Renaissance Capital says, after its research, “we do not believe that 32.5N cement in itself is the cause of collapsing buildings, and do not expect the restriction in its manufacture and use to address the underlying problem without creating further problems. Low strength rated cement is not of its own a cause of collapsing buildings and its elimination will not necessarily result in better quality buildings, in our view. The only impact we see is higher cost of cement production which will inevitably be passed onto the end user in the form of higher cement prices, and lower availability of cement.’’

On the connection between cement and concrete, the investment banker says the composition of the cement used in making concrete drives the compressive strength of the concrete and the relevant application, adding that a 25 percent strength gain between seven and 28 days is often observed with 100 percent Ordinary Portland Cement (OPC) vs. other mixtures. RenCap says strength gain depends on the type of mixture, its constituents, the use of standard curing, among others.

Victor O. Oyenuga, immediate past president of the Nigerian Institution of Structural Engineers, agrees with RenCap, stressing that inability to carry out soil tests and involve professionals, as well as poor construction practices, among others, are factors causing building collapses, not 32.5 grade.

SOUTH AFRICA: New cement producer enters South African market

China's Jidong Development Group, one of the world's top five cement makers, is to enter the South African market with the construction of a R1.8-billion, one-million tonne per annum cement plant in Limpopo province.

Nedbank Capital and the Bank of China Johannesburg on Monday announced that R1.1-billion in debt capital had been raised to fund Mamba Cement, a special purpose company established to build and operate the plant at an established limestone deposit near Northam in Limpopo.

Equity in addition to the loan will be provided by Jidong Development Group, the majority shareholder in Mamba Cement, the China-Africa Development Fund, and South African investment and operating group Women Investment Portfolio Holdings (Wiphold).

Mamba Cement will manufacture "high-quality pure cement with the capacity to produce very cost-effective products," Nedbank Capital said in a statement, adding that the company would have "a sustainable transport advantage due to its proximity to the major cement demand centres of Johannesburg, Pretoria, Mpumalanga, Rustenburg and Brits".

The investment is expected to create jobs and provide opportunities for small suppliers for communities north of Brits. "In addition, the sponsors and developers have also committed to supporting local schools and other socio-economic development initiatives in the long term," Nedbank Capital said. "The project will also result in a major improvement of basic infrastructure such as power and roads, which will benefit adjacent communities."

The South African cement market received an additional 2.5-million tonnes of annual capacity this year with the completion of Sephaku Cement's new plant in North West province.

The Nigerian-backed company is the first new entrant in the South African cement production market to open its own new plant since 1934, challenging established local producers PPC, AfriSam, NPC and French multinational Lafarge.

Market researchers Frost and Sullivan have predicted that rapid infrastructure development in South Africa and its neighbouring countries will boost the prospects of the cement industry in the southern African region.

Frost and Sullivan's study, "Southern African Cement Industry Production and Investment Forecasts", published in September, forecast that US$940-million would be invested in the cement industries of three countries - South Africa, Zambia and Zimbabwe - between 2013 and 2018.

Cement production will be instrumental to government expenditure plans, the study found, especially the Regional Infrastructure Development Master Plan which the Southern African Development Community (SADC) aims to roll out over the next 15 years.

Internally, the South African government is planning to spend in excess of R4-trillion on a massive state-led infrastructure drive over the coming years, with a substantial focus on rail, road, energy and water infrastructure.

SOUTH AFRICA: Mamba Cement to build new plant in Limpopo

South Africa’s cement market is set for even fiercer competition with the entrance of the Jidong Development Group, one of the largest enterprises in China’s building materials industry and one of the world’s top five cement groups.

A R1.8 billion greenfields pure cement plant with a capacity of more than 1 million tons a year is to be built at an established limestone deposit near Northam in Limpopo. It will be well placed to serve the major cement demand centres of Johannesburg, Pretoria, Rustenburg and Brits.

The project is being undertaken by the Mamba Cement Company, a special purpose vehicle established to construct and operate the cement production facility and mine the limestone.

Mamba Cement has been provided with R1.1bn in debt capital jointly by Nedbank Capital and the Bank of China Johannesburg.

The majority shareholders in Mamba Cement are Jidong Development Group and the China-Africa Development Fund (CAD Fund), with a 51 percent shareholding in the project.

Jidong and the CAD Fund’s shareholding in Mamba Cement is held through African Rhino Cement, which is 60 percent owned by Jidong and 40 percent by the CAD Fund.

The other shareholders in Mamba Cement are majority black women-owned and managed investment and operating group Women Investment Portfolio Holdings (Wiphold), with a 23.9 percent stake, and the unidentified holder of the limestone mining rights, with a 25.1 percent shareholding.

Gavin Bouwer, the senior vice-president and chief manager at Bank of China Johannesburg, said yesterday that construction of the new plant would start in about three months and be completed in about 18 months.

Bouwer said the total project value was about R1.8bn, with Mamba Cement shareholders providing equity in addition to the R1.1bn loan.

Jidong subsidiary Hebei Building and Material Industry Design and Research Institute will enter into a fixed-price, turnkey, design and construction contract with Mamba Cement to build and hand over a fit-for-purpose plant within a defined period.

The plant will incorporate a waste heat recovery system, which will generate 25 percent of the power required to operate the plant.

Jidong will also enter into a production, management and technical services agreement with Mamba Cement to provide key management and support the operations of the company.

Nedbank Capital head of infrastructure, energy and telecoms Mike Peo said the project finance deal was the first opportunity for Nedbank and Bank of China Johannesburg to work together as joint mandated lead arrangers and, based on the success of the deal, Jidong had approached Nedbank Capital and Bank of China Johannesburg to act as its banking partners in its expansion efforts into the rest of the continent.

Zhikun Qiu, the chief executive at Bank of China Johannesburg, said the deal held particular appeal given the significant economic development potential it held for southern Africa.

“A new entrant will not only help to instil competition into the market but also serve to stimulate economic growth and job creation in line with the country’s established development plans. The Bank of China is pleased to have been a key part of such an economically relevant initiative,” he said.

South Africa’s established cement manufacturing giants have had to face up to increased competition this year when Sephaku Cement became the biggest new entrant to the sector since 1934. It started commercial production at its Delmas milling plant in January.

Market leader PPC has reacted with a strategy to expand into the rest of Africa with the aim of generating 40 percent of its revenue from outside South Africa by 2017.

SOUTH AFRICA: Imports, supply glut pressure cement sector

THE domestic cement industry is facing tough conditions in the short term, with excess supply expected to keep margins under pressure. As a result, any further investments are likely to be channelled into upgrading dated and inefficient plants.

Supply gains have come from new entrant Sephaku Cement, as well as an increase in imports, which surged 44% last year to 1.1-million tonnes. There is talk in the industry of lobbying for protection from cheap imports.

But the spokesman for the International Trade Administration Commission of South Africa (Itac), Thembinkosi Gamlashe, says the commission has not received an application from the industry.

Sephaku entered the market in January and brings 2.5-million tonnes of annual capacity to the industry. Though figures vary, analysts say this takes industry-wide capacity to between 18-million and 19-million tonnes a year. Domestic sales totalled just 12.2-million tonnes last year, 5.3% better than 2012’s volumes.

But Sephaku believes supply capacity figures are overstated due to double counting, and says some excess capacity is needed to cater for spikes in demand.

Gavin Wood, chief investment officer at Kagiso Asset Management, believes the South African cement market "is facing a challenging coming few years".

Amidst the increase in supply, Mr Wood says cement demand "is likely to be weak".

Weighing on demand will be the slow roll-out of the government’s infrastructure programme, and less private sector corporate construction following a reasonably strong few years. This is in addition to expectations for subdued residential construction activity, "particularly in the low-income market where unsecured credit conditions are much tighter".

Meanwhile, Mr Wood says the energy-intensive industry is now dealing with energy prices which are materially higher than before, while the implementation of carbon taxes will affect the "heavy carbon emission industry".

"Cement producer margins are likely to suffer as the various cement producers battle it out for market share," he says. But he is more positive about the prospects north of South Africa’s borders.

He says PPC’s growth plans for the rest of Africa "are very exciting and are likely to generate strong returns for shareholders".

Cement demand in Africa outside South Africa will be buoyed by increased construction activity as Africa’s collective economy sustains strong growth rates, while PPC will benefit from the lack of existing cement production facilities in Africa.

PPC is in a drive to get 40% of its sales from the rest of Africa by 2017, from about 22% now. The successful completion of four projects will get the group to that goal.

The projects include a joint-venture plan for a 2-million-tonnes-a-year plant in Algeria, announced in February, while PPC is also building cement plants in Ethiopia, Rwanda and the Democratic Republic of Congo.

Mr Wood says the new projects all have "attractive funding and strong local partners".

"There is competition in Africa, but it is likely to be rational and not concentrated in areas where existing cement plants provide adequate supply," he says.

Imara SP Reid analyst Sibonginkosi Nyanga believes recent investments in South Africa were guided "by elevated profit margins during the 2000-07 construction boom".

Mr Nyanga says while margins will be affected by overcapacity and competition in the short term, "we do not anticipate any price war as Sephaku has indicated that it is not intending to rock the boat".

But while cement demand has gone through a number of cycles, "there is expectation that another boom cycle better than the 2000-07 cycle is on the horizon".

As cement demand is largely driven by economic and population growth, Mr Nyanga says "for the next few years we are not expecting a massive improvement in cement demand, unless government infrastructure spend kicks in".

He expects average cement sales volume growth of at least the same rate as real economic growth, which is expected to be between 2% and 4% in the near term.

Supporting demand is government’s social housing projects and various development projects across the country.

Mr Nyanga says South Africa’s per-capita consumption of cement, at 222kg, is still low compared with a world average of 500kg — indicating "that there is still scope for growth".

As cement is expensive to transport, competition in the industry is segmented into geographic areas. "It’s all about logistics — the company with better logistics arrangements will compete well in this environment," Mr Nyanga says. "It’s usually uneconomical to transport cement for long distances, especially by road.

"I think the issue of logistics also comes into play in Africa as well — what counts is how strategically the plants are located."

He believes plant upgrades in South Africa are necessary due to the age and inefficiency of most plants, and to remain competitive.

In the rest of Africa, Mr Nyanga says cement prices are often high due to supply deficits and logistical difficulties, "so I think African competition is manageable for now".

PPC CE Ketso Gordhan said in a recent interview that Sephaku’s entrance would further delay any new major expansion plans in South Africa.

Mr Gordhan said PPC’s domestic capital investment plans would be limited to upgrading its old Port Elizabeth plant and expanding one of its inland plants in order to prepare for higher demand in a few years’ time.

On a positive note, the excess capacity of the local market meant the industry would be well placed to respond quickly to a materialisation of government’s infrastructure programme, he said.

While PPC does not usually export product as local players cannot compete on price with low-cost producers from the likes of Pakistan, Mr Gordhan said PPC would export a relatively small amount for its own purposes into Congo, where it is building a plant.

"We are going to use some of our own cement building our plant, and we are also going to start using some of our own cement to begin to build the brand," he said.

Mr Gordhan said Congo would remain an undersupplied market even after PPC’s entrance.

Meanwhile, he said PPC had "a pretty downbeat view on the South African cement market for this year", though the outlook for demand would gradually improve after the elections. "So we are slightly more optimistic about the 2015-16 financial year."

PPC recently told investors that in the five months to the end of March, its local cement volumes were down due to weak economic conditions, and flooding in some regions which had hurt demand.

ALGERIA: PPC has ‘advanced plans’ in place to enter Algerian cement market

CEMENT company PPC said on Monday that "advanced plans" were in place for it to enter the Algerian cement market through a partnership that would see it own 49% of Hodna Cement Company.

The company is already on an African expansion drive, with cement plants being constructed in Ethiopia, Rwanda and the Democratic Republic of Congo.

CEO Ketso Gordhan said the Algerian partnership, with a consortium of private-sector investors who would own the remaining stake in Hodna "gives us confidence that by 2017, 40% of PPC revenue will be earned outside of South Africa".

The company currently derives about 22% of its sales from Africa, outside of South Africa.

The company said its partners in Algeria "have experience in construction and related sectors, and fulfil one of PPC’s key requirements — to partner with local shareholders when investing in a new country".

Hodna will be constructing a 2-million-ton-a-year plant for $350m in the Hodna area, about 300km east of Algiers and close to the university and technology-focused town of Setif.

PPC will acquire a 49% stake of Hodna and assume management control — which allows for the consolidation of the financial results of this project into the PPC group accounts.

The transaction would be funded on a project finance basis, with 80% debt funding from local Algerian banks, PPC said.

"The Algerian cement market is very attractive as consumption exceeds local production by approximately 3-million tons of cement per annum.

"Moreover the Algerian government has committed itself to large-scale capital spending programmes, including the $6bn New City Hassi Messaoud project, which will see the roll-out of thousands of housing units," Mr Gordhan said.

This would boost cement demand in this country, he added.

PPC said that once the feasibility study had been concluded, construction of the plant would take up to 30 months, and commissioning was anticipated by the fourth quarter of 2016.

As with its other expansion projects, PPC said it intended using China’s Sinoma International Engineering as the contractor to supply and build the plant, with support from India’s Holtec Consulting.

Cement selling prices in Algeria range between $80 and $120 a ton, with favourable production costs due to affordable gas prices.

"The factory site is well located with the necessary raw materials in close proximity. The well-developed road and rail network also assist in managing the cost of logistics," PPC said.

With a population of close to 40-million people, of which 74% live in urban areas and a "relatively high" gross domestic product per capita of $5,582, Algeria still requires the construction of 225,000 housing units a year to meet demand, PPC said.

"The national housing shortage in Algeria is estimated at 1.2-million units."

AFRICA: PPC banks on new African projects to boost product sales

The release of major infrastructural projects in South Africa, Botswana and Zimbabwe would provide a key driver for demand for cement products in the region, listed cement and lime producer PPC said yesterday.

In a trading update for the quarter to December last year, PPC chairman Bheki Sibiya said the South African trading environment would remain tough and highly competitive but PPC believed its various response strategies had positioned the company well.

Sibiya said PPC’s normalised earnings for the first half of its financial year were anticipated to reflect a year-on-year improvement.

He said the operating environment in South Africa remained tough with low single-digit cement volume growth achieved in the first quarter, along with price increases.

Sibiya added that both the inland and coastal regions recorded positive growth while growth in cement volumes was also achieved in Zimbabwe, with exports from that country showing “a pleasing trend”.

Volumes in Botswana and Mozambique continued to be under pressure due to weak demand and intense competitor activity but some increases in selling prices were still achieved in these territories.

Sibiya said the performance in the lime division was beginning to show a positive trend while the South African aggregates division had achieved pleasing volume growth due to increased off-take in road, retail and residential projects.

Sibiya added that PPC’s expansion strategy remained well on track and construction of its new operation in Rwanda was progressing well, with commissioning of the plant anticipated at the end of this year.

Construction work had now also commenced at PPC’s sites in Ethiopia and the Democratic Republic of Congo (DRC), and additional opportunities were currently being pursued.

PPC said last year that it aimed to have three new plants under construction by the end of the first quarter of this year in the DRC, Ethiopia and Zimbabwe, while its plant in Rwanda was scheduled to come on stream in September.

The company said it had also earmarked a fifth project in an as yet undisclosed country, with its capital expenditure budget for this financial year totalling about R2.7 billion.

PPC has expanded into the rest of Africa with the target of generating 40 percent of its revenue from outside South Africa by 2017.

The move has been prompted by increased competition in the South African cement market and lower margins at home.

The increased competition follows JSE-listed Sephaku Holdings associate company Sephaku Cement earlier this month commencing with cement production at its Delmas milling plant, where output is expected to be ramped up to 1.4 million tons a year by the middle of this year.

Sephaku Cement has another major project, Aganang, an integrated plant located in Lichtenburg in North West, where production is targeted to commence by the second quarter of this year.

About R3.3bn has been invested in establishing Sephaku Cement’s new cement plants, which once fully operational will have a total annual capacity of 2.2 million tons.

In December PPC acquired a 69.3 percent stake in Safika Cement Holdings for R377 million, which followed its acquisition in 2012 of an initial 25 percent shareholding in Gauteng readymix and fly-ash supplier Pronto Holdings, with the remaining shareholding bought on a phased basis over a two-year period.

PPC shares fell 2.70 percent to close at R29.51 yesterday.

SOUTH AFRICA: ARM cement awaiting directors’ approval for South African plant

ARM Cement Ltd., Kenya’s second-largest maker of the building material, has yet to receive its directors’ approval for a plan to construct a plant in South Africa, Managing Director Pradeep Paunrana said.

“We have not approved any budget or plans at our board yet,” Paunrana said. Mafikeng Cement, in which ARM has a 70 percent stake, plans to build a plant with daily capacity of 3,000 metric tons in the continent’s biggest economy, Nairobi-based Business Daily newspaper reported, citing Paunrana.

Sub-Saharan African nations from Kenya to Nigeria are investing in the construction of ports, railways and power-generation projects that will help accelerate economic growth. ARM is considering selling Eurobonds to help fund a planned $300 million expansion program that will double cement production within four years, Paurana said on Nov. 7. Kenya’s per-capita cement consumption has surged 60 percent to 85.7 kilograms (189 pounds) over the past five years, according to Kestrel Capital East Africa Ltd.

That compares with 300 kilograms in South Africa and 500 kilograms in Egypt, according to ARM. Bamburi Cement Ltd., the Kenyan unit of Lafarge SA, is the nation’s biggest producer of the material. Chairman of Nigerian based Dangote Cement; Aliko Dangote recently announced plans to invest $500 m in Kenya to build a cement plant.

NIGERIA: Nigeria’s cement production surpasses South Africa

A report conducted by the financial advisory company Renaissance Capital (RenCap) has revealed that Nigeria is now the largest cement manufacturer in Sub-Saharan Africa and the third largest in the Middle and East Africa regions (behind Egypt and Saudi Arabia) due to an increase in production capacity in the country.

According to the report, the Nigerian cement industry capacity has reached 28 million tpa. South Africa is currently producing at a rate of 18.3 million tpa and the rest of the region combined has a capacity of 62 million tpa of cement. The introduction of the Backward Integration Policy (BIP) in the Nigerian cement sector has also seen the industry’s production almost double between 2005 and 2012. RenCap has predicted that Nigeria will continue its high production levels, peaking at around 50 million tpa in 2020.

The strong performance in Nigeria has also been mirrored in the share prices of cement companies such as Dangote Cement, Lafarge WAPCO, Ashaka and the Cement Company of Northern Nigeria (CCNN), which are returning at a higher rate than the Nigerian Stock Exchange All Share Index.

David Nangle, leader of the RenCap research team, told local press that the cement market in Nigeria has changed considerably over the past few years due to rising demand, increased investment, economic growth and favourable government regulation. The company is reported to be optimistic about the sustainability of Nigerian cement demand and production in the long-term.

SOUTH AFRICA: Sephaku Cement grinding plant on-track to start production in 2014

Sephaku Cement said its new grinding plant near Delmas in Mpumalanga, South Africa, is 95 per cent complete and is on-track for production early in the new year.

The 1.4Mta facility will be launched ahead of the company’s 1.2Mta integrated Aganang plant in Lichtenburg, North West.

Recent cold commissioning milestones at the Delmas grinding plant have included the starting of the mill motor, ID fan and mill separator, Heinrich de Beer, engineering project manager at Sephaku Cement explains. “Clinker is offloading is in full swing and in the stage of final setting optimisation," he states.

Gypsum offloading has also been commissioned with the first gypsum off loaded mid November. In addition, the packing plant is about to be hot commissioned with cement while the palletizer and stretch hood machines have been cold and hot commissioned. “Our first stack of pallets have been wrapped and the full sequential start-up and commissioning of the packing plant is on the cards for the next week,” he says.
        
Roads and intersections are on target to being finished before the end of this month and weigh bridge systems are being implemented imminently, while Telkom is expected to finalise communication installation shortly, adds de Beer.

As a greenfield project, the initial construction of the turnkey project started in November 2011. “Everyone on site is looking forward to getting moving with their work. All buildings including the CCR, administration and sales offices are ready for occupancy,”  de Beer concludes.

SOUTH AFRICA: PPC Announcement of a Second Phase Empowerment Transaction Resulting in 26% Black Ownership of PPC South Africa

Pretoria Portland Cement Company Limited (PPC) is pleased to announce a second phase broad-based black economic empowerment transaction which entails the placing of an additional 39.3m ordinary shares or 6.5% of PPC's increased share capital under black ownership. Following the first phase BBBEE transaction for 15.3% during 2008, this will increase the direct black ownership of the PPC Group to 20.8%.


Taking into account the 80:20 revenue split between the Groups South African and international businesses the transaction will result in an effective 26% black ownership of PPC's South African operations and enable the company to meet the South African mining rights conversion requirements as set out by the Department of Mineral Resources in terms of the Mining Charter.


Of the additional shares being issued the major portion or 68% shares will be issued to the employees of PPC's South African businesses. 27% of shares will be issued to PPC's existing strategic black partners and 5% to a newly created trust that will focus on Black women groups in areas where the company operates.  The transaction value of approximately R1.1bn is estimated based on the 30 day volume weighted average price of PPC shares as at Monday 9 July, of R27.39 per share.


Paul Stuiver, CEO of PPC, said: This transaction was structured for the benefit of those parties closest to our business. We were particularly keen for our 2400 South African employees to participate at a significant level and this transaction will result in them owning approximately 7% of the PPC group. An employee trust has been established to hold the employee shares. All permanent employees of PPC in South Africa will participate. A portion of shares has been set aside for new employees joining the company during the next three years.


The SBPs are the same as those which participated in the first phase BBBEE transaction during 2008 being Peu, Nozala, Portland Consortium and Palama Cement Consortium (formerly Capital Edge) who have contributed to the company on a number of fronts during the past four years.  PPC has established the Bafati Investment Trust for the purpose of holding shares for black women groups in the vicinity of its operations. The board of trustees for this trust will comprise a majority of women.  Paul Stuiver commented: This transaction demonstrates our on-going commitment to transformation and broad-based empowerment in the spirit of the Mining Charter. Additionally it will further enhance our BBBEE credentials.


The transaction is being facilitated through notional vendor funding at a fixed rate of 6% over a period of seven years. The estimated facilitation cost to the company is in line with market precedents at 2.05% of the company's market capitalisation. The company will issue new shares at a nominal value of R0.01 (one cent) per share and no capital is required from the participants other than the nominal share value to be paid by the SBPs. The BEE parties will be restricted with regards to disposing or encumbering their shares during the seven year period of the transaction.


During the seven year term of the scheme, all participants will enjoy a trickle dividend of 20% of ordinary dividends, with the balance 80% going towards the NVF structure. After 7 years, participants will be allocated the remaining shares after the notional vendor fund balance has been settled. Additionally they will become entitled to 100% of dividends and be able to trade their shares. The participants will be entitled to exercise all their voting rights over the new shares from the outset.


Paul Stuiver explained:We have put this facilitation structure in place in order to ensure a sustainable transaction that maximises share vesting and value transfer to the BEE participants. PPC will be cancelling 20 million treasury shares prior to implementing this phase of the BBBEE transaction. These shares were purchased by PPC in order to mitigate the potential dilution to shareholders during the first phase of the transaction.


The transaction will also allow PPC to streamline its corporate structure by creating separate South African and international operating entities, thereby aligning the company's structure with its strategy to expand its footprint on the African continent. At the same time the holding company, Pretoria Portland Cement Company Limited will be renamed to PPC Limited. Paul Stuiver concluded: Aligning our corporate structure with our strategy will result in greater efficiency and better risk management. We were unable to do this prior to converting our South African mining rights.


PPC will issue a circular to shareholders during August with further details on the transaction. PPC will publish a notification containing relevant dates and times such as the details of the general meeting at which shareholders will be requested to vote on resolutions relating to implementation of the transaction