The Treasury has banned the use of imported cement on all government-funded projects, prompting the biggest surge in more than two months in the share price of local cement giant PPC, and praise from the body representing local producers.
A circular issued by the Treasury this month to all relevant state departments notified them that in terms of its preferential procurement regulations no imported cement can be used on projects funded by the government as of November 4.
Industry body Cement and Concrete SA (CCSA) said the ruling would protect a “vitally important” sector.
The designation prescribes that all organs of state must, from November 4, stipulate in tender invitations that only SA-produced cement, produced with locally sourced raw materials, will be allowed for use on public sector construction projects. The Treasury has also stipulated a 100% local content threshold for both common and masonry cements.
“This is an important ruling to protect a sector vitally important for the national economy,” Bryan Perrie, CEO of CCSA, said in a statement. “It has come at the right time in view of the multibillion-rand infrastructure projects planned by the government over the next three years.”
PPC welcomed the announcement, saying the Treasury’s new local content regulations would save the SA cement and construction industries while creating jobs and sustaining economic growth.
The company’s share price jumped 9% to close at R5.34, valuing it at R8.5bn.
“Overall the cement indigenisation protocol for government and municipal construction is a very supportive and positive signal,” said Anthony Clark, an independent analyst at Small Talk Daily Research.
“This will cheer other sectors where indigenisation could equally be applied to similar government contracts.”
SA’s cement industry has lobbied the government for years to impose steep tariffs on imported cement from low-cost countries such as China, Vietnam and Pakistan, which it has blamed for crippling a local sector that has been battling a construction downturn ever since the 2010 Fifa World Cup.
Local producers have also criticised imported cement for being of inconsistent quality, with some local producers also claiming imported bags are often underweight.
Clark said similar local content requirements are also being sought by SA’s ceramic and sanitaryware sector, which also wants the government to stipulate that only locally produced tiles, taps and sanitaryware products should be used in any project funded by government.
Italtile
He said this may benefit the likes of Italtile. “A company like Italtile may follow suit and lobby for localisation requirements for ceramic and sanitaryware products,” he said.
“Given this increasing focus on indigenisation of supply chains I would not bet against Italtile at current levels.”
Italtile’s share price was little changed at R15.35 on Monday, giving it a year-to-date gain of 2.4%. By contrast, PPC’s share price has rallied more than 289% so far this year.
The SA cement giant, whose origins date back to 1892 and was battling for survival just over a year ago under the weight of a more than R5bn debt load, welcomed the Treasury’s local cement content stipulation.
“The SA cement industry has a capacity of 19-million tonnes, with current demand at around 13-million tonnes. This makes it one of the key economic drivers and a large-scale provider of the opportunity for employment,” said Njombo Lekula, MD of PPC Southern Africa. “Therefore these new regulations will ensure that quality levels are maintained and that jobs are protected and sustained.”
In 2020, the department of public works identified 50 strategic infrastructure projects and 12 special projects as part of a broader infrastructure spending programme aimed at helping SA’s economy recover from the devastation caused by Covid-19. The projects included water and sanitation investment worth at least R106bn as well as extensive energy and transport infrastructure improvements.
The Treasury’s local content designation of cement will apply to all projects entered into by state-owned entities as well as national, provincial and local authorities.
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