SA’s largest cementmaker, PPC, says robust demand in Rwanda and Zimbabwe helped lift sales in its year to end-March, and it is poised to benefit from the government’s local content rules.
PPC said on Wednesday that in SA it has yet to experience any meaningful uplift in cement sales from the Treasury’s local content designation regarding the use of locally produced cement on government projects. Except for some limited road construction and rehabilitation activity, there have been no large infrastructure projects.
The Treasury’s local content designation of cement stipulates preferential procurement of local cement and raw materials on public sector construction projects. It requires a 100% local content threshold for common and masonry types of cement.
PPC CEO Roland van Wijnen said the group is optimistic about tapping into the infrastructure spend, in SA and other markets.
“We have a good asset base … [which] for example in SA is capable of dealing with any uptick and upswing in demand, as we demonstrated during the post-lockdown phase, where there was a sudden spike and PPC was the only player in the market that could serve the needs of their customers,” he said.
SA has a total annual capacity of about 19-million tonnes of cement, and a market of 14-million tonnes, with PPC estimating cement demand to grow at 2.5% annually.
Banning cement imports could add 2.5% in growth, while if 10% of the about R595bn strategic infrastructure projects are implemented, there is potential demand upside growth of about 4%.
Contribution rises
However, the group is seeing some success in passing on price increases, and is chasing the higher margins on offer from its industrial and civil customers, PPC’s MD for Southern Africa, Njomba Lekula, said on Wednesday.
Speaking at an investor presentation, Lekula said the contribution to SA revenue from retail has risen to about 60%-65%, from the about 50%-55% it contributes, peaking in the wake of a pandemic-induced bump to home improvement.
While the group aims to improve its relationship with retailers, it is also pursuing higher-margin opportunities with civil and industrial customers, who often focus more on product quality, rather than just on prices, he said.
SA’s battered construction industry is still looking for margins to pick up, having struggled even before Covid-19 from a fall-off in state infrastructure spending and a languid economic growth, with the industry still having capacity to spare.
PPC has seen success in passing on rising costs, said Lekula, though it isn’t quite there yet. “So far the trend is looking very good,” he said.
Group cement sales are expected to increase 4%-8% to end-March, PPC said in an update, with SA and Botswana registering more subdued growth of up to 3%, though this is still above prepandemic levels.
Fared better
Covid-19 had prompted many families to rethink their living requirements as they worked, entertained and studied at home, with PPC expecting sales in SA and Botswana to be as much as 9% higher than before Covid-19.
Zimbabwe fared better, with cement sales expected to increase 25% year on year, 36% above prepandemic levels, bolstered by retail demand and government projects.
In Rwanda, projects such as the construction of a new airport have boosted sales by as much as 20% year on year, PPC said, 30% above prepandemic levels, with that country also making a push in terms of housing projects to reach its urbanisation targets.
The company, which was founded in 1892, makes aggregates, ready-mix cement, lime, limestone and fly ash, and operates across Southern Africa in Botswana, Zimbabwe, and Ethiopia, among other countries. It also caters to the chemical, metallurgical and agricultural industries.
At its half year, SA and Botswana accounted for almost two-thirds of its revenue from continuing operations, with Zimbabwe making up almost a quarter.
Cement imports, mainly from Vietnam, increased 11% year on year and exceed pre-Covid-19 levels, PPC said, estimating that imports account for about 10% of SA sales.
PPC has been campaigning for the government’s International Trade Administration Commission (Itac) to impose tariffs to curb the influx of cement imports.
By the JSE’s close on Wednesday PPC’s share price had fallen the most in nearly three weeks, down 4.9% to R4.02, having lost more than 19% so far in 2022. The share price has, however, risen three-fold over the past two years.
Update: March 23 2022
This article has been updated with additional information throughout.
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