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SA cement industry needs protection – PPC

Imports and sub-standard products are threatening its viability.

JSE-listed cement and lime producer PPC is adamant that the cement industry in South Africa needs to be protected from unfair competition in the form of imports and sub-standard products.

“Unfair competition contributes to an unsustainable pricing environment that threatens the financial viability of the local cement industry that is of strategic relevance to the country,” PPC CEO Roland van Wijnen said on Wednesday.

Njombo Lekula, MD of PPC Southern Africa, said PPC is cooperating with the industry in their collective efforts for the International Trade Administration Commission (Itac) to recognise the impact that imports have on the domestic cement sector overall.

Lekula added that they were also engaging with the South African authorities to ensure that blended cement meets the requisite standards after independent tests highlighted extremely serious non-compliances.

“Our sector is strategically relevant for South Africa and these measures are important to ensure that the cement industry is protected from unfair competition and remains sustainable,” he said.

Van Wijnen said the basics for the country is to get its electricity in order and to have steel and cement, adding that South Africa is blessed to have the raw materials to produce these commodities locally.

“To let that be destroyed by imports is short-term thinking in our view, which is why we are working with the government through the Itac application [to address these issues],” he said.

Cement imports, largely from Vietnam, increased by 21% year on year to 729 271 tons in the first eight months of this year from the 602 716 tons imported in the same period last year.

Van Wijnen said it is possible for imported cement to be competitive in the South African market despite the cost of transporting it from Vietnam because the cement industry had a very high fixed cost.

Exporter motivation

“If you run your plant at half of the capacity for your domestic demand in Vietnam, for instance, with relatively little variable cost you can fill up the other 50% of your asset, put it on a vessel that has come full with commodities like coal from South Africa that needs to go back to South Africa empty.

“So you put your product on that boat, with it hardly costing you anything to move the product that way. In a sustainable business, you can sell at variable cost if you don’t really care about the market where it lands and that is how they are able to do this,” he said.

Impact

A 17% reduction in group cement volumes, the impact of Zimbabwe’s currency devaluation and hyperinflation accounting, and a difficult trading environment significantly dented PPC’s financial performance in the six months to September.

Group revenue declined by 12% to R4.9 billion from R5.6 billion, with group earnings before interest, taxes, depreciation, and amortisation (Ebitda) slumping by 16.5% to R868 million from R1.04 billion because of the impact of the problems in Zimbabwe.

Excluding PPC Zimbabwe, group revenue was 1% lower at R4.4 billion, with Ebitda declining 3% to R668 million.

PPC reported a loss per share of 0.4 cents compared to earnings per share of 21 cents in the prior period.

Overheads down, savings up

Group overheads, excluding once-off restructuring costs of R83 million, decreased by 19%. This was a key driver in PPC achieving R65 per ton saving towards its R70 per ton savings target for PPC SA.

Van Wijnen said this saving resulted predominantly from fixed cost reductions, with retrenchments at PPC’s head office and operations reducing the group’s headcount of about 3 300 people by between 6% and 8% or 200 to 250 positions, most of them in South Africa.

He added that the vast majority of these staff reductions had been achieved through a voluntary separation process.

Van Wijnen said PPC estimates the overall market decline in cement volumes in southern Africa to be around 10% to 15% as consumer and construction sector demand continues to show signs of severe pressure.

However, Van Wijnen said they did see some green shoots in terms of increased tendering activity but do not expect that this will have a major impact on PPC in the second half of its financial year.

“Our short-term outlook is of no major change as the country slowly works itself out of the economic misery,” he said.

Stephen Meintjes, an analyst at Momentum Securities, said PPC was obviously a casualty of the government’s lack of infrastructure spending and it did not appear that this was going to turn around quickly or soon.

Shares in PPC rose 1.17% on Wednesday to close at R3.45.

PPC share price

 

 

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Hope they did not use imported cement on the Gautrain bridges? What is SABS and Customs department doing about this.

Not only does the industry need protection but the public of South Africa needs protection.

Inferior cement from Vietnam, India and Nigeria will be calamitous in the long run. How many buildings in these countries collapse because of poor building practice using inferior ( diluted) cement? I think we will be shocked at the answer to this question. And how many buildings using SA cement in our past have fallen down? Not one!

Encouraging investment into South Africa at the expense of its local businesses and the safety of its people is negligent and foolhardy. It really is not worth the saving.

My fear is the builders of new developments, you won’t know about the poor cement till a few years post construction.

This only shows a lack of controls. For concrete; “cube tests” should be always done. But I acknowledge it is more difficult for the small and home builder with mortar and on site mixing.

In the early 2000s when we were dumping cement in other markets when we had access capacity, no one said that we are from Africa and producing poor quality cement and that the buildings in South Africa is collapsing. Funny enough you talk about cement from Nigeria and buildings collapsing, but one of the best brand in South Africa, Sephaku cement is part of Dangote cement of Nigeria and the largest cement producer in Africa.
Infact PPC cement quality has been dropping over the years and its prices been rising.

The problem with some of our big dinosaur companies are that their overheads are way to high and the fat cats in the ivory tower are earning way to much and now they are demanding that the consumer pay the price. Its liek something of the old communist block palybook. Itac can not continously protect inefficiencies, eventually we as an economy will pay a heavy price.

Quality is a different issue and some of the bigger consumers are aware of quality and will steer clear of poor quality products. But on the flip side, everything imported cheaper doesnt mean it is of poor quality and the local producers should not play on the fears of the local market to justify their incompetence.

Oh, so it’s fine for SA industries to seek protection, but Trump gets attacked for protecting his industries.

What a bunch of hypocrites.

This is different to a earnings tariff protection. This is preventing fake cement masquerading as real cement whilst bankrupting a legitimate company.

If PPC goes under and all we have left is chalk and sand based garbage cement. its a far worse outcome than stopping some poor cement imports.

Have you seen construction using this stuff…its an accident waiting to happen.

Do you work at PPC

@anonymous nope.

ANC policies destroyed the nation’s competitive advantage. Productivity is the function of the output of labour and the cost of that labour. The Tripartite Alliance destroyed the productivity of labour with their labour laws. We lost that competitive advantage.

The local industrial complex was built on the competitive advantage of the cheapest electricity in the world. The ANC made our electricity the most expensive in the world. We lost that competitive advantage.

Manufacturing was built on the rule of law and property rights. We lost that competitive advantage.

Entrepreneurs could appoint the best-qualified people. The workplace was a meritocracy. EE destroyed this competitive advantage.

Shareholders had to invest their own capital. They had skin in the game. They had a longterm perspective. BEE destroyed this competitive advantage.

An accommodative tax regime enabled capital investments in plant and property. The redistributive rates and taxes policy destroyed this competitive advantage. There was water in the taps, the lights worked, sewage went to the sewerage plant and not into the drinking water. Cadre deployment destroyed this competitive advantage.

What happens to a business that does not have a competitive advantage? It goes bankrupt. That is why the SOE’s, the municipalities and the country is bankrupt.

Socialist ANC policies create jobs overseas and poverty locally.

The Government (In the form of Ebrahim Patel )does not care a hoot about South African Industry. Close the factories, retrench the staff and import anything we need. This will keep our Brics partners and others happy.

He is probably a silent partner in the “cement” importing.

Ooh yes, protect an industry that was a cartel for decades. Like giving an armed escort to the mafia. How about no.

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