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Imported cement volumes up a staggering 293%

This article was written by Roy Cokayne and first appeared on Moneyweb. 30 September 2019.

Imports of cement into South Africa increased by 293% year-on-year in July – and are 17.5% higher for the first seven months of this year – despite the lack of major infrastructure projects and the severely depressed construction and building environment in the country.

Construction market intelligence firm Industry Insight says cement imports in June were again predominantly from Vietnam with, notably, none from Pakistan during the past two months. It says 104 099 tons of cement with a customs value of about R72 million was imported into South Africa in July.

This was marginally lower than the 149 522 tons with a customs value of almost R100 million that was imported into the country in June, the highest level of cement imports in one month since February 2015.

A R440m punch in the stomach: Industry Insight says a total of 631 059 tons of cement with a customs value of more than R440 million had been imported into South Africa in the first seven months of this year.

It says this followed an overall 85% increase in cement imports in 2018.

South Africa’s major cement producers, in an initiative driven by The Concrete Institute (TCI), reported last month that they had applied to the International Trade Administration Commission of SA (ITAC) for what they refer to as “safeguard action” against cheap cement imports.

A letter was also sent to the Department of Trade and Industry (Dti) to advise the department of their plans to seek approval for “special designation” of South African-produced cement to be used in state infrastructural projects.

‘Puzzling’ aspect: Industry Insight economist David Metelerkamp says the high level of cement imports at a time when the construction environment is so depressed has puzzled him some degree.

Metelerkamp believes Vietnam and Pakistan saw South Africa as an easy target country in which to dump their cement. “Maybe they see the fact that cement prices may be higher in South Africa than the market would expect [as making] it an easy target.”

Metelerkamp says the industry is not calling for a total ban on imports but rather seeking tariffs to safeguard the local industry.

Metelerkamp points out that locally produced cement is subject to additional regulatory requirements, including the newly introduced carbon tax, with escalating energy costs and labour union pressures also adding to production costs.

He says local capacity is also negatively affected by weak consumer demand in line with poor economic growth and a contraction in public sector infrastructure expenditure.

Government intervention on the cards: Njombo Lekula, MD of PPC’s Southern African businesses, says government and Dti are engaging the industry about cement imports but have not yet reached a solution and a further meeting is scheduled.

But Lekula says business and government in South Africa have a big problem in that they are suspicious of one another, to the detriment of the country. “That needs to change,” he stresses. “We need to be co-creators of this country with the government.”

Lekula says the domestic cement industry is not only dealing with imports but also internal competition from extended products. This overcapacity in the market has the same effect on the industry as imports.

He says that while the domestic industry has an annual production capacity of 18 million tons, demand is languishing at 13 million tons, with the two million tons of imported cement that comes into the country each year adding to the demand deficit.

Mergers likely: Lekula admits that at some point consolidation in the industry in the form of mergers is “a logical thing and will probably have to take place”. “But all conditions will have to be correct for that to happen,” he adds.

Commenting on extended cement products, Lekula says there are probably 64 different bags of cement available in Gauteng today, more than half of which are extended with ash, which affects quality and pricing.

But Lekula says cement prices are already “rock bottom” and the extended cement products have started to impact the sustainability of the industry.

Lekula says there are four major producers in Gauteng and all of them are “sort of fighting for survival”. He says that when the costs are broken down and compared to current pricing, the industry “at this point is unfortunately not really sustainable”.