Cracks showing as the local cement industry faces up to a ‘looming crisis’

CAPE TOWN – The cement industry is no longer sustainable in its current form, according to PPC RSA Cement and Materials managing director Njombo Lekula.

He spoke at a briefing at PPC’s Dwaalboom cement plant in Limpopo, where cement company executives and industry organisations gathered to explain why they were seeking import tariff protection of about 45percent, the application for which is being considered by the government’s International Trade Administration Commission (Itac).

There are 17 cement plants that employ some 7000 people and an estimated 35000 more across the full value chain. It is the one essential material that will be required to meet South Africa’s serious infrastructure backlogs.

Reported cement imports in 2018 were estimated at more than 1million tons, and statistics for the first six months of 2019 already reflect a 17.9percent increase.

The problems were all too evident at the Dwaalboom plant, where one of the two kilns was in mothballs until demand picks up and where 70 staff were retrenched in August.

Because most of the cement plants are situated in remote areas, they play a critical role in helping to sustain their surrounding communities.

Concrete Institute managing director Bryan Perry said the industry faced a “looming crisis” due to the weak economy, the collapse of the construction sector due to falling infrastructure investment over the past few years and declining demand for cement.

The industry was producing some 13million tons a year when its optimal capacity is to produce at least 20million tons.

In addition, some plants were old, and needed to be upgraded, but it was too risky to make the investments in the current environment.

A large part of this risk was cheaper imports, which Perry said were undercutting locally produced cement prices by about 45percent. In addition, there were questions about the government’s ability to monitor the quality of the imported cement and the traceability of imported cement, if there were failures.

Imported cement did not have to comply with transformation costs such as training, social and labour plans.

Equity ownership, costs associated with the highly regulated local cement manufacturing environment, and Carbon Tax, which has resulted in a 2percent increase in selling prices, were other factors that cement importers did not have to pay for.

“Many countries from which the imported cement is sourced from, notably Asian countries, do not have the kind of stringent labour laws that we have in South Africa, nor are they required to pay their workers a decent and acceptable wage,” said Perry.

The shift to moving cement on roads rather than rail due to problems at Transnet had also resulted in higher logistics costs,while tariff increases from Eskom had added to the rising cost burden.

When the executives were asked why they did not consider consolidation to bring down costs and improve economies of scale, they said this had been tried before, but had always met with resistance from the Competition Commission.

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111366860 - Cracks showing as the local cement industry faces up to a ‘looming crisis’

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