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PPC feels effect of slow state spending

Posted On Thursday, 19 May 2011 02:00 Published by Commercial Property News
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Rebound in smaller infrastructure projects much less lucrative than works for the Soccer World Cup sees PPC declare an interim dividend of 35c for the half-year

Paul Stuiver PPCPRETORIA Portland Cement (PPC) is continuing to feel the chill running through SA’s building and construction markets, though there has been a rebound in smaller infrastructure projects that are much less lucrative than works relating to the Soccer World Cup.

The group nonetheless declared an interim dividend of 35c per share for the half-year ended March , saying it continues to generate good cash, despite increased input costs and government infrastructure spending having not kicked in.

"Some mid-tier construction companies are reporting more work than they have ever had," CEO Paul Stuiver said on Tuesday. But larger companies, including PPC, had not seen any benefit from the government’s promises on infrastructure spending. "Everyone is complaining government spending is not coming through," he said.

Mr Stuiver said the Southern African cement industry had "huge overcapacity" with production capabilities of about 16-million tons a year, while demand had dropped to about 12-million tons a year.

He said entry into the primary South African market by Nigerian- backed Sephaku, and a Chinese- backed empowerment deal involving cement maker Jidong Development Group and the China-Africa Development Fund, was adding to the problems of SA’s cement producers. "It doesn’t make sense from our point of view, but we are biased," Mr Stuiver said, adding that cement production from such projects had at least a 30-month lead time.

The two new projects ultimately will bolster cement-making capacity in SA by nearly 5 -million tons a year, in a market that already produces 25% more than it can consume.

The Western Cape has experienced a 50% plunge in building and construction projects since their peak in mid-2007. The region constitutes about a fifth of PPC business, and the company is going ahead with capacity expansion there, to be completed in 2017 or 2018 .

But Southern African cement markets have been stymied by a 35% drop in demand, despite a jump in cash-in-hand rural demand in Zimbabwe. Mozambique made up a large part of that decline, Mr Stuiver said, because exports from its Limpopo operations were hamstrung by South African rail capacity. "We are exporting via Cape Town to Maputo, because we can’t get the rail system working. It’s really hurting us ." Mr Stuiver said transport handling charges had doubled or trebled, and export prices were also hit by the strong rand.

Mozambique was developing some large mining projects in the north of the country, but shipment cost a fortune, Mr Stuiver said.

PPC has been hit by the fall-off in SA’s housing market since mid-2007. Home-building accounts for about 50% of all cement demand, and cement sales in SA have declined over the past four years. However, demand from SA’s rural areas was robust, Mr Stuiver said, and made up a significant part of PPC’s turnover.

Last modified on Friday, 28 June 2013 00:23

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