Capacity to rein in cement prices
INCREASED production of cement in South Africa is expected to result in lower prices.
Ross Heyns, an investment analyst at Kagiso Asset Management, said the growth in cement demand in South Africa would be balanced by the increased capacity of existing players and the entry of Sephaku Cement to the market.
“It is therefore unlikely that cement companies’ profitability will return to previous peak levels in the next growth cycle,” Heyns said.
Sephaku Cement, an associate of JSE-listed Sephaku Holdings, reported last week it had begun commercial production at its Delmas milling plant on January 6 following a successful commissioning phase. The Delmas plant is one of two major Sephaku Cement projects strategically located east of Gauteng.
Its other major project is Aganang, an integrated plant located in Lichtenburg in the North West, which it said was on target for production by the second quarter of this year.
Heyns said these plants were expected to add 2.6 million tons of capacity with new and more efficient equipment.
“This will add a significant share of low-cost capacity to the inland market and is likely to result in increased competition. Apart from gaining market share, the additional capacity is bound to lead to lower retail cement price growth.
“Sephaku is already exerting pressure on existing companies to optimise their capacity to compete with its new equipment,” he said.