With comparatively low cement sales volumes as a result of the construction industry downturn, the cement industry has looked towards the sale of bagged cement in rural areas to bolster supply.

Anaya Katlego | Unsplash. Photo by Anaya Katlego

Anaya Katlego | Unsplash. Photo by Anaya Katlego

Speaking at mining industry association ASPASA’s annual CEO’s Seminar, Pieter Fourie of Sephaku Cement said that strong sales of especially bagged cement in far-flung areas had played a major role in cushioning the effect of the slump caused by the Covid-19 pandemic and other lingering economic factors.

While the construction industry and consumer markets have taken a hammering in recent years, home improvement and small builder activity has shown growth with more people staying or returning home where they are undertaking smaller projects.

Shrinking market

The local market is estimated to require 13 million tons of cement per annum, while cement producers are producing 19mt of cement. Simultaneously, legal and illegal imports of cements continue and add further pressure to an already oversupplied market.

With two new producers entering the market since 2014, the market is understandably distressed and the stronger than expected demand from rural areas is considered a boon for those producers able to reach these markets.

Fourie summed the four most important challenges the market faces at present:

  1. Uncertainty – there is a lot of political instability and the economic outlook post Covid-19 lockdown is not certain to be conductive to growth. Carbon taxes and power grid failures also create uncertainty.
  2. Sustainability – most companies in the construction industry are suffering from distressed balanced sheets, reduced margins and a low price situation where prices for bulk cement are at 2014 levels
  3. Oversupply – with the entry of Sephaku Cement and Mamba Cement the estimated capacity 19mt of the industry is 19mt, imports account for 1mt, while demand has tapered off to 13mt
  4. Opportunity – despite the challenges companies need to put strategies in place to deal with arising opportunities. Large-scale infrastructure development projects are on the cards, consumer spending is on the up and public and private sectors are realigning their priorities in a post-Covid world

 Planning a comeback

Until now the cement industry has undertaken major cost cutting exercises and mothballed less economical kilns. Investment has been at a low 16% of market value for some time and will require a major jumpstart to get back to pre-World Cup boom figures.

Commenting after the presentation, ASPASA director Nico Pienaar, added that these events show how critical the infrastructure programmes that have been mooted by Government are to the construction industry and by default to the cement and building materials industries.

With the current low levels of investment in the industry it may be important to note that different approaches are needed and that saviours may come out of different directions than anticipated – such as rural bagged cement sales, DIY and home improvements as an example.”