UNDER-PRESSURE CEMENT SECTOR WANTS TARIFFS

Local cement producers are making
submissions to the International Trade Administration Commission of South
Africa (Itac) to impose tariffs on cement imports from China and Vietnam in a
bid to protect the South African industry.

Cement imports grew 166.4% and
144.1% year on year in September and October 2018, respectively, according to
Industry Insight, which provides market information on the construction
industry.

The first 10 months of last year
saw 849,781 tonnes of concrete being imported, representing an increase of
104.7%, compared with the same period in 2017. Data from the South African
Revenue Service shows that higher than average imports of more than one million
tonnes are expected this year.

PPC, the JSE-listed supplier of
cement and lime, earlier this year reported that, “Cement imports increased by
84% to 1-million tonnes for calendar year 2018, albeit off a relatively low
base. 

Imports
received via Durban increased by 89% to more than 600 000 tonnes, while imports
received in the Cape rose by 48% to 209 000 tonnes,” adding pressure to an
already struggling construction industry.

For the year ending March 31
2019, PPC reported that sales declined 2% to 3%. This decline was partly a
result of increased competition from imports, which rose by 84% in 2018.

The Concrete Institute (TCI),
which represents the major cement producers in the country – PPC, AfriSam,
Lafarge, Sephaku Cement and Natal Portland Cement – says the oversupply of
cement has left it with no choice but to approach Itac to “safeguard” local
producers from cheaper imports.

“The increase in imports of
cement is affecting demand for locally produced cement to such an extent that
[South African] manufacturers are considering mothballing plants, retrenching
staff and putting expansion plans on hold,” the institute said in a statement
in March.

In 2015 Itac, which sets and
investigates tariffs on imported goods, imposed anti-dumping duties on imports
from Pakistan after an investigation that found that cement imports from the
South Asian country were causing material injury to the local cement industry.

Itac had imposed duties as high
as 77% on Pakistani cement, which has eased some pressure on South African
cement producers. The institute says although the intervention by Itac levelled
the playing field between local cement producers and Pakistani producers, China
and Vietnam have stepped into the gap.

“The cement, concrete and
affiliated industries employ thousands of South Africans whose jobs would be on
the line if the government does not step in to protect local cement
production,” says Bryan Perrie, MD at TCI.

The institute’s figures show that
the sector already faces a supply and demand mismatch. Local producers can
manufacture about 19- to 20-million tonnes of cement annually, while demand
stands at 13-million tonnes a year.

Apart from supply and demand
dynamics, local manufacturers are also subject to rigorous regulations,
including environmental impact assessments, strict quality controls, and labour
and employment regulations.

“Such processes are not always
required with products manufactured outside of South Africa. While we do not
view these regulations as problems, and we are supportive of their objectives,
they do add to the cost of doing business and, in turn, to the price the end
user pays,” Perrie says.

Other factors that have had
significant effect on the overall cost of producing cement include slow
economic growth, which has put added pressure on the country’s construction,
cement and concrete industries.

The rolling electricity cuts in
the first quarter of the 2019 have also increased the cost of production.

Azar Jammine, the chief economist
at Econometrix, says that imposing tariffs in the short term could provide some
relief for local cement producers but that for the industry to be protected,
huge investment in the country’s infrastructure is needed.

“The cement industry is [having]
a hard time because of low levels of demand because of very weak levels of
activity in construction,” he says “But from a long-term point of view the
solution to the problem is to increase investment.”

Data from Statistics South Africa
also showed that construction sector remains in the doldrums, decreasing 2.2%.
This is far from the highs before the Fifa World Cup in 2010, when there was
major spending on infrastructure.

Nine years  on and one of the country’s biggest
construction firms, Group Five, had its stock suspended in March after the
company filed for bankruptcy protection.

Basil Read is another one of the
five construction industry giants that has barely kept its head above water. It
began a business rescue process in June last year. And in June this year, the
company retrenched all staff not working on specific projects. The company also
moved its headquarters to smaller offices in Johannesburg.

As part of his plan to fix the
country’s sluggish economic growth, in February President Cyril Ramaphosa
announced the government’s plans to inject R100-billion into the Infrastructure
Fund over the next decade. Ramaphosa said the plan includes a “special package
of financial and institutional measures to boost construction”.

Jammine has questioned the
government’s plan, saying, “I’m waiting to see the R100-billion. We’ve been
hearing about it for a long time and there are very few signs of it actually
manifesting … as yet.”

Perrie says the investment in the
construction sector is a step in the right direction, adding that, “The key to
future growth lies in achieving greater efficiencies within the country’s
relevant manufacturing sectors. The cement industry needs to compete on a level
playing field and not be scrambling to survive against under-priced imports.”

Stanlib analyst Kobus Nell says local producers should ensure that consumers understand that South African cement is of a higher quality than the cheaper imports to encourage increased demand for local products.https://mg.co.za/article/2019-07-11-00-under-pressure-cement-sector-wants-tariffs