The target of major cement producer PPC to more than double the size of its business every ten years to retain its market share in Africa is based on the continent’s world-leading rate of urbanisation and the projection that the population of Africa will double by 2050.
Calculations point to Africa needing to accommodate another 900-million urban dwellers in the next 34 years and PPC foresees immense expenditure on infrastructure accompanying this significant urbanisation and population growth.
PPC is leveraging off its South African domicile and skills base to focus far more strongly on Africa, for which it is tailoring competencies for each region entered.
It also regards indigenisation in all of its African businesses as a given.
Africa is seen as providing significant scope to broaden offerings considerably, even into retail. For example, transferring bagged cement to a warehouse in an urban environment bereft of retail infrastructure would put the company in a position to sell directly to the public, just as the operational need of cement plants to burn materials may present waste management opportunities.
“It’s no longer just about a cement volume expansion. There are related businesses that we’d look at as well, so doubling might mean different things to us than just pure cement volume doubling, but it tells you that we have to be working on a pipeline around new businesses, new cement factories in Africa, either leveraging off what we’ve got or finding new regions,” PPC CEO Darryll Castle comments to Engineering News.
The JSE-listed PPC currently has nine cement factories in South Africa, Botswana, Zimbabwe and most recently Rwanda, which together have a production capacity of 8.6-million tonnes of cement products a year.
“What we’ve got to be doing right now in Africa is positioning ourselves for the next city and cement factory that is going to be required in the next ten years, so that we don’t go and buy it expensively in five years’ time,” says the new head of the 124-year-old, 3 000-employee PPC, which has assets worth R20-billion.
Projects that are poised to add some 50% to South African volumes are:
• a $85-million, 700 000 t/y mill that PPC’s 70% Zimbabwean subsidiary is scheduled to commission at the end of this year;
• the company’s new $170-million 51%-owned 600 000 t/y cement plant in Rwanda, which is in the ramp-up phase;
• the large $280-million, 69%-owned cement project west of Kinshasa, in the Democratic Republic of Congo, which is scheduled to come on stream at the end of this year; and
• the new $170-million to $180-million 31%-owned cement project in Ethiopia, where work is scheduled for commissioning in the second calendar quarter of 2017.
PPC is also expanding its operations in existing markets and forming part of its channel management strategy for South Africa – where it also produces aggregates, metallurgical-grade lime, burnt dolomite and limestone – are the acquisitions of Safika Cement and Pronto Readymix, including Ulula Ash. PPC also intends to conclude an asset for shares agreement with 3Q Mahuma to progress further the company’s ready mix channel management strategy.
High South African Volumes
Given the sluggishness of infrastructure expenditure in South Africa currently, local cement volumes are regarded as being surprisingly strong and driven by many more people moving into the very low end of the home-ownership sphere.
Much of the cement is going into unrecorded additions and alterations, as a result of people going into their local hardware to buy a couple of bags of cement for an additional room or two.
Involvement in staff housing schemes recently took PPC into the Mafikeng area, where the number of informal building projects on the go surprised on the upside.
“They all had their pile of sand, bags of cement, aggregates . . . to add another room for the baby that’s on the way or the parents and that’s really been holding up cement demand,” Castle reports.
Yet individual producers are experiencing weaker demand as a result of cement being imported into the country, causing competition to intensify and pricing power to be weakened.
In the absence of government imposing import tariffs, cement producers expect that they will continue to face dumping difficulties. However, on the plus side, imports have reduced by 38% since the introduction of import duties against select Pakistani imports in December last year.
Castle describes himself as a “very big fan of competition”. But he is not happy to have cement dumped here at a marginal cost and observes that some cement importers are circumventing duties, cost charges and standards.
He regards the present as an ideal time for the country to build project competence and to begin removing the infrastructure backlog.
PPC’s medium-term game plan is to find new resources, which will probably require it to engage in some form of exploration close to where urban development is expected.
Over time, the mining side of the business is expected to become more critical as companies strive to optimise profits by minimising limestone variability.
“I think mining is going to become a key part of our arsenal, particularly understanding the orebody and how to mine it selectively.”
Castle has extensive mining experience, having served as a CEO of Trafigura Mining and Anvil Mining and COO of Metorex and will not shy away from mining, for example, a coal deposit if it happens to be right near where a company’s limestone deposit is located.
The company under his stewardship would be open to the possibility of mining the two together and even consider selling coal externally, if it made business sense.
Cement is fundamentally a low-value limestone-based product that needs to be extended as far as possible by even lower-value additives that augment its cementitious properties.
If the extender is fly ash, milling and grinding may be located near to the source of the fly ash.
Foremost in Africa is understanding where the market is, or will be in the future, and where the limestone is, along with sources of coal and gypsum.
While gypsum costs are quite a significant portion of PPC’s Rwanda cost base because of having to be imported, its cost in the South African context is negligible because of local availability.
With logistics a significant portion of the cost base, the closer inputs are to the market, the better.
Oldest Cement Factory
PPC is keen to confirm that its first cement factory at Hercules, outside Pretoria – which was established in 1892 as De Eerste Cement Fabrieken Beperkt – was also Africa’s first cement factory.
“At some point, we had 100% market share in South Africa and we’ve spent 124 years slightly losing market share every year. What we want to do is regain some of that and we want to pick up in Africa.
“We believe we can be a pioneer in Africa in the way we were a pioneer in South Africa. For us, Africa is like a new dawn, much like South Africa was when the first factory was being built all those years ago,” Castle comments to Engineering News.