AfriSam sees merger as key to surviving cement glut

Cement manufacturer AfriSam sales and marketing executive Richard Tomes has stressed the need for the cement manufacturing industry to consolidate.

On a site visit with members of the media to its Ulco plant, in the Northern Cape, earlier this month, he said the situation in the industry was “pretty dire”, adding that AfriSam’s proposed merger with fellow cement producer PPC would allow the two companies to gain a larger share of the African market.

This was particularly important in light of recent global developments, which Tomes pointed out had seen a number of global cement producers merging in the last five years, most notably the $50-billion merger of French Lafarge with Swiss counterpart Holcim in July 2015.

Tomes pointed out that per capita demand for cement in South Africa, which stands at about 240 kg, was significantly lower than the global per capita overage of about 670 kg.

South Africa’s demand amounts to about 13-million tons of cement a year, while China, the world’s top market, demands about 2.8-billion tons a year.

Tomes expected demand in 2017 to decline by 2% to 3% and predicts that the oversupply currently affecting the market, which has caused profit margins for local producers to remain flat, could continue for the next 12 years to 14 years.

Two years after abandoning a first attempt at a merger, PPC and AfriSam in February again announced plans to merge. At the time, former PPC CEO Darryll Castle also highlighted the need for industry consolidation.

AfriSam acting CEO Rob Wessels said the proposed merger would be a “defensive merger”, owing to the oversupply of cement-based products.

Concerns have, however, been raised about whether the merger will be approved by the competition authorities, given PPC’s and AfriSam’s dominant positions in the South African cement market.