Cement sales declined by 5.1% in Q2 2014, following strike action, lack of confidence and bullish growth in 2013
Cement sales performed weakly in the first half of 2014 due to intense strike action in the platinum sector and low levels of confidence. Year on year growth in cement sales was -5.4% in Q1 and -5.1% in Q2 2014. When adjusted for selling days, the decline was 4.8%. Although we anticipated a decrease in cement sales in the second quarter, the decline was still lower than expected. However, it should be noted that the result was adversely affected by the very high base of 9.8% growth in Q2 2013. Total cement sales in 2013 increased by 5.26% y/y, with very bullish increases of 9.8% and 8.8% in Q2 and Q3 2013 respectively. For 2014, on the contrary, y/y growth in cement sales is expected to turn out negative.
On a quarter-to-quarter basis, growth in cement sales increased to 22.6% in Q2, from -20.3% in Q1, due to seasonal factors. Average daily sales of cement was 51 505 in Q2 2014, compared to 39 897 in Q1 2014 and 51 626 in Q2 2013.
It is quite clear that the industrial action in the mining sector in the first and second quarter of 2014 contributed towards depressing construction activity and thus declining cements sales.
In Q2 2014, the square metres of buildings completed by larger municipalities also show a decrease of 27.6% when compared with Q2 2013. However, growth in building plans passed increased to 1.4% y/y in Q2 2014. The share of cement imports increased to alarmingly high levels of 12.7% of local production in Q2 2014
We have frequently commented on the fact that cement imports are continuously rising. In Q2 2014, the share of cement imports increased to an all-time high of 12.7% when expressed as a percentage of national cementitious sales. A share of 12.7% equals a total amount of 385 455 tons of cement imported in Q2, compared to 266 276 tons in Q1 2014 (+45%).
The value of the cement imported in Q2 was R235.9 million in current prices, which translates into a unit price of R612 per ton (FOB price). This represents an annual growth of 9% in the price of imported cement - which is a very high increase compared to the price increases of ordinary and extended cement (+2 %) or of the cement retail price (-1.6%). If we include the imported cement figures in the calculation of the national market, cement sales only declined by 0.7% y/y in Q2 2014 and not 5.1%..
It is astonishing to see that these high import levels persist despite a 25% odd fall in the exchange rate over the last few years. One should note, however, that 99.9% of cement imports came from Pakistan and thus were linked to the Pakistan rupee and not to the US dollar.
That being said, the most recent data for Q3 2014 revealed the first signs of a deceleration in cement imports: The total amount of imported cement declined to 247 813 tons or R155.65 million in value (at an average price of R628 per ton). This reinforces the view that the deterioration of South Africa’s terms of trade is likely to have affected import volumes in Q3. Changes in import volumes will have an impact on national cementitious sales and we will keep a close eye on these statistics - higher import prices compared to domestic prices will lead to a more competitive domestic industry.
Cement sales growth for 2014 most likely to be negative
We mentioned that the 9.8% and 8.8% growth in cement sales in the second and third quarters of 2013 respectively came as a surprise, especially seeing that none of the gross fixed capital formation indicators of
the Reserve Bank showed any significant uptick. The higher base associated with these quarters, combined with higher imports and the domestic strike action in the mining and manufacturing industries put cement sales under pressure in Q1 and Q2 2014.
The indicator for residential gross fixed capital formation shows a year-on-year decrease of -6.65% in Q2 2014 and is expected to remain flat in the short term. Non-residential gross fixed capital formation decreased by 0.7% in Q2 2014, but the gross fixed capital formation for building and construction data from the Reserve Bank surprised, coming in at 20.5% in Q2 2014. This again shows the volatility in the quarter-to-quarter data and the discrepancy between the cement in Q2 2014. This again shows the volatility in the quarter-to-quarter data and the discrepancy between the cement sales data and the Reserve Bank data.
Source : Econometrix 19/11/2014