After an extremely strong 2007, during which expectations in both the civil engineering industry and cement supply sector was surpassed, building confidence fell sharply in the first quarter of 2008 as demand in both the residential and nonresidential sectors continued to weaken.

This is the picture that emerges from the latest reports from the organised civil engineering industry and the cement and concrete sector.

Civil engineering turnover surpassed expectations in 2007. This was influenced by factors like work on stadiums for the 2010 Soccer World Cup, work on the King Shaka Airport, continued construction of the Gautrain Project and the Ingula pumped storage scheme.

This state of affairs was also reflected in the turnovers in cementitious products.

The Southern African region’s cement product sales hit a record of 15.3 million tons in 2007, as demand in South Africa and neighbouring countries continued to grow, the Cement & Concrete Institute (C&CI) reported in its latest industry review.

Although the outlook for 2008 was less rosy as high interest rates and continued pressure on building cost inflation were hurting the residential property market, the C&CI said the South African government’s continuing upsurge in infrastructural spending should support construction growth in the short and long term.

On the civil engineering front, 2007 was also a remarkably good year in terms of the volume of residential building activity, but much of this had to do with a mini-surge in demand that overflowed from 2006, thanks largely to transfer duty and personal tax relief.

The non-residential market maintained good growth, though slower economic growth and infrastructure bottlenecks will inevitably impact investment in this category.

The value of projects awarded provides a short term indicator of construction activity, as it signals projects that have successfully progressed through the planning and tendering phases and are ready for construction.

The total value of construction projects awarded rose 4.5% in real terms during 2007, but the residential market dipped into negative territory, falling by 35%. Non-residential developments just edged higher up by 2.5%, while the value of civil contracts awarded rose 43% (supported by the award of the 2010 soccer stadiums).

Signs of things to come were, however, already present last year. Negative growth was the order of the day last year, when reviewing the number of plans passed – in terms of units or square metres.

This means that, combined with the lagged impact of higher interest rates and deteriorating demand for residential property during the second half of 2007, expectations of a fall in the residential building industry during 2008 will be realised.

Cement demand

In the Southern African region a record 15.3 million tons of cementitious products were sold during 2007. This represented a 7.4% growth on the previous year.

It is important, however, to note that this tonnage included 1.6 million tons of fly ash and slag purchased by contractors and concrete product producers for extending and/or enhancing their concrete mixes.

These extenders are by-products of the power and smelting industries, do not require cement producing capacity and should therefore not be included in any cement demand/capacity comparisons.

Sales to neighbouring countries (Botswana, Lesotho, Swaziland and Namibia) were 18.5% up on 2006 with particularly strong demand from Botswana (+33%) and Namibia (+12%).

Domestic sales to the nine South African Provinces were 6.6% up on 2006, with positive growth shown in all provinces except for the Western Cape. (-1.7%).

The largest province in terms of economic activity, Gauteng, exhibited double-digit growth in demand at 10%, whilst the smaller provinces of Eastern Cape and Northern Cape showed the greatest growth at 12%.

The C&CI report also reflects what has been happening in the building and construction sector when sources of demand are analysed:

In line with the tremendous upturn in the civil engineering industry, cement demand from the buying sector (i.e. sales to civil engineering contractors) increased by 23.5% in 2007.

Sales to blenders of cementitious products were also very high reaching the 1 million ton level for the first time and representing an increase of nearly 25% over the previous year.

The ready-mixed concrete industry remained highly active, maintaining the high levels of growth of the past two years. Not included in these sales is the volume of added material made by the blending industry, which buys cement from C&CI’s members. This could account for an additional 1 million tons of cementitious extender not formally reported to the Institute.

Products

Last year also saw the introduction of a CEM IV type (pozzolanic) cement by one of the producers, but as yet there is only one company involved.

There has been a general shift towards the more fully extended products, which is a continuation of the sustainable cement programme initiated by the cement manufacturers a few years ago. An added advantage of this trend is that producers can manufacture higher volumes of finished blended cement per ton of clinker produced, thus extending capacity.

For some years now the C&CI has reported that by far the majority of cement is transported by road due to the industry’s lack of faith in the level of service provided by the rail network.

“Nothing has changed and road transportation still represents 99% of product moved to the marketplace. The bulk to bag ratio indicated an increase in bulk business,” the report states

On the export front it is reported that exports remained at low levels of approximately 1.4% of total cement sales.

In fact in some instances, “it can be reported that with a tight local supply situation it was necessary to use imported product to fulfil export commitments,” the report states.

A detailed analysis of export sales is not available, but typically product is shipped to other African countries and to the Indian Ocean islands.

It is further reported that due to “the unprecedented rise in demand for cement, and the long lead times in installing new capacity, it was necessary for all members to import both clinker and cement products into the country during 2007”.

The level of imports that were necessary to meet local demand which, when converted to finished cementitious product represent approximately 1.5 million tons.

Outlook

C&CI marketing manager John Sheath said with the release of the 2007 Cement & Concrete review that cement sales to civil engineering contractors – in line with the exceptional growth in this industry sector – increased by 23,5% in 2007.

It was also a “remarkably good year” in terms of the volume of residential building activity, but much of this had to do with a mini surge in demand that overflowed from 2006, thanks to transfer duty and personal tax relief.

“The nonresidential market maintained good growth, although slower economic growth and infrastructure bottlenecks will inevitably impact [on] investment in this category.”

Although the economy had experienced setbacks since the beginning of 2008, cement producers could still look forward to a positive year, as government’s continuing upsurge in infrastructural spending should support construction growth in the short and long term.

“The longer-term view on the residential property market remains depressed as high interest rates and continued pressure on building cost inflation negatively affect affordability. However, the low-cost and affordable housing sector could well boom with R39 billion of the government’s infrastructure budget allocated to this sector,” he said.

The medium-term outlook for retail space was, however, less favourable and the development of industrial space had also slowed down.

But with the civil engineering sector expected to continue its unprecedented growth this year, industry forecasts for cement demand in 2008 were still positive, although generally reflecting the slower growth experienced in the residential sector.

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