Key message: The cement market has been very strong post-lockdown as blenders and imported volumes have declined.
- Sephaku Holdings recently released FY20 results.
- Sephaku Cement
- Sephaku Cement had their full annual shutdown in March before the lockdowns occurred – and the restart planned for 1 April did not occur resulting in lost production.
- Some essential servicing was done during the lockdown, but 10 days were lost relative to the production planning.
- During May, the plant as re-opened but at 50% of the staff complement. A small stop in July occurred to change the burner to accommodate lower grade coal (Sephaku had switched to cheaper coal from Botswana but this was not available as the borders had locked down).
- During lockdown, the company operated on a no work, no pay basis.
- Post lockdown, the cement market has been very strong, with June being the best month ever experienced. The plant is currently running at full capacity.
- Cement pricing: cement prices continue to increase, with AfriSam, Mamba and Sephaku pushing prices up. Sephaku had price increases in June (KZN) and July (inland).
- Sephaku pricing is now on a par with PPC (PPC increased prices last year and have held as the rest of the market caught up).
- Sephaku has launched the competitively priced Falcon brand as a defence against blenders. This has reduced average prices for Sephaku with Falcon volumes doing well.
- Competitive environment: the competitive environment has improved with AfriSam and Lafarge stabilising (financial and operational issues had forced them to become quite disruptive in the market).
- The recapitalisation of AfriSam has allowed them to focus more on pricing than volumes and they have also reduced sales to blenders (they had been one of the larger suppliers to blenders). Sephaku experienced this through blenders approaching them after the allocations were cut by AfriSam.
- Lafarge has had a new management team flown in from Europe, but they continue to have operational problems. Capex is not available to fix the plant and they are currently buying in clinker.
- PPC has got better management and the impact is noticeable. They have also reduced capacity substantially (only two kilns being run inland).
- Cement market: the cement market has been very strong post lockdown, with a surge of orders, particularly from rural areas.
- The bag market is growing the strongest with double digit growth from Jun – September. Bulk demand is picking up with double digit growth in August.
- Management believe that price increases are possible for the rest of the year as all cement players are operating at full capacity to satisfy demand.
- Blenders: smaller blenders have shut and the three large benders (SABS approved) are struggling. There is a shortage of fly-ash due to the lockdown.
- AfriSam has increased bulk prices and is restricting volumes sold to blenders. Blenders have approached Sephaku as a result (Sephaku does not sell to blenders).
- Imports: imports slowed dramatically during lockdown and imported cement prices have increased.
- The ITAC submission by the local integrated cement producers to implement cement tariffs is sitting in the Minister’s office. Sephaku believe that there is a strong likelihood of cement tariffs being implemented, but the Covid environment has slowed down the process.
- SARS has become involved at ports to ensure duties are collected from existing cement imports.
- Sephaku Cement financials: the debt used to finance the cement plant was 10-year project finance debt which ends in 4Q 2022. R1.17bn was outstanding in June 2020. The DSRA has been used and now topped up by Dangote (R125m contribution). Sephaku is asking for a capital holiday from lenders in 2H 2020.
- Debt repayments are R300m in 2021, R300m in 2022 and a R300m bullet at the end of 2022.
- Sephaku will look to refinance the debt in mid-2021 (R650m). A rights offer is not anticipated.