PPC, the leading supplier of cement and construction materials in Southern Africa, is raising the spectre of dumping after the Competition Commission approved the acquisition of local competitor AfriSam by a Chinese company.
The Competition Commission approved the acquisition bid in December, paving the way for West China Cement (WCC) to acquire AfriSam for R2.5bn.
However, some cement producers, strapped with regulations, carbon taxes and high operating costs, are worried that the deal will allow WCC to produce cement elsewhere in the region cheaply and then dump it in the local market.
PPC CEO Matias Cardarelli said the proposed acquisition raises serious concerns for South African local production, with AfriSam downsizing its production in South Africa and moving production to Mozambique where West China Cement has significant spared capacity.
“AfriSam’s new Chinese owners currently operate a cement importation business to South Africa from its Mozambique operation. The proposed acquisition raises serious concerns for South African local production, with Afrisam becoming a distribution platform for Mozambique produced cement.
“In fact, this transaction creates strong incentives to abandon local manufacturing in favour of cheaper imported cement.”
We remain committed to South African-produced, quality-compliant products.
— Matias Cardarelli, PPC CEO
The CEO said the WCC-AfriSam transaction had been expected. “We have indicated for some time that shareholder changes are under way in some competitors of our sector. PPC’s ‘Awaken the Giant’ turnaround strategy has been designed and implemented with these changes in mind.”
“It remains an absolute imperative that we all work together urgently to defend the South African cement industry, and its workforce, or we will face a further declining industrial base,” Cardarelli said.
“South Africa risks losing a strategic industrial capability and becoming dependent on imports for critical infrastructure materials. Imported cement avoids these companies paying South Africa’s carbon tax, South Africa’s labour costs, high local energy costs, and environmental compliance costs.
He said PPC is investing significantly in local operations, including a new integrated cement plant in the Western Cape, in personnel and in value chain development, “which will ensure that our contribution to South Africa’s economic growth is meaningful and sustainable”.
“We remain unequivocally committed to South African produced, quality-compliant products, at a time when we are seeing an increase in substandard quality cement, as well as dumped imported cement.”
Cardarelli said the health and safety of South Africans should not be compromised. Local authorities should ensure compliance with quality standards and maintain a level playing field so that cement produced in South Africa is not at a disadvantage against imports.
Referring to the transaction, the Competition Commission said a moratorium on retrenchments was in force now and would extend for three years after implementation of the merger.
“During its investigation, the commission assessed the state of import competition in the relevant market ... This included an assessment of the merger parties’ production capacity, capacity utilisation and the demand and supply dynamics in the markets wherein they are active,” it said.
It also evaluated “the possible effect of the merger on productive capacity in the South African cement manufacturing sector”.
“In this regard, the merger parties agreed to a condition to expend notable capex in maintaining the productive capacity of AfriSam in South Africa and, further, to maintain local pre-merger procurement,” the commission said.
“These conditions are intended to incentivise continued local manufacturing post-merger. Ultimately, the commission found that the merger would not lead to a substantial prevention or lessening of competition.”
The commission said in a competitive market, other cement producers would invest in process improvements to meet market competition.
“The matter was classified as an intermediate merger. The commission makes a final decision in intermediate mergers. The Tribunal’s jurisdiction will only be triggered if the merger parties submit a request for reconsideration. To date, the merger parties have not done so.”
In the last engagement in early April, the industry gave an undertaking that they would compile an application for safeguard or other trade remedy measures. We are hoping to receive that submission soon
— Ayabonga Cawe, International Trade Administration Commission
Companies in the construction sector have long pleaded with the government and regulators for tariff measures to protect the local cement production sector against dumping from producers such as Pakistan.
International Trade Administration Commission (Itac) commissioner Ayabonga Cawe said ordinary customs duties on cement imports are bound at zero in line with obligations under the World Trade Organisation’s General Agreement on Tariffs and Trade.
“However, [Itac] in the past has levied dumping duties on imports from Pakistan, which are subject to a sunset review in the next few months. The view of the commission is that should ... a case be made that there is dumping, price injury or the threat of such, [it] will make the requisite determination.”
He said Itac has had engagements with the local cement industry but has yet to receive a duly completed application for remedies.
“In the last engagement in early April, the industry gave an undertaking that they would compile an application for safeguard or other trade remedy measures. We are hoping to receive that submission soon.”
On the impact of import taxes such as the carbon border adjustment mechanism (CBAM), Cawe said cement kilns are energy-intensive and any pricing of emissions through CBAMs or other “border taxes” on emission-bearing imports is likely to have a bearing on domestic cement makers.
“To the extent that local cement makers remain reliant on coal-based energy to power their kilns, there will be a cost to that. Domestic policy has to consider how ‘energy’ diversification towards renewables enables preferential access to key markets for our local producers.”
Business Times sent queries to WCC regarding the AfriSam acquisition but has yet to receive a response.
Business Times
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