Afrimat activity index rises further in the third quarter

The Afrimat construction index continued its upward trajectory in the third quarter, rising 3.6% thanks to positive growth in several metrics.

However, the overall slowdown in the construction sector’s activity continued, as evidenced by the index’s 1.3% annual contraction, mostly caused by high lending rates.

Seven of the ten variables that make up the index, which gauges the degree of activity in the building and construction sectors, performed similarly to the second quarter and illustrated an upward trajectory.

The index had a fantastic quarter, said report author and economist Roelof Botha, who highlighted big improvements in three areas: buildings completed, particularly in the metros and larger municipalities, improved by 23.3%; construction employment increased by 14.6%; and building material sales values increased by 5.9% quarterly.

“On a quarter-on-quarter basis, the Afrimat construction index outperformed the economy. It’s not difficult to do because the real GDP growth was minus 0.4[%] quarter on quarter,” Botha told Business Day.

Other metrics that showed significant quarterly improvements were the value of building plans passed, the volume of building materials produced, and the compensation of workers in the construction industry.

However, Botha lamented that the main issue was the year-on-year performance, which was still slightly below par, due to high interest rates, which have not been falling fast enough.

Wholesale trade sales of construction materials recorded a double-digit year-on-year decline while the value of construction works and the value of buildings completed, alongside construction salaries and wages, also slipped compared with 2023.

“The underlying reason for the lethargy in the economy in general and in construction in particular is obvious. It is the interest rates,” he said.

“It has an incredibly debilitating effect because not only does it prevent demand, it also prevents capital formation. You’re restricting and postponing demand in future because if you don’t have capital formation now, [and] if people don’t build houses and if the government doesn’t build roads and fix the harbours, you don’t have growth or an increase in growth in future.”

The central bank recently cut the interest rate by 25 basis points, reducing the prime lending rate to 11.25%, based on a repo rate of 7.75% as determined by the Bank.

CEO Andries van Heerden confirmed that while the group was not yet seeing a huge uptick in the infrastructure development and maintenance side of the economy, small pockets of demand were opening up.

“We previously indicated that across the construction landscape, the construction materials segment enjoyed slightly elevated volumes from road, rail, and dam projects and we continue to experience demand for our aggregates,” said Van Heerden.

Emphasising the need for improvement in SA’s ports, rail logistics, and a higher economic growth rate to stimulate the economy further and to help provide much-needed jobs, he said that he was encouraged by the data in the latest index release.

Afrimat, a JSE-listed mid-tier mining and materials company providing construction materials, industrial minerals, bulk commodities, and future materials and metals, has been integrating the Lafarge business into its operations.

Though the integration was one of the group’s fastest, Van Heerden assured investors that it was going “extremely well” and was being done meticulously.

“There are only a few more steps to reach full integration. We are pleased to announce that the cement processing plants are now providing Afrimat-branded product,” he said.

The firm has said it is negotiating a “game-changing deal” that will strengthen its cement operations as it continues to integrate and turn around Lafarge.

Up 0.98% to R65.85 on Thursday, Afrimat shares have climbed 3.5% since the start of 2024, giving it a R10.4bn market cap on the bourse.

gumedemi@businesslive.co.za