Lafarge's new rates excessive, say retailers

johannesburg - lafarge south africa, a subsidiary of the france-based global leader in building materials, has increased the price of its bagged cement by almost 20 percent in the past five months, prompting accusations of excessive pricing.

the higher prices are likely to fuel building cost inflation.

jacques du toit, a senior economist at absa group economic research, said yesterday that absa had calculated year-on-year building cost inflation at 10.6 percent in the first quarter of this year. "it's … well above inflation. but the demand for building materials and skilled labour will continue to put upward pressure on building costs and this pressure will continue up to 2010."

several building materials merchants claimed that lafarge's cement price hikes were excessive: the firm was taking advantage of high demand and the rise was not in line with lafarge's cost hikes.

the merchants did not want their names mentioned because of fears of victimisation.

albert corcos, the chief executive of lafarge sa, confirmed that it had increased the price of its bagged cement twice this year and lost market share because its competitors had not increased their prices.

excluding the cost of its pallets, lafarge sa increased the price of its bagged cement by 7.5 percent in january and 12 percent at the beginning of this month, while the price of bulk cement had risen by 9 percent in january, said corcos.

but he stressed that the increases were justified by the cost increases it experienced.



these were not the same for each producer, nor was each producer affected to the same magnitude, he said.

each cement producer had its own cost structure. for instance, each had a different exposure to the appreciation and depreciation of the rand.

corcos said lafarge sa had been affected by increased coal prices, manpower costs, the cost of imported spare parts and transportation costs.

he queried why complaints were coming from retailers rather than customers, adding that this was possibly because the increases had hit the retailers' profit margin.

corcos said it had decided to sell the pallets on which the bagged cement was delivered, because of the huge administrative burden they caused.

this once-off additional cost was split between the two price increases for bagged cement this year.

retailers had got used to competitors increasing prices at the same time and lafarge sa had taken leadership of the competition and raised its prices first, corcos said.

he said the difference between the cost of cement it imported and cement it produced locally indicated that it was not taking advantage of the shortage to raise its prices.

"there has been good behaviour by cement producers, in that they understand they can't push up prices to the cost of imported cement, but their prices have to reflect their cost increases," he said.