Glut of bricks forces price cuts

Posted On Thursday, 20 November 2008 02:00 Published by eProp Commercial Property News
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Brick manufacturers, faced with a huge surplus, plan to sell stock below cost and to extend their annual shutdown next month.

Construction IndustryThe unprecedented surplus has been blamed on the slowdown in the residential building sector.

High interest rates, more stringent requirements for credit and economic uncertainty have caused a severe drop in building activity, with local authorities passing fewer building plans.

Some brick-making companies heavily exposed to the residential building market said they would have to extend their annual shutdown to limit production and reduce stocks.

African Brick Centre said the effect of market turmoil on brick-making companies had been “sudden and dramatic”.

Financial manager Donovan Engelbrecht said sales were significantly lower this year due to slow demand. “This is a sector-wide problem, and it’s not unique to us. Given the amount of stock we are sitting on, we have started to sell at discounted prices," he said.

“As a result, demand for bricks has declined significantly over the past year, and stocks in the industry have built up to unprecedented levels.”

In a performance update, African Brick said some manufacturers were willing to liquidate stocks at below cost to raise cash flow.

This had put further pressure on margins, already suffering from increased input costs such as fuel and electricity.

As a result, it was now focusing on “right-sizing" the businesses for the current climate, including production volumes and operational cost structures.

The company said it had already closed its plant in Lenasia as part of that strategy.

Engelbrecht said the company had done a black economic empowerment deal so that it could target government infrastructure projects.

Earlier this month, African Brick sold a 51% stake to black-owned investment company Yakani Group.

Corobrick MD Dirk Meyer said tough market conditions and lower sales volumes had left the company sitting on excess stock.

“The impact on us has been quite significant. We are somewhere between 15% and 20% down on sales than we were last year. Most of the current downturn in this sector has been a result of domestic economic factors, which have impacted severely on the residential market," he said.

“As a result we are looking at longer closures at some of our operations to deal with excess inventory. There are a number of companies with a lot more excess inventory than us."

Concor Technicrete MD Paul Deppe said the shrinking residential building market had affected the company’s sales, but that focus on the commercial building sector had provided a cushion.

 

Last modified on Sunday, 06 October 2013 15:21

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