African chemicals companies need to diversify beyond the manufacture of min- ing explosives if they want to secure their position in the African and global chemicals market, says growth consulting firm Frost & Sullivan.

While mining in Africa will support growth for chemicals companies in the long term, the firm’s chemicals research analyst, Avril Harvey, maintains that current innovations in the deep-level gold mining industry could eventually disrupt the market for chemicals used in mining explo- sives, as alternative blasting methods are being discovered.

She explains that, while the outlook for the local mining industry is currently more positive than the outlook for the manufacturing sector, new mining technologies may lead to an eventual reduction in the use of explosives.

“A solid strategy to diversify into other chemicals is therefore needed to mitigate the long-term risk of reduced explosives chemicals consumption,” she says, adding that part of the strategy to offset slow growth in South Africa would be for companies to increase their footprint in Africa.

Harvey warns that the deep- level gold mining industry in South Africa may eventually be reduced to alternative blasting methods. She highlights the Technology Innovation Consortium, championed by gold major AngloGold Ashanti, which is investigating alternative technologies, such as reef boring, to increase mineral extraction and reduce waste rock by using fewer explosives.

Therefore, a significant reduction in explosives volumes used in South African gold mining is expected, which could signifi- cantly impact on the revenues of key industry stakeholders, such as mining explosives supplier BME and industrial chemicals manu- facturer AECI’s explosives division, AEL Mining Services.

Harvey further notes that South Africa is expected to experience mediocre economic growth in the short to medium term, which is why she urges chemicals com- panies to implement diversification and growth strategies into alternative chemicals markets.

She highlights AECI’s intention to diversify its chemicals unit and increase its access to the African continent, describing it as a “solid strategy that will strengthen its product and market positioning”.

Moreover, the company’s strategy to grow through acquisition in Africa, Asia and South America is set to increase its revenues from global sources, which will offset slow growth in South Africa, notes Harvey.

She adds that the market for wastewater treatment is forecast to grow at a compound yearly growth rate of 5.7%, with revenues of $120-million expected by 2015 in South Africa alone.

Therefore, as Frost & Sullivan has forecast strong economic growth of 5.9% in sub-Saharan Africa for 2014, there is significant growth opportunity for the wastewater-treatment chemicals market in the region.

Growth in the Meantime

Industrial chemicals and explosives manufacturers AECI and BME have posted positive finan- cial results for the first half of 2013.

AEL reported increased revenue of 22%, at R3.56-billion, for the six months to June, up year-on-year from R2.9-billion. This can be attributed to a 44% increase in ammonia prices and a 3% increase in bulk explosives volumes.

AECI’s chemicals division, however, reported a revenue increase of just 3% to R3.67-billion in the first half of the year, while profit from operations decreased by 2% to R389-million.

Harvey attributes this relatively poor performance to a lack of growth in the manufacturing sector and highlights that the company’s growth for the first half of 2013, therefore, is mainly attributed to its mining division.
Similarly, BME, which provides blended bulk explosives formulations for the opencast mining and quarrying industries, saw higher profits off the back of strong volume growth in its South African, Southern African and West African operations.

These profits can also be attributed to a higher ammonia price, differentiated supply offerings and lowered raw materials costs through backward integration in the supply chain.

However, despite slow regional growth, owing to general uncertainty in South Africa’s mining sector, weaker commodity prices and safety-related stoppages, as well as labour relations issues in West Africa and electricity shortages, which prevented growth in the Central African Republic, the demand for explosives from openpit and deep-level mining has increased.

Coal mining, in particular, is fuelling the need for explosives. Demand from the Indonesian coal industry, for instance, has increased by 14%.

Nevertheless, Harvey still warns chemicals manufacturers to secure their position in the global market through diversification, in view of Frost & Sullivan’s predictions that new blasting innovations could hamper growth in the mining industry and disrupt the market for explosives in that sector.