S Africa's AECI warns of plant closures as strong rand undermines volume growth

JOHANNESBURG (CNI)--South African speciality chemicals firm AECI warned Tuesday that it may have to close capacity and cut jobs in the second half of this year because of the sustained strength of the country’s rand which was offsetting revenue growth from higher sales volumes.

AECI, which is the largest speciality chemicals supplier in southern Africa, said group net profit in the six months to 30 June grew 3% to Rand111m ($17m/Euro14m) from Rand108m in the same period a year ago.

Interim group revenue also grew 3%, to Rand3.87bn from Rand3.75bn, led by speciality chemicals which contributed Rand1.61bn - up from Rand1.54bn.

Speciality chemicals contributed Rand169m to net profit, up from Rand164m in the first half of 2003. However, this improvement was offset by losses in other divisions.

But the rand's strength cut into chemical margins, raising the prospect of plant restructuring and job losses, said AECI.

"Rationalisation of costs to support margins in these [chemicals] business areas could include restructuring, plant relocations or selective closure in the second half," warned AECI chief executive Schalk Engelbrecht.

Restructuring at AECI's Sans Fibres unit had "progressed in line with plan" but the strength of the rand had eroded profits, the firm said. The division produces specialty nylon and polyester yarn for local and export markets and PET bottle polymer.

The rand has gained nearly a third in value against the US dollar since the start of last year, slashing profits of the firm’s dollar-denominated exports when converted back into the local currency.

AECI also warned that its AEL explosives division faced growing competition from Chinese imports and that the implementation of its joint venture with Norway's Dyno Nobel would be delayed to September pending regulatory approval.

"Imports of state-subsidised initiators from China present an increasing competitive challenge and a number of actions are in hand to counter this potential threat to parts of the initiating systems market," the firm explained.