Price wars erupt in Kenya’s cement industry

Chris Mburu @PeopleDailyKe Aprice war has erupted in the local cement market as the seven cement factories in Kenya angle for the expected growth in the construction sector in the next five years.

The panic is being driven by a spate of planned, major infrastructure builds by the government (such as the Standard Gauge Railway-SGR, whose Phase 1 required 650 tonnes of cement) and private sector projects. Government plans to build a million homes in five years has also pushed cement manufacturers contemplate expanding capacity.

Additionally, exports to Tanzania have been locked out by a new entrant there, Dangote Cement of Nigeria, which has built a plant at Mtwara. “Cement prices are falling. A 50kg of cement that we used to sell at Sh770 a few years ago is now retailing at Sh650. That’s a significant saving for a new homebuilder.

For a developer, the gain runs into millions of shillings,” said an excited wholesaler in Nairobi, who declined to be quoted. He added: “The Asian-owned manufacturers are calling each other and saying, bhai, bhai, teremsha bei, teremsha bei. (Brother, brother, lower the price, lower the price)”.

Consequently, distributor prices have eased to between Sh490 and to Sh600 per 50kg, but most factories are selling to distributors at about Sh540 per bag. While the low prices are likely to benefit ongoing building and construction projects, there are fears over underhand deals and low quality cement (including imports) being off-loaded into the market.

Termination of contracts for distributors supporting rival firms and a blockade against proposed new factories. Johnson Denge, head of regional markets at Cyntonn Investments, said cement is just one component of raw materials used in construction, accounting for an estimated 15 to 25 per cent of raw material costs.

“Labour costs are higher after the minimum wage was increased last year while the price of steel is rising because of growing demand. Lower cement prices are positive but of no major impact in big projects for now, but smaller projects are gaining,” he said. Denge blames an oversupply of cement on imports after the East African countries lowered import duty last year.

However, according to Joshua Aroni, finance manager at Cemtech, a cement factory under construction in Kerio Valley, West Pokot, the panic is being fueled by fights over market shares by cement factories.

“New suppliers are battling for entry points at lower prices but the big ones are sustaining production,” he said. Aroni said the situation is temporary and is unlikely to last more than six months.“Prices will stabilise because consumption is increasing due to State infrastructure projects and we expect a supply shortfall by year end,” he said.

Other mega plans include the Lamu Port-South Sudan-Ethiopia Transport (Lappset). It involves construction of new highways, tourism facilities, an oil refinery and pipeline connecting Lamu port to South Sudan, Ethiopia and Uganda.

It is estimated to cost Sh2.6 trillion. According to the Kenya Economic Survey 2017, the construction industry grew by 9.2 per cent in 2016, up from an expansion of 13.9 per cent registered in 2015.

An annual growth of 12 per cent in cement consumption is projected over the next five years. Cytonn Chief Investment Officer Elizabeth Nkukuu says the real estate market performance is also expected to be driven by high and stable returns in the residential sector.

“This is on the back of a high housing deficit and State incentives such as a 15 per cent tax reduction for developers constructing more than 100 affordable homes a year,” she added. Bamburi Cement, first established in Mombasa in 1951, has been the dominant cement manufacturer controlling 65 per cent of the market.

However, despite still being the largest producer and the Nguvu brand being the best-known product in the market, rising competition has since eroded Bamburi’s market share to an estimated 25 per cent. Putting Bamburi under pressure are Mombasa Cement (23 per cent market share); National Cement (20 per cent) and Savannah Cement (13 per cent).

The others are East African Portland (nine per cent); Athi River Mining (eight per cent); new entrant Rai Cement of Kisumu (two per cent) and Ndovu Cement (below two per cent). National Cement is being accused of undercutting competitors, a fact its directors do not deny.

Devki Group of Companies (which owns National Cement) chairman Narendra Raval, says he was requested by President Uhuru to reduce cement prices so as to support the Jubilee party agenda of affordable housing. “We are now making our own clinker so we have reduced prices and the others are following suit,” he said.

He dismissed low quality fears, saying that by using fresh raw materials, clinker quality is always better. Clinker is produced in the kiln stage during the production of cement and is used as the binder in many cement products.

“But quality of cement imports is compromised by moisture and the long time of importing the commodity,” he added. Attracted by the growing market, a number of cement factories are eyeing the local market.

Cemtech, a subsidiary of India’s Sanghi Group, is constructing a one million tonnes capacity Green field $131m (Sh13. 4 billion) plant on 650 acres in Kerio Valley, West Pokot county.

Dangote Cement plans to build factories in Kenya to produce three million tonnes of cement per year by 2021. It has already shocked the Kenyan market with low-priced imports of cement from its plants in Ethiopia and Tanzania.

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