East Africa competition intensifies

East Africa competition intensifies
Published: 27 January 2011

Competition in the Kenyan cement sector is intensifying as the latest capacity additions come on-stream, resulting in a more pressurised pricing environment as new entrants seek to establish themselves in the market.  Meanwhile, prices in Uganda continue to hold firm despite new capacity boosting supply.

Both Mombasa Cement (owned by Tororo Cement) and National Cement (Devki Group) have introduced capacity into Kenya over the last two years and now control a combined market share of some 14%, largely due to competitive pricing. Meanwhile, established producer Bamburi Cement, which accounted for 61% of sales in 2009, has seen its share fall to 50%. Similarly, the stake of East African Portland Cement Company (EAPCC) has declined by 5% to 25%. Athi River Mining (ARM), however, recorded a marginal gain, according to the African Alliance data, edging up 2.5% to 11%.

National Cement is currently selling cement at KES660/50kg bag (US$8). Other players have followed suit with EAPCC brands priced at KES660, Bamburi (KES700) and ARM (KES670). However, EAPCC chairman, Mark ole Karbolo, has said the pricing strategy by new cement players is “unsustainable”, adding that the new players are not likely to uphold their price undercutting for long. Therefore, more market shifts are expected this year before the situation finally settles.

The price drops come at a time when the players are faced with rising energy costs. Therefore, companies are aiming to capture new markets and business lines to improve margins. Bamburi’s fully-owned subsidiary in Uganda, Hima Cement, doubled its capacity in mid-2010. This means that Bamburi Cement will no longer be exporting bagged cement to Uganda and will be forced to seek new markets for excess production. ARM’s expansion plans in Kenya and Tanzania will also lead to growth in the East African region. EAPCC, meanwhile, aims to grow its export market to 8% from the current 5%, targeting markets in the Great Lakes region, particularly Uganda, Rwanda, Burundi, Congo and southern Sudan. EAPCC also announced this week that it will diversify its product range by manufacturing cement-related products such as paving blocks as it targets Kenya’s vibrant construction sector. 

The Kenyan construction sector has witnessed substantial expansion and registered a 14.6% growth in 3Q10, while YoY growth reached 2.4%, according to the Kenya National Bureau of Standards. Cement demand for the first nine months of last year was about 245,000t higher. However, despite good growth in demand, surplus capacity is rising. ARM has doubled its Kaloleni plant capacity to 750,000tpa and is building a 0.5Mta grinding plant in Athi River. The Cemtech Sanghi group is also bringing its 1.2Mta plant on-stream in 2012. Therefore, the East Africa Cement Association estimates that surplus in the market will grow to 2.4Mt in 2012 from the current 200,000t expected for 2010.

Prices in neighbouring Uganda, however, are witnessing the opposite trend, having risen sharply late last year and still not stabilised. Prices increased from UGS23,000 (US$10) to UGS26,500 per bag in December and although declines have been noted since then, prices have not returned to their original level. Dealers attribute the situation to the weakening of the Uganda shilling against the dollar, in addition to general market forces. The current price ranges between UGS23,500 and UGS24,500.

Cement prices are ultimately expected to drop following the aforementioned commissioning of Hima Cement’s new plant in Kasese. Production capacity has increased to 850,000tpa from 350,000tpa after it built a second plant at Hima near the border with the Democratic Republic of Congo. The new facility will increase cement supply to local and regional markets, increasing competition and thereby reducing price levels.