Construction growth ups appetite for cement, Kenya

Construction growth ups appetite for cement, Kenya
Published: 22 October 2007

Cement consumption rose steeply in the month of September against the backdrop of a slight fall in output, signalling a possible rallying of prices in the coming month.

Data from the Kenya National Bureau of Statistics (KNBS) indicates that month to month consumption of cement rose by a margin of 1,000 metric tonnes in August, helped by a steady rise of activity in the construction sector.

Production declined by 737 metric tonnes from 215,088 metric tonnes in July 2007 to 214,351 metric tonnes in August 2007, according to KNBS. Consumption on the other hand rose to 189,047 metric tonnes in August up from 188,144 metric tonnes in July.

KNBS however described the monthly statistical variations as a normal occurrence in the manufacturing sector.

Bernard Mworia, the officer in charge of the compilation of the leading economic indicators data said, such rise or fall in consumption and production patterns reflect the day to day business practises and may not reflect the true picture of what is happening on the ground.

“To understand the effect of the recent increase in oil prices on output, for example, one has to look at the specific companies involved,” said Mr Mworia.

Industry players on the other hand said the latest statistics may represent the earliest symptoms of the effect the steep rise international oil prices on manufacturers.

This rallying of crude prices has been blamed for rising inflationary pressure —especially in sectors where energy accounts for a higher percentage of input costs.Local cement manufacturers have been battling against high production costs that are mainly linked to high electricity and fuel costs.

At Bamburi Cement— the country’s leading cement maker —for example, energy accounts for 45 per cent of the operating expenses.

Analysts warn that the rising inflation brought about by high international fuel prices will exert even more pressure on cement prices in the medium term  as the companies transfer the high input costs to end consumers.

Ordinarily cement prices are adjusted once every year and uniform ex-factory prices set. This has however not brought stability to retail pricing where price variation is common not only over time but also in different parts of the country.

Industry players have attributed the differences in pricing to high transportation costs that traders incur to supply the merchandise in different parts of the country.

The monthly statistics also indicate that the Consumer Price Index (CPI) rose by 1.1 per cent from 225.79 points in August 2007 to 228.16 points in September 2007, reflecting a general surge in the pricing of key consumer items.

Month-on-month overall inflation rate decelerated from 12.4 per cent in August 2007 to 11.7 per cent in September  2007.