Bamburi predicts cement price cuts in next three years

Bamburi predicts cement price cuts in next three years
Published: 10 October 2007

Developers of commercial, industrial and residential houses in Kenya are likely to benefit from substantial cement price reduction in the next three years, going by predictions from a leading producer.

Bamburi Cement managing director Michel Puchercos said improving competitiveness would be the key consideration  for cement manufacturers as they brace for increased rivarly from imports.

“We need to find ways to make savings of Sh1,400 to Sh2,100 for every tonne of cement we manufacture,” said Mr Puchercos.

That would translate to a price benefit of between Sh70 and Sh105 per 50 kilogramme bag.

“Enhanced competitiveness, consolidation and innovation will be instrumental in determining how the industry grows here,” Mr Puchercos said. Consumers and shareholders will reap from the realignments in lower prices and enhanced returns respectively.

The boards of directors of the three cement companies — all listed — would decide how to spread benefits between the groups.

Intense competition is expected from India and the Middle East where companies are nearing over capacity and enjoy lower cost of production.

Analysis by Bamburi Cement based on the global production trends indicate that China, India, the Middle East and Russia will experience  cement surpluses by 2010, forcing them to scour for new markets.

East Africa is a sitting duck for the onslaught because protective tariffs will be non-existent or at the bear minimum under the East African common external tariff protocol.

Cement makers in East Africa currently do not face competition from imports because they are protected by both a 25 per cent import duty plus a 30 per cent suspended duty which will be abolished in 2010.

Prospects of cheaper cement will mean local manufacturers are forced to reduce their costs, a situation that may lead to overcapacity here as well. Bamburi research shows that Africa, Middle East and south Europe are at a high risk of suffering capacity problems.

Bamburi forecasts consolidation of capacities among the local manufacturers. Earlier in the year, Bamburi had requested the government to allow it to merge with East Africa Portland Cement Ltd, a proposal that is still under consideration.

The merger proposal is based on the reasoning that the region needs to create a strong manufacturer to match competition from Middle East, and India.

Local factories say production is expensive especially because of high electricity and fuel costs. Bamburi’s energy accounts for 45 per cent of operating expenses and it is planting half a million trees to provide wood fuel as an alternative to coal and electricity.

According to the company’s marketing director Robert Nyangaya, global demand for cement has averaged three to four per cent annually but is now at seven per cent. In sub-Saharan Africa, growth averaged 10 per cent in 2006 and was on the same trend in the first six months of 2007.

In Kenya, cement demand reached 1.6Mt in 2005 shifting upwards by 12.3 per cent in 2006. More recently, in the first three comparative months of 2006 and 2007, consumption increased further by 2.7 per cent from 412,216 metric tonnes to 423,178Mt respectively, says the Central Bank of Kenya.