Higher prices encourages investment in Kazakhstan

Higher prices encourages investment in Kazakhstan
Published: 25 January 2006

Cement prices in Kazakhstan have been improving strongly in response to strong demand, though price levels show considerable regional variations in a country with a difficult geography and largely dependent on the railway system to shift cement. Cement consumption in 2005 is estimated to have risen by around one-fifth to around 4.5Mt, of which around 1.5Mt was represented by imports, with some the highest prices being reported in the capital Astana.  This has been of particular benefit to Central Asia Cement, whose works 40km to the north of Karaganda, is by far the closest to the capital, which is about 180km to the north-west.  By the middle of last year, its ex. works prices had reached close to 10,000 tenge, or US$73 per tonne, compared with average prices of 6300 tenge (US$46.31) in 2004 and 4231 tenge (US$28.29) in 2003.  As a result, the company achieved ex. works prices some 60 per cent higher than those achieved by the works furthest away from the capital.
 
However, with its two largest kilns, incidentally the country’s only dry process kilns, having been out of production for some ten years, and Central Asia Cement has had to rely on its four 0.15Mta kilns that can provide a combined cement capacity of 0.78Mta.  The actual output in 2004 was 0.67Mt.  Central Asia Cement is now a subsidiary of the Malaysian registered Steppe Cement Limited, whose shares have been quoted on the AIM market of the London Stock Exchange since last autumn. 
 
Although Central Asia Cement has the largest theoretical capacity of any Kazakh cement producer, its practical capacity is only half that of the local subsidiaries of Italcementi and HeidelbergCement, and also behind that of Semey Cement with its 1.2Mt.  Given its better location and strong local demand, the Steppe cement group is investing almost US$95m to up-grade and to bring back on line its two dry production lines. A US$20m investment should see its kiln No 6, dating from 1983, back in production by early next year adding a capacity of 1.0Mt of cement.  The older No 5 kiln, which had design faults that require a much more substantial investment of approximately US$73m and in respect of which a US$35m long term loan was agreed with the EBRD last December, should follow towards the end of 2007.  That should add a further 1.3Mt of cement capacity, and should return the group to its position as the prime Kazakh cement producer with an annual capacity of 3.1Mt. Having produced 0.7Mt last year, Central Asia Cement hopes to make 0.8Mt this year, 1.5Mt next year and around 2.5Mt in 2008.