Kenya: cement share prices hold firm on rising demand

Kenya: cement share prices hold  firm on rising demand
07 March 2011

Improving prospects for cement manufacturers and increased cement demand in East Africa have pushed stocks of listed Kenyan cement producers to a new high.

East and Central African countries are pumping billions of dollars into upgrading their infrastructure and raising cement demand in the process, which could still edge higher as the continent’s newest nation Southern Sudan begins reconstruction following a successful secession referendum.

The total East African cement capacity, including imported clinker, is set to reach 11.6Mta by the end of the year, from 8Mta at the beginning of the year.

Athi River Mining’s (ARM) shares are trading at an all-time high of US$2.4 per share at the Nairobi Stock Exchange, signalling an expansion in the region’s construction sector which has triggered fresh demand.

Since the beginning of the year, East Africa Portland Cement’s (EAPC) share price has gone up 36 per cent, trading at US$1.47 per share on thin volumes.

Likewise, Bamburi Cement’s shares are trading at U$2.48 per share reflecting a 5.7 per cent growth since January.

ARM is making a play for a larger share in the Kenyan and Tanzanian markets. The completion of its Tanzanian plant in Maweni, Tanga, is set for January 2012, according to the company, which would see it raise its Tanzanian capacity from 1Mta to 2.5Mta.

“We will be the biggest player in the market in the next 18 months,” says Pradeep Paurana, managing director of ARM.

ARM also has an existing integrated factory in Kenya’s coastal province of Kaloleni, eliminating the need for clinker imports. “We decided we want to control cost economies for our own production,” Mr Paurana said. “Whoever sells you clinker is making a profit and you are paying additional costs on top.”

For example, the total landing cost (inclusive of port charges and 25 per cent duty) for a tonne of cement shipped to the port of Mombasa from Pakistan is US$117. Local firms such as ARM and Bamburi sell at US$115/t ex-factory making their product more competitive.

Mombasa Cement, Devki Steel mills and Catic, operating grinding facilities in Kenya, all have to import clinker, but they are taking on the established players by lowering their local prices per bag.

In Tanzania, cement costs are higher at US$138/t. Hence, Mr Paurana sees a huge opportunity should ARM be able to maintain its US$115/t pricing once the Maweni plant starts production.

“If we do not drop the price, imports will continue,” he says “Tanzania is picking up now, infrastructure is improving and the government has policies favourable to investment.”

Bamburi’s present capacity stands at 3Mta with Kenya’s production at 2.2Mta while in Uganda, Hima Cement’s capacity doubled to 0.85Mta last year.

“We have only recently doubled our capacity in Uganda, which shows our desire to capture value coming as a result of growth opportunities in the region,” said Bamburi Cement.

“Currently our focus is enhancing our customer value through improved services and value added products as the region is already facing a surplus capacity.”

Bamburi is also looking to grow its sales by exporting to Southern Sudan.

If ARM’s capacity grows to 1.5Mta, some analysts see the rise in share price as a justification compared with the market capitalisation of the three firms as a ratio to their capacity.

The respective figures are; ARM (26.71), Bamburi (24.30) and EAPC (8.23). But if the new capacity for ARM is considered at the current share price of US$2.4 then its ratio of market capitalisation to capacity drops to 7.48.
Published under Cement News