East Africa: construction slump pulls down cement prices

East Africa: construction slump pulls down cement prices
28 November 2008

Cement makers, who anticipated a continuing housing boom this year, are now scrambling to off-load excess stocks at discount prices, in one of the clearest indicators yet of the scale of the country’s construction slow-down.

Cement prices have tumbled by as much as eight per cent in recent weeks, as the country’s three leading distributors offered rebates, special promotions and discounts to secure sales that have petered out.

Athi River Mining, Bamburi and East African Portland Cement, are locked in a vicious battle that is so far bringing relief to consumers in the form of reduced prices.

Unlike other players, Portland has in the last two weeks reviewed its distributor prices for Western Kenya market — offering huge rebates that have effectively made

its Blue Triangle brand the cheapest in the region. Western Kenya seems to be Portland’s testing ground for nationwide price cuts in the coming months. Distributor landing price is the price at which a distributor sells a bag of cement to a wholesaler or a large construction project.

Portland has been offering rebates of up to Sh40 per bag of cement for these buyers, which has seen retail prices drop from an average of Sh800 to Sh740.

Prices are expected to drop further across the board as Bamburi Cement and Athi River Mining roll out counter strategies to defend their market share.

Cement wholesalers have been exerting pressure on manufacturers to offer rebates in high consumption areas such Nairobi and Mombasa as trading margins thin out and sales volumes drop.

ARM said it had learnt of the developments in the market but termed the move unfair as it does not reflect the prevailing market conditions. 

“We have received reports that our competitors are reducing prices to push volumes in a sluggish market,” said Mr Pradeep Paunrama, the managing director of ARM. “I don’t think the practice is fair as it is not reflective of the high input costs.”

Mr Paunrama said the price reductions are not justified on the basis of companies pushing low volumes alone as December is traditionally known to be a low season for the construction industry.  He said input costs have been rising with the turbulence in the oil market.

“Recent tax cuts on electricity costs has offered little relief because the rebates are only payable at the end of the financial year.” Analysts say that ARM, which controls a lesser portion of the market, may be forced to follow the trend to keep its share of the cake.

The current round of price reductions began after inventories showed that this year’s seasonal drop in cement uptake—normally experienced around December— has been deeper than anticipated. But even as the boardroom games continue, there are signs that stiff competition in a sluggish economy can only lead to further price cuts.

Plagued by declining sales, high costs of doing business associated with high petroleum prices witnessed across the year, cement companies have been forced to review their pricing.

A report on future consumption trends by Global Rating Company says that as long as the government implements its plan to invest in infrastructure — particularly the road network — prices will stabilise.

However, hope have been thinning out as the global economic crisis deepens. High fuel prices and double-digit inflation have also combined to eat into many cement makers bottom lines.

Lacklustre performance in the real estate industry has seen retail cement prices in Nairobi drop to Sh700 in November compared to Sh800 in July, which has forced manufacturers to revise profits targets.
Published under Cement News