Portland to set up clinker manufacturing plant

East African Portland Cement Company (EAPC) plans to set up a plant to manufacture clinker— a key raw material in cement making process — as it seeks to cut costs and give rivals a pricing war.

Unlike its rivals Athi River Mining and Bamburi which have their own plants, EAPC has had to import or rely on Bamburi for clinker—raising the costs of the raw material.

“We plan to put up a clinker plant that will produce 5,000 metric tonnes of clinker per annum to be used for cement production and sell the excess in the market,” said Mr John Nyambok, EAPC managing director.

The plant will guarantee EAPC readily available clinker, giving it the headroom to increase its production capacity and lower its production costs.

For instance in the trading period ending June, 2009, Portland bought clinker from Bamburi worth Sh326 million while in 2008 it spent Sh548 million.

The manufacture of cement involves the mixing of clinker, a key raw material made from limestone or coral mainly from the Coast, with pozzolana and ash-based product mainly found in the Rift Valley.

Mr Nyambok said that by increasing output, the company will enjoy economies of scale by improving productivity of the existing plant and reducing the cost of production.

The high and unpredictable cost of buying clinker had adversely affected its competitiveness, which has been worsened by the volatile import freight charges and delays.

Previous import deals have been mired in controversy over tendering, holding back EAPC plans to raise output to meet rising demand for cement across the East Africa region.

For instance in 2007, the procurement appeal board cancelled a tender worth Sh470 million for the supply of clinker, citing irregularities in the award.

EAPC was forced to turn to Bamburi, which through its parent company Lafarge, controls 41.7 per cent of EAPC and is locked in a battle with EAPC for control of the increasingly competitive cement market.

Reduced production cost is crucial because its gives a firm headroom to engage in a pricing war, coming at a time when pricing is emerging as a weapon for market growth.

The East Africa Cement Association (eacpa) — the cement producers lobby— estimates that production will increase from 200, 000 tonnes in 2008 to 2.4 million tonnes in 2012.

This sets the stage for a bruising market war among the players now that the number of cement producers is expected to grow from three to six over the period.

This will be worsened by the increased interest in the African market by large cement producers from China, Middle East and India as the industry is starting to factor oversupply and overcapacity.