Cement firms bank on lucrative public projects to drive sale

Cement companies are banking on infrastructure projects to drive sales this year after the eleven-month to November production surpassed full-year 2013 tonnage.

Data from Kenya National Bureau of Statistics (KNBS) show that the six cement makers, already operating in excess capacity, produced 5,208,934 metric tonnes by November compared to 4,637,081 metric tonnes in a similar period in 2013 and a total of 5,059,129 metric tonnes in the full 2013.

KNBS data shows the local market consumed an average 87 per cent of the volume produced compared to 84 per cent in 2013.

The growth in the sector is in line with the rebounding real estate sector which stalled in the last two years due to high financing costs.

Central Bank of Kenya data shows loans advanced to the real estate sector by banks increased by Sh85 billion in the 10 months to October last year compared to Sh47.8 billion in a similar period in 2013.

Construction of the standard railway gauge, Terminal Four at Jomo Kenyatta International Airport and road networks in the country are expected to drive up demand for this year.

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“The quantities have not been mentioned but we have agreed on prices with standard gauge railway (contractors),” said Surendra Bhatia, deputy managing director of ARM Cement.

Savannah Cement confirmed it was in talks with SGR contractors.

“We have been contracted to supply cement products to a number of sites. For this reason, we are optimistic of winning more supply lots as work advances beyond the current preparatory stage,” said Savannah chief executive Ronald Ndegwa.

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Other projects expected to drive up cement demand include upcoming malls such as the Sh22.3 billion Garden City Mall, Centum’s Two Rivers Development, and the Sh1 billion Madiba Mall in Nyeri.

READ: Savannah signs cement deals with mall contractors

There have however been hushed complaints of Savannah Cement being favoured in government projects. The company dismissed the claims, arguing that in the case of Terminal 4 at JKIA it was supplying the Chinese contractor and not the government institution.

Most cement companies have been injecting capital to expand their operations with an eye on an 2015.

Savannah expects to spend Sh18 billion this year to set up a second plant in Athi River. National Cement, maker of Simba Cement, is set to build a Sh19.4 billion plant in Lukenya near Machakos on Mombasa Road, while ARM has announced plans to invest Sh27 billion ($300 million) to grow its capacity.

Increased consumption of cement in Kenya and neighbouring states has also attracted international players such as Nigerian billionaire Aliko Dangote who intends to set up a plant with capacity of 5,500 tonnes per day in Kitui at an estimated cost of Sh34.6 billion. Indian conglomerate Cemtech is constructing a Sh10 billion plant in Pokot.

Increased competition in the industry has seen cement prices at retail outlets drop as new entrants push to gain market share. Cement makers have also been expanding their product offering to ensure they satisfy contractors’ demands, especially for cement that is able to dry faster.

The government has moved for a bite of the growing sector with introduction of a Sh140 levy per tonne of cement mined, which translates to Sh7 per 50 kilo bag.