Mombasa Cement has started construction of a new grinding plant that will double its production capacity next year, boosting the manufacturer’s drive for a larger market share.
The cement maker which entered the Kenyan market two years ago is banking on a Sh500 million plant in Athi River to be completed by the end of 2012—to take its production to 1.5 million tonnes and hopefully clinch a third of the local cement market.
Its flagship brand Nyumba Cement had gained at least 10 per cent of the market share by December last year riding on a pricing strategy— making it the fastest growing player, according to a market research done earlier in the year by African Alliance.
Harish Patel, a director at the cement-maker in charge of the Kenya operation, says there still exists huge potential to grow its turnover backed by a pricing strategy.
“There is a huge potential in this market and we will continue to offer the lowest prices to grow our market share,” said Mr Patel, adding that the additional production is meant for the local market.”
The cement maker is anticipating increased activity in construction sector moving forward through real estate and infrastructure development, presenting a new opportunity which it is keen on tapping to grow profits and revenues.
The company is seeking to plug the deficit in the market following increased demand.
Data from the Kenya national Bureau of Statistics indicates surplus production thinned out in January and February.
Consumption exceeded production for the first time in more than five years in January at 327, 504 metric tonnes— a situation occasioned by the heightened construction in the residential sub-sector as developers rush to bridge a housing deficit that currently stands at about two million units.
Mombasa Cement produced 700,000 metric tonnes of cement last year, placing it head to head with its listed peer Athi River Mining. which has since moved into Tanzania with a Sh8.6 billion plant.
Pradeep Paunrana, the managing director at ARM, says Tanzanian market provides a big growth potential owing to a strong expansion in its economy against low investment in production as the country is yet to be self-sustaining its cement needs.
“We expect a strong economic growth in Tanzania with our projections placing cement consumption to double in the next five years,” said Mr Paunrana.
Mr Patel said the Athi River plant would add between 2,000 metric tonnes to 4,000 metric tonnes a day to its current capacity, while new grinding technologies would ensure that the new plant produces cement even more efficiently.
Its Nyumba brand is retailing at Sh670— the cheapest in the market selling at the same price as National Cement made by another new entrant Devki Group.
Both firms have relied on their established distribution networks to grow their market share having been involved in the production of other building materials including nails and steel.
Cut energy costs
The two cement makers have made savings on energy costs since they are more energy efficient gaining from newer production technologies.
Energy costs account for up to two-fifths of the production costs in Bamburi Cement and East Africa Portland Cement, owing to the high oil prices while the newer plants are using relatively cheaper coal.
Mombasa Cements new investment means heightened competition in the market while complicating the plot for the big players who are set to continue losing in market share and face thinner profit margins.
Last year alone, Bamburi Cement- is estimated to have shed 11 per cent of its market share with turnover declining to Sh28 billion from Sh30 billion the previous period.