Home builders lift cement firms in tough times
Posted Thursday, July 19 2012 at 19:13
Long-term projects and individual home builders helped cement makers to sustain growth in the first quarter of this year despite high interest and inflation rates.
Data from the Kenya National Bureau of Statistics shows that cement consumption in the first quarter of the year surpassed the previous years’ despite a slowdown in formal real estate development.
Domestic cement consumption rose by 29,700 tonnes to hit 829,933 tonnes from 800,175 tonnes in 2011 helping cement-makers to ride out the tough operating environment.
Production increased eight per cent to 103 million tonnes in the same period to hit 1.3 million tonnes. Cement maker Athi River Mining (ARM) says sales increased 10 per cent in the same period helped by individual consumers and large infrastructure projects, but consumption from formal real estate development shrunk.
“Infrastructure segment and individual buyers of three to five bags comprise 80 per cent of sales and are growing,” said ARM deputy managing director Surendra Bhatia.
“Individual buyers are shifting to savings and credit cooperatives loans and their savings to drive cement consumption,” said Housing Finance head of projects administration Peter Kimeu.
The value of building plans approved by City Hall, mostly big projects, rose marginally by Sh1 billion in the first quarter of 2012 to Sh34 billion compared to a similar period last year, giving hope to cement makers.
The rise in the value of plans of non-residential property by 38 per cent to Sh22 billion will help to cushion cement makers going forward. However, the value of residential plans approved dropped 36 per cent to 12 billion in the same period.
“The bulk of the projects that were driving cement demand in 2011 were two- to three-year projects and hence demand for cement has remained strong despite the hard times,” said Francis Mwangi, cement industry analyst at Standard Investment Bank.
Projections by the investment bank see consumption increasing five per cent this year compared to 2011. Domestic cement producers include ARM, Bamburi, East African Portland, Mombasa Cement and National Cement.
“The ongoing infrastructure projects and high demand for housing is what is driving demand for cement in the market,” said Mr Narendra Raval, the managing director of Devki Group of Companies, which owns the National Cement Factory.
Standard Investment Bank in its June report estimates that public projects whose budgetary allocation continues to rise account for 25 per cent of cement demand up from an average of five per cent in 2005.
Research from Deutsche Bank indicates that cement prices in Kenya recovered from a downward trend to post a three per cent rise in the first quarter of 2012 after hitting a bottom in mid-2011 due to stiff competition as producers increased production.
The cement market has in the recent past attracted new producers piling pressure on margins. Savannah Cement is expected to open shop soon.
Besides Constituency Development Fund projects, the government has in the last five years been investing heavily in road infrastructure, opening up new areas for development and supporting demand for cement.