New office towers push up cement demand by 25pc cent

Cement consumption went up by 25 per cent in the first five months of the year driven by increased demand from urban commercial construction.

Data from the Kenya National Bureau of Statistics (KNBS) shows demand for up to May stood at two million metric tonnes, compared to 1.6 million metric tonnes in a similar period in 2013.

Demand for the commodity is a key indicator of the state of the construction industry specifically and the economy in general. Commercial buildings are coming up in Nairobi especially in the Upperhill and Westlands districts.

“The demand has been coming from the urban housing segment, and infrastructure project demand has also picked up, having slowed down in 2013 due to payment delays to contractors. We expect more demand from government projects as they are rolled out as planned,” said ARM Cement chief executive officer Pradeep Paunrana.

Provisional KNBS data shows demand for cement has markedly accelerated this year. The increase in consumption for the first five months last year was only three per cent above that of January-May in 2012.

Production also followed a similar path to hit 2.3 million metric tonnes by May 2014 compared to 1.9 million metric tonnes in the first five months of 2013, a 19 per cent increase.

In 2012, production up to May stood at 1.87 metric tonnes, against consumption of 1.55 metric tonnes.

Mr Paunrana said at the moment the demand for cement is matching production at ARM despite increased competition in the cement sector following the entry of more producers that have kept prices flat.

READ: Rivalry for market share cuts cement price to 12-year low

Nairobi has seen an increase in the number of office blocks, hotels and housing projects. Counties are also helping expand the market for cement through increased infrastructure projects.

Upperhill area of Nairobi has become a property development hotspot, with major projects including the nearly complete KCB Centre, UAP and Britam towers that will have between 25 and 33 floors.

NSSF has also started work on the 39-storey Hazina Trade Centre in the Nairobi CBD. Others are a 26-storey office building at Parliament and a 22-storey block at University of Nairobi.

Garden City mall on Thika Road and Two Rivers shopping complex are also expected to boost demand for cement, as are major government projects such as the standard gauge railway, the JKIA greenfield terminal and Lamu Port.

Developers expect the market which had a slower than expected start to the year to pick up in the second half.

The Broll 2013/14 report on Kenyan real estate says that demand for residential property is forecast to outstrip supply in the middle to upper income segment, with demand for office space by local and foreign corporations also remaining healthy. This bodes well for the cement industry in terms of new demand.

Tight competition

“Office market is still growing rapidly — supply has grown at a compounded annual growth rate of 17 per cent from 2009 projected to 2016. Standalone housing sales are quite positive especially in upmarket areas with an increased number of expatriates seeking high quality housing,” said Mentor Management development analyst Kelvin Muoria.

But with the reported high supply of apartments in upmarket zones, the picture could be mixed. While demand remains healthy, the cement industry is characterised by tight competition for market share, with the landscape set to be change further with the expected entry of Nigerian cement manufacturer Dangote into the Kenyan market.

The competition among the three listed firms and recent entrants Savannah Cement, National Cement (Simba) and Mombasa Cement (Nyumba) has seen prices stagnate between Sh630 and Sh700 per 50-kilogramme bag.

Industry players say a more immediate concern is a potential rise in interest rates that would cut down demand for financing for housing projects.