A cement industry assessment report by Dyer & Blair Investment Bank released on Tuesday warns that the emergence of new cement processing operations is likely to lead to a fall in plant utilisation rate.
KNBS data on the economy for the third quarter of last year showed that demand for cement was slowing down.
Major cement manufacturers in Kenya such as Bamburi and Savannah have recently announced plans to expand their capacity.
Cement firms risk being left with idle capacity as they continue with their expansion plans amid flattening demand, an investment bank has warned.
Cement firms in Kenya, Uganda and Tanzania recently announced plans to expand their grinding capacity, even as data from the Kenya National Bureau of Statistics (KNBS) indicates reduced demand from the housing and construction sectors.
A cement industry assessment report by Dyer & Blair Investment Bank released on Tuesday warns that the emergence of new cement processing operations is likely to lead to a fall in plant utilisation rate to below 50 per cent across the region, from the current 61 per cent.
“In light of the aggressive capacity expansion underway, the region’s capacity surplus will result in sub-optimal utilisation rates, hence raising operational expenditure and compressing margins among cement producers, especially given the region’s price stagnation,” said Dyer & Blair in the report.
“We forecast a decline in regional utilisation rates from 61.7 per cent in 2017 to 45.4 per cent in 2018, on the back of an 11.3 million tonne increase in installed capacity expected to come online in 2018.”
KNBS data on the economy for the third quarter of last year showed that demand for cement was slowing down, with the year-on-year quarterly growth consumption falling to 5.3 per cent in 2016 compared to 11.5 per cent in 2015.
With demand slowing down, cement production contracted during the quarter compared to a similar period in 2015 fell to 1.61 million tonnes from 1.69 million tonnes.
Overall, the region’s installed capacity stood at 21.1 million tonnes last year, with Kenya accounting for 53.2 per cent of this.
Major cement manufacturers in Kenya such as Bamburi and Savannah have recently announced plans to expand their capacity, with new players also coming into the market.
Savannah plans to double its Athi River grinding plant capacity to 2.4 million tonnes by mid-2018, while Bamburi intends to raise capacity at its Athi River plant from the current 1.5 million tonnes to 2.3 million tonnes.
Indian firm Cemtech Sanghi is also set to construct a 1.2 million tonnes plant in West Pokot.
In Uganda, construction of Kampala Cement’s 0.8 million tonnes grinding plant is ongoing, while Hima Cement also plans to double grinding capacity to 1.6 million tonnes with a new plant in Tororo district.
In Tanzania, the recently commissioned Dangote, ARM Cement and Tanga plants collectively increased Tanzania’s installed grinding capacity by 4.5 million tonnes from 2016. Lake Cement also plans to build a 1.4 million tonnes plant in Bagamoyo starting June.
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