Markets & Finance

Cement firms bet on stable Southern Sudan for growth

bamburi pix

Bamburi Cement Factory. Kenya’s economy is expected to grow at six per cent in 2011, with cement consumption projected to surpass the 2010 levels. Photo/FILE

Cement manufacturers are eyeing a surge in demand from southern Sudan after Sunday’s referendum, as the war ravaged country embarks on rebuilding its infrastructure.

The producers are, however, crossing their fingers for a peaceful outcome of the referendum, which is expected to decide whether the South will secede from the north and become an independent State.

“South Sudan is going to see significant economic development in the coming years and cement will be driving the infrastructure development,” said managing director of Athi River Mining Pradeep Paunrana.

East Africa Portland Cement managing director Kephar Tande said the cement maker is “very interested” in the southern Sudan market, but added the decision to enter the country is dependent on the outcome on next week’s referendum vote.

Kenya’s economy is expected to grow at six per cent in 2011, with cement consumption projected to surpass the 2010 levels.

Data from the Kenya National Bureau of Statistics indicate that cement production was up by 10 per cent in 2010 at 2,665 thousand tones from 2,420 thousand tones produced in 2009.

Analysts at CFC Stanbic Bank said Kenyan cement manufacturers “will be the biggest beneficiaries” of a vote to separate Africa’s biggest nation.

“Construction companies may get the most from the country and the likes of Bamburi, Portland are targeting the market,” said the analysts in a research note.

“Cement stocks may receive considerable attention bolstered by the boom in the construction industry. Heavy investment by regional governments on infrastructure and increased private investment in the property and housing are expected to fuel cement demand,” said Sterling Investment Bank’s researchers.

Athi River Mining, East Africa Portland Cement and Bamburi Cement are Nairobi Stock Exchange (NSE) listed cement makers.

High operating costs that are mostly energy and finance related have weighed down profitability of the companies.

Drummond investment Bank general manager Samuel Wachira said the cement producers have to cut down operating costs as the entry of new players especially by Asian-based companies will make price competition untenable as productions costs in Asia are cheaper than Kenya.

Competition in the sector has also intensified with the entry of Mombasa Cement and National Cement which have increased supply in the market.

“Cement prices have generally come down by about five to eight per cent across the country over the last one year. Pressure is still building on prices as more capacities come on board within the next one to two years,” said Mr Tande.

EAPC is in the process of restructuring its yen-denominated loan to avert the risk of foreign exchange losses eating into profits for the fourth consecutive year.

Last year, foreign exchange losses wiped out Sh451 million from its profits which lead to the company reporting a Sh292 million loss.

The cement maker is also widening its products range in 2011 in tandem with changing customer needs which is a move that it sees will build to its bottom line.

“There is a menu of cement and cement related products which we anticipate to roll out as we widen our revenue streams and geographical markets while tapping into the wider opportunities presented by EAC base,” said Mr Tande.

ARM says that with strong regional focus on infrastructural development and a growing middle class which drives the housing market, the outlook for 2011 is positive for the cement industry both locally and regionally.

Athi River Mining expanded to Tanzania and is increasing its capacity to 750,000 tonnes per year with its new clincker facility.

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