Nigerian tycoon Aliko Dangote has doubled the estimated production capacity for his upcoming cement factory in Kenya, pointing to a looming shake up of the market that could see a drop or further stagnation of prices.
Dangote Cement, which already has a license to prospect for limestone in Kitui, says it has revised the upcoming factory’s annual production capacity to three million tonnes from the previous 1.5 million tonnes.
The company owned by the multi-billionaire Nigerian, who is ranked among Africa’s wealthiest businessmen, is also constructing major cement plants in Ethiopia, Tanzania, and Zambia; pointing to a bruising market share battle once production starts.
“We are reviewing plans for Kenya with a view to increasing the scale of our proposed factory from 1.5 million tonnes per annum (MTA) to 3MTA,” Dangote says in a trading update report for the first quarter of the year.
Dangote’s upcoming plants in Kenya, Tanzania, and Ethiopia will give it a total capacity of 8.5MTA, putting it ahead of Kenya’s Bamburi and Uganda’s Tororo that currently have capacities of 3.1MTA each.
Kenya’s biggest cement maker, Bamburi, has a capacity of 2.25MTA (excluding its 0.9MTA factory in Uganda), making Dangote the biggest producer upon completion.
The cost of building the Kenyan plant was estimated at $400 million (Sh34.8 billion), but the decision to scale up its capacity could see the capital outlay rise substantially.
“We are confident there will be sufficient demand both in Kenya and neighbouring countries,” says the report.
The multinational added that it is in the process of upgrading its prospecting license issued by the Kenyan government in March to a mining license, having found “ample sources of limestone”.
Dangote did not specify where it found the large limestone deposit but the company has been linked with prospecting activities in Kitui, where more cement firms are rushing, attracted by the vast quantities of the raw material.
ARM Cement, for instance, is expected to start construction of its $300 million (Sh26 billion) Kitui factory in October in what will give it an additional capacity of 2.9MTA.
Besides being rich in limestone, Kitui is also attractive due to its proximity to the Mui basin which has large reserves of coal. The coal is tipped to replace the relatively expensive diesel fuel in firing energy-hungry cement factories.
Dangote’s entry into the East African cement market is expected to intensify the raging price wars that saw margins plummet to an all-time low of 22.1 per cent in 2012, according to estimates by Standard Investment Bank (SIB).
The entry of new players such as National Cement and Savannah Cement saw the commodity’s price drop to a 12-year low last year, with the average retail price of a 50kg bag in Nairobi standing at Sh650 from a peak of Sh740 in 2008.
Dangote, which has been known to use low-pricing strategies to dominate Nigeria’s commodities markets, is expected to have the largest production capacity in the region in the medium term.
The firm said it is on course to complete its Ethiopian plant – with a capacity of 2.5MTA – later this year.
It has also started construction of a factory in Tanzania that will produce up to three million tonnes of cement per year and which is set to be commissioned late next year.
The multinational has suspended its plans to build another cement factory in South Sudan owing to the country’s political instability.
“The group plans to have around 60 million tonnes of production, grinding and import capacity in Sub-Saharan Africa by 2016,” the firm said in a statement.