Cement consumption dropped for the second year in a row to 5.49 million tonnes in 2018, pointing to sluggish growth in the real estate sector.
Fresh data from the Kenya National Bureau of Statistics (KNBS) up to December last year shows that use dropped from 5.78 million tonnes, sending it to the lowest since 5.19 million tonnes used in 2014.
Last year’s reduced consumption forced cement makers to cut production by 8.6 percent to 5.63 million tonnes. This is from a high of 6.7 million tonnes in 2016.
The decline is despite ongoing public infrastructure projects such as roads and phase two of the Standard Gauge Railway (SGR) as well as continued development of buildings in the country.
The dip in consumption came in a year that market leader, Bamburi Cement #ticker:BAMB, issued a profit warning for the second year in a row, preparing investors for its lowest earnings in more than 10 years.
The second largest cement cement company in Kenya — ARM Cement — also sunk into administration due to piling debt and losses. It also shed over 700 jobs in 2017.
State-owned East African Portland Cement Company (EAPC) #ticker:PORT recently issued a profit warning after announcing the widening of half year loss by 30.7 percent to Sh1.26 billion. The board also warned of a gloomy 2019 in its outlook.
“The first half of the year reflected a difficult business environment on the backdrop of increased input prices, a sluggish market as well as production challenges arising from a tight EAPC working capital position,” said the company.
The board also warned that the government’s focus on affordable housing and manufacturing may trigger a very competitive environment, leading to subdued cement prices in the near future.
Last year, the actual value of residential and non-residential building plans approved declined by 12.6 percent or Sh30.5 billion to Sh240.75 billion. This was from previous year’s Sh210.29 billion.
The number of building plans approved has an influence on cement consumption because construction only starts after regulatory approvals.