The cost of cement in Kenya has fallen by about 12 per cent in two years.
Newer players in the sector have been able to charge lower prices due to lower coal prices
Projects such as the standard gauge railway and Lapsset will provide demand
The general decline in cement prices caused by a price war in the sector is likely to come to a halt in the medium term due to higher demand and increase in raw material costs, analysts have said.
A sector analysis by NIC Securities says that a recovery in credit growth to the private sector would also spur construction and in turn help push up demand for cement.
The cost of cement in Kenya has fallen by about 12 per cent in two years, with the cheapest available grade now going at Sh580 for a standard 50-kg bag.
Newer players in the sector, especially grinders who do not make their own clinker, have been able to charge lower prices due to lower coal prices.
“Increasing global commodity prices, particularly coal and oil means that the cost of production will rise.
"We see this stemming the decline in cement prices witnessed pre-2016, as seen with the stabilisation in 2016,” said NIC Securities head of research Timothy Wambu.
Annual growth
Exotix Partners and Equity Investment Bank analyst Moses Waireri says compound annual growth in demand will touch 7.2 per cent in the period to 2019, largely driven by a mix of private and public sector demand.
Projects such as the standard gauge railway and Lapsset will provide demand, while in the private sector the consumption will be driven by construction of houses.
“Other large infrastructure developments, such as the $24 billion Lamu Port South Sudan Ethiopia Transport (Lapsset corridor) project, which is to be executed in phases, will support cement demand for the next few years,” said Mr Waireri.
NIC Securities expects that a rebound in private sector credit growth and continued infrastructure spend should help narrow the gap between production and demand, at least before the proposed additional capacity of 2.75 million tonnes by local manufacturers comes on-stream starting in 2019.
“We as a result expect the industry utilisation rate to improve to approximately 90 per cent by 2021 from a recent low of 68 per cent in 2015, signalling an improvement in cement prices,” said Mr Wambu.
New investors and expanded capacity in the last decade have seen cement prices stagnate.
Besides the traditional oligopoly of Bamburi #ticker:BAMB, East African Portland and ARM Cement #ticker:ARM, Mombasa, National, Savannah and western Kenya-based Rai cement have ushered in new capacity.
Karsan Ramji & Sons, a Kitengela quarry operator also plans to put up a small plant in Nakuru.
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