Bamburi Cement has unveiled plans to expand its Nairobi processing plant at Sh902 million, raising stakes in an oversupplied industry.
Increased capacity for the biggest cement maker could further depress prices, offering a huge reprieve to the construction sector and millions of prospective home owners. Details of the investment plan indicate that the capacity of the Athi-River based factory will rise by half to 2.3 million metric tonnes a year.
The firm is already the biggest cement producer even though newer entrants have eaten into its market share through a fierce pricing war. The planned capacity expansion points to an even bigger battle.
“The conceived project is designed to satisfy the current and future development demands of cement in the country,” Bamburi said in its request for environmental approval of the project.
Raising the production capacity of the present plant near Kitengela town means that the French/Swiss owners have chosen to ignore the impact of influx of new players that have entered the market in the last five years.
The country is home to six well-established cement manufacturers. Apart from Bamburi, there is National Cement, a subsidiary of Devki Group, East Africa Portland Cement Company, Mombasa Cement, Savannah Cement, and ARM Cement, formerly Athi River Mining.
Bamburi reports the new investment is in response to the growing market for cement, occasioned by massive infrastructure developments in the country – most notably the Standard Gauge Railway.
“The construction of such humongous developments needs readily available construction materials in large quantities,” the firm notes.
FINANCIAL MUSCLE
Investment analysts who spoke to The Standard said the expansion was anticipated, mostly because the company had the financial muscle and needed to introduce new products.
“Bamburi has lots of money on its balance sheet but does not have most of the products that would be available in other markets... so this expansion should help them increase their product offering,” Vimal Parmar, a senior analyst based in Nairobi said.
He added that raising the capacity of the Athi River plant would help the firm cut on the transport costs from the Mombasa plant to Nairobi and other parts of the country. Bamburi had earlier announced vague plans to expand, but did not offer details of what it would include.
Its managing director Bruno Pescheux reported earlier in March that the company had a vibrant 2015, with sales rising nine per cent to Sh39.2 billion, driven mainly by strong demand at home and in Uganda – which is served partly by the Kenyan manufacturing plants.
Net profits for the year also soared by half to Sh5.2 billion, rounding up a good year – even though its dominance had been eroded. Bamburi’s bullishness could be informed by the huge profit margins, considering that the average selling prices are at least 10 per cent lower today than they were in 2006.
Falling average prices over the period, despite rising input costs, confirms that the pricing may have been inflated, helped by lack of competition. East Africa Portland Cement and Bamburi, both with Lafarge-Holcim as the biggest shareholders, were the only players for decades before entry into the market by ARM Cement in 1996.
Mombasa Cement started production in 2007 before National Cement, which trades as Simba, joined in 2011 and the newest player, Savannah Cement, a year later.
Total cement consumption has been on a steady rise, growing 47 per cent since 2011 to 5.7 million tonnes. Utilisation has however lagged production capacity expansion, specifically with two of the newest plants adding 2.5 million metric tonnes a year.
