Mega projects and real estate boom attract cement firms

Kenya’s cement consumption has more than doubled over the last decade, driven by mega infrastructure projects as well as individual homes.

In 2010, local cement consumption stood at 3.1 million tonnes.

This has steadily risen to 7.3 million tonnes by last year, and this year, growth margins seen over the last decade are still expected, if not higher.

Kenya’s cement consumption for the first five months (January-May) stood at 3.35 million tonnes, a 20 per cent growth compared to the 2.64 million tonnes consumed over the first five months last year.

The demand has increased the production capacity as local cement companies boost their production capabilities to tap into the growing demand.

New players are also keen to take advantage of the seeming boom in the industry with plans to set up new plants.

But this has also led to worries it could result in oversupply - leading to reduced retail prices.

This is especially when the mega infrastructure projects start to dry up, with the government slowing down on new projects due to concerns over mounting debts.

This is even as alternative modes of financing such projects – including the public-private partnerships (PPP) route – fail to yield expected results, with only a handful of projects taking off so far under the PPP model.

There are already telltale signs. The East Africa Portland Cement Company (EAPCC), while responding to shareholder questions during its annual general meeting as to what led to its poor performance over the financial year to June 2020, the firm partly blamed “downward pressure on retail prices due to supply glut”.

This could be more evident in the coming years, with old players looking to up their game by rejuvenating their old plants and tweaking their production processes to be more efficient and competitive even as new entrants look at giving them a run for their money through their investments.

Seddiq Hassani, the Bamburi Cement Group managing director expects the 10-year growth to be sustained.

He noted that while there has been growth in the volumes of cement going into big infrastructure projects, Kenyans remain the industry’s key customer.

Home builders

This year, Bamburi saw an increase in volumes going to the infrastructure projects, which accounted for nearly 30 per cent of the cement the firm sold — occasioned by the many projects being undertaken in Kenya.

“Today, infrastructure projects represent about 28 per cent of our volumes. Last year, same period, it was below 20 per cent,” he said.

“While the share of the big projects has grown, a big part of our volumes go through retail and therefore to the individual home builders remain a big part of cement consumption in the country.”

Due to growth in demand, Hassani doesn’t expect supply gluts and retail price wars. “We have seen quite a stable price since the beginning of the year,” he said.

Among the newbies eyeing both the individual home builder as well as mega infrastructure projects such as roads, dams and housing projects including Delta Cement and Mashujaa Cement.

Delta Cement, owned by Delta International FZE, is set to enter the cement production business with a planned plant in Mavoko.

The cement plant is set to be acquired by Nairobi Business Ventures (NBV) and in a reverse takeover, where the owners of Delta Cement will also emerge as the key shareholders of NBV.

The firm is looking at investments in various sectors after its shoe retail business collapsed. The firm hopes to do business in such areas as trucks maintenance, aviation maintenance, trading and cement manufacture. It singled out cement manufacture as a key investment.

“(Cement manufacturer) is expected to be the most significant business in Nairobi Business Ventures to be carried out by Delta Cement Ltd,” said NBV in a recent circular to shareholders.

The plant will be put up at Delta property in Mavoko, Machakos County, where it also plans to put up a clinker production facility. Clinker is a key raw material in the manufacture of cement.

“The property has already been master-planned for a cement manufacturing plant. NBV’s proposed strategy is to set up a clinker and cement manufacturing plant at the property,” said NBV.

Then there is Mashujaa Cement, which plans to invest Sh3.79 billion in a cement grinding plant with a capacity to produce one million tonnes of cement annually. The plant will also be based in Mavoko.

In documents filed with National Environmental Management Authority (Nema) seeking approvals to set up the plant, the firm noted that over the last decade, there have been many construction projects in the country, leading to increased demand for cement that the company is looking to tap into.

The old guards are also looking for ways to stay competitive.

Bamburi Cement has recently unveiled plans to put up a clinker-producing plant in Kwale County. The Sh580 million plant to be commissioned in about two years is expected to enable the company stop relying on expensive imported clinker.

National Cement, has also been making improvements on the plant acquired from Athi River Mining (ARM). The company says that since taking over ARM in 2019, it has invested Sh4.8 billion ($45 million) in refurbishing ARM’s two cement production plants in Athi River and Mombasa.

“We have rehabilitated (ARM plant in Athi River), changed most of the machinery and now it is at 80 per cent in production. We are changing everything at the Mombasa plant to bring it to today’s standard because it has been running on equipment that is 50 years old. It will be ready in November or December,” said Narendra Raval, whose Devki took over ARM, in a recent interview.

The new investments could in the coming years result in a major shakeup in the industry. This could be akin to what was seen over the last decade, which saw a rise in new players that increased competition and dislodged the older players.

These include Savannah Cement Mombasa Cement and National Cement (which has since taken over ARM).

emacharia@standardmedia.co.ke