CEMENT INDUSTRY

Cement market resilient amid woes facing the sector

Operating challenges in cement producers to almost ceased production and low utilisation rates

In Summary

•A slowdown in the real estate sector is also dragging the industry.

•Early in this year, the World Bank and IMF projected the year would be a proving one for the cement industry globally as the growth is projected to decline and in turn could dampen investment in construction projects.

A factory worker rolls bags of cement at the East African Portland factory in Athi River near Kenya's capital Nairobi August 18, 2011. Photo/REUTERS
A factory worker rolls bags of cement at the East African Portland factory in Athi River near Kenya's capital Nairobi August 18, 2011. Photo/REUTERS

The country's cement industry is clutching on for growth despite announced troubles among key players in the market.

In the eight months to August, cement production was recorded at 3,930,015 tonnes compared to 3,781,992 in same period last year.

Consumption in the period was registered at 3,909,426 compared to 3,672,968 over the period.

 
 

In 2018, total production was 6,029,934 against the uptake of 5,907,380 in the market.

This represented a 3.2 per cent (200,359) decline in production but an increase of 49,493 in consumption compared to 2017.

According to a report by AIB Capital released in September, operating challenges in cement producers including Athi River Mining (ARM) and East African Portland Cement Company (EAPCC) have led to ceased production and low utilisation rates.

This coupled with the decline in private sector credit growth from the introduction of the rate cap in 2016.

In October,  ARM which was put under administration in August last year was saved by Devki Group after a time of court battles with liquidators to sell off the family-owned business to repay debts amounting to more than $190 million (Sh19.3 billion).

The steel company acquired ARM at $50 million and said it would invest $36 million (Sh3.7 billion) to modernize the production plants it has acquired.

Bamburi Cement in September also announced a 72 per cent decline in profits to Sh300 million in the six months to June, from Sh1.2 billion over a similar period this year.

 
 

The largest firm by market share, however, blamed the dip in earnings to expansion projects in the country and its subsidiaries in the region Rwanda and Uganda.

In August this year, EAPCC announced it would be laying off its entire workforce in a restructuring programme.

The firm later renounced the memo with new changes to retain about 600 staff, saying the restructuring was aimed at reducing the costs after registering Sh3.5 billion in operating loss in 2018 from Sh1.3 billion recorded in 2017.

A slowdown in the real estate sector is also dragging the industry.

Kenya Bankers Association’s House Price Indices showed a supply-side weakness quarter-on-quarter to June caused by a reduction in the number of building approvals in the period.

“There has also been a decline in construction activity leading to less cement demand. The real estate and construction sectors’ contributions to GDP has decreased from 5.6 per cent and 13.1 per cent in 2014 to 4.1 per cent and 6.6 per cent in 2018 respectively,” AIB added.

Early in this year, the World Bank and IMF projected the year would be a proving one for the cement industry globally as the growth is projected to decline and in turn could dampen investment in construction projects.

This was pinned to the projected slowdown in global economic growth due to the impact of the trade conflict between the US and China.

Government underway projects are expected to improve the cement market.

These include the Construction of Affordable Housing Units, LAPSSET and Dualling and Construction of the Eastern and Western Bypass.