KENYA: Cement maker sees cracks in expected profits

Record ID: 360966

  • Title: KENYA: Cement maker sees cracks in expected profits
  • Date: 19th August 2011
  • Summary: NAIROBI, KENYA (FILE, 2010) (REUTERS) VARIOUS OF CONSTRUCTION
  • Embargoed: 3rd September 2011 13:00
  • Keywords:
  • Location: Kenya, Kenya
  • Country: Kenya
  • Topics: Business,Industry
  • Reuters ID: LVABEDUMNQ1L8MQSHVG85JGUNNU0
  • Story Text: Kenya's East African Portland Cement (EAPCC) is worried rising production costs will shrink profit this year as it seeks to raise capital through a bond or rights issue for expansion into Uganda, its head said on Friday (August 19).
    EAPCC, also a regional exporter said that costs had risen by 20-25 percent in the last few months, a factor expected to dent the full year's projected profits by as much as 20 percent.
    Depreciation of the local currency, which has lost more than 14 percent, has added pressure as has unreliable power provision from the country's sole distributor, Kenya Power Company.
    "First of all, as I said, the increasing fuel prices. It's gone up more than 20 percent in a period of less than a year, and still going up. Then, the depreciation of the shilling has added to the fire because for us, we import a lot of our spare parts, we also import some of our raw materials," said Kepha Tande, Kenya East Africa Portland Cement Managing Director.
    Tande said construction of a grinding plant in Uganda with annual output capacity of at least 500,000 tonnes is expected to begin next year at a cost of between 3 billion shillings (32.2 million US dollars) and 8 billion.
    Expansion of its Kenyan clinkering plant by 1 million tonnes will require about 200 million US dollars. Clinker is a key ingredient in cement manufacturing, and is made by heating limestone.
    With little growth seen after a price fall of about 10-15 percent in the last year due to new entrants such as National Cement, expansion in new markets to push up volume is the new strategy to sustain profit momentum.
    "Prices have come down about 10 to 15 percent in the last year, because of the new entrance of competition. Entrants have come in, obviously vying for the market share, and in that way, they have reduced prices," said Tande.
    A construction industry boom in east Africa, fostered by housing demand for a rising population of about 137 million and infrastructure development, has accentuated cement orders.
    Appetite for cement in newly independent South Sudan is expected to surpass Kenya's total demand of about 3 million tonnes a year in the next three years.
    "The market is growing all the time, and we have demand from as far as south Sudan. We think we can have a lot more if we had smooth transportation," said Tande.
    Plans are under way to expand production at EAPCC's main cement plant by 45 percent from 1.3 million tonnes a year, and its clinker plant by 25 percent from 600,000 tonnes annually.
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