Cement industry shares gets bullish

Daily Nation , Business Week
Story by NICK WACHIRA
Publication Date: 06/14/2005

The impact of Kenya's recession was so huge, that the outlook for the cement sector looked shaky.

The faltering ground the industry found itself on followed a big miscalculation. In 1994, with the NSE-20 Share Index playing above 5,000 points, there were general expectations that Kenya was at last experiencing an economic take-off similar to the much-hyped "Asian Tiger" experience.

Demand for cement was high, and so Bamburi, East African Portland Cement (EAPC) and Athi River Mining (ARM) decided to increase their capacity.
At a time when the country was grappling with its worst years, the industry capacity doubled to the current level of 2.4 million tonnes.

The recession was expected to be short, a speed bump before the economic take-off that had began in the mid-90s.

Of course it later emerged that the predictions were misplaced. The economy remained sickly for five years leading to 2003.

Meanwhile, with declining demand, the three companies had to wrestle with huge fixed costs to keep the kilns burning. These included rising energy and transport costs and keeping current on the repayment of the huge debts that the industry had piled on to fund the expansion of capacity.

Over the next five years, African Alliance estimates that Kenya’s cement consumption will expand from the current 1.4 million tonnes (42 kg per person) to 2.5 million tonnes (79 kg per person) in 2010. In Uganda – a significant market for Bamburi and EAPC – cement consumption is forecast to grow from 600,000 tonnes (25 kg per person) to 1.5 million tonnes (55 kg per person) in 2010. If the demand from countries like Somalia and Sudan is factored in, this growth cannot be met without a significant expansion in capacity.

In Kenya, the demand has begun to stretch cement production capacity for the three producers.