Athi River Mining Company Sh2bn plant heats up rivalry in cement market

(Mombasa, Kenya) — Athi River Mining Company is betting on its cement plant under construction to raise its annual production capacity from the current 300,000 to 750,000 metric tonnes.

Athi River Mining (ARM) is taking the battle in the cement market a notch higher with its plans to build a Sh2 billion clinker and cement plant at Athi River, a location that makes it more competitive by cutting raw material transportation costs by almost a half.

Currently, the firm produces clinker at Athi River and transports it to its plant in Kaloleni in Mombasa, 400 kilometres away for cement production.

The expansion plan will raise ARM annual production capacity from the current 300,000 metric tonnes to 750,000 metric tonnes.

“The new plant will considerably reduce our cost of production. We expect to pass this to consumers in terms of reduced final prices”, said Pradeep Paurana, ARM managing director.

The new plant is expected to stir ARM rivals Bamburi and East African Portland Cement who have enjoyed some advantages by being close to the main market in the Central Kenya region. Bamburi Cement has two plants one in Athi River and another in Mombasa whereas EAPC has its sole plant in Athi River.

“The expansion plan we are undertaking by setting up a new plant in Athi River and also expanding the Kaloleni plant will position us to be the second largest cement producer in the market”, said Mr Paurana.

Currently, Bamburi is the leading market player, with an estimated market share of 58 per cent.

EAPCC controls 30 per cent and ARM has 13 per cent.

ARM expects to raise its share to 20 per cent by next year.

The ARM clinker plant would leave EAPCC as the only factory dependent on imported clinker, the main ingredient in cement production, further exposing it shocks related to buying cost, shipping and time lags.

A research note by Sterling Investment Bank indicates that locally produced clinker is cheaper than imported clinker by about a third.

EAPCC is seeking to make up for these pitfalls by engaging in value addition such as through the recently announced ready made concrete mix for construction.

ARM is also spoiling for a fight in the regional market through the construction of a Sh10 billion factory in Tanga with a capacity of 4,500 tonnes daily.

“All the cement companies in East Africa have a capacity of about 5.2 million tonnes annually while forecasts indicate the whole region would require 11 million tonnes to meet demand that is growing at an annual rate of six per cent”, says the Sterling Investment Bank research note.

Bamburi is also constructing a Sh7 billion plant in Uganda which is expected to be commissioned in mid-2010.

ARM huge gamble in Tanzania is informed by the rapid growing demand for cement in the country and also its membership to the larger Southern African Development Community (SADC) trading block.

“Our investment in Tanzania is driven by the expected exponential growth of cement use to be driven by infrastructural projects in roads, power and mining with the existing producer not able to meet the growth alone,” said Mr Paurana.

Currently Tanga Cement controls less than less than 10 per cent of the Tanzanian market with the bulk being imported cement from Egypt, South Africa and Zambia.

“We are looking at future demand of cement in the region and we want to be key players,” said Mr Paurana.

But all players have had to contend with high cost of electricity which has impacted on their bottom line and made energy efficiency a key factor in production.

“The East African region has experienced improved energy efficiency in cement production, leading to a 16 per cent saving in energy cost (about Sh25 million) in 2008 which is expected to rise to about Sh50 million in 2009”, says the Sterling research note.

The entry of new players such as Mombasa Cement which opened a factory in Athi River early this year and the expected roll out of a cement factory in West Pokot by a subsidiary of India’s Cemtech group is expected to make proximity to key markets a potent competitive tool.

By: Johnstone Ole Turana

Source: www.businessdailyafrica.com

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