Nigeria’s Dangote Cement has started its shake-up of the Kenyan market with imports of the commodity from its plant in neighbouring Ethiopia as it prepares to establish a local manufacturing plant.
Dangote’s targeting of the Kenyan consumer with low-cost cement from Ethiopia is expected to further drive retail prices downward in a market where they have remained static for nearly 10 years.
Importing cement into Kenya is seen as Dangote’s short-term market entry plan as it prepares to establish a local plant in 2019.
“In addition, we have begun exporting cement to neighbouring Kenya,” the company, which is owned by Africa’s richest man, Aliko Dangote, said in its latest trading update.
Dangote said the cement exported to Kenya is priced at about $74 (Sh7,400) per tonne, making it up to 40 per cent cheaper than locally manufactured brands.
The price is expected to incorporate the cost of transporting the cement to Kenya as well as taxes where applicable, while still leaving the company with a profit.
Dangote, which plans to topple LafargeHolcim as the largest producer of cement in Africa, rides on economies of scale to set lower prices that in turn grows its market share. Its plant in Ethiopia has an annual production capacity of 2.5 million tonnes.
However, cement industry sources said the exports mainly covered supplies to road construction projects in northern Kenya.
Dangote also started selling cement in Tanzania early this year after completing its factory in Mtwara about 400 kilometres from Dar es Salaam.
The company cut prices in Tanzania to rapidly gain market share at the expense of rivals, including Kenyan multinationals with a presence in that market.
ARM Cement said in a commentary accompanying its latest results that cement prices in Tanzania fell by a third in the half year ended June as a result of Dangote’s entry.
Dangote said in the trading update that it took market share from its competitors in Tanzania despite incurring higher transport costs since its factory is located relatively farther away from Dar es Salaam.
“We estimate that in June we achieved 23 per cent market share across Tanzania and were the leading supplier of cement in the key market of Dar es Salaam,” Dangote said.
The Nigerian firm’s price in Tanzania stood at about $80 (Sh8,000) per tonne in June, undercutting its competitors by more than 20 per cent.
The company is expected to replicate its lower-pricing strategy in Kenya when it starts to produce cement locally in 2019.
Dangote, which already has a licence to prospect for limestone in Kitui, says it has revised the upcoming factory’s annual production capacity to three million tonnes from the previous 1.5 million.
It has incorporated two majority-owned subsidiaries to house its local limestone mining and cement production operations. It has a 90 per cent stake in Dangote Cement Kenya Limited and a similar stake in Dangote Quarries Kenya Limited. The minority interests in the subsidiaries are not disclosed.
“We are still in the process of finalising agreements for the construction of a factory in Kenya, which we expect to be in operation in 2019,” Dangote said in an earlier trading update.
“Key factors will be good availability of limestone close to Kenya’s centres of demand.” The cost of the plant is yet to be confirmed, Dangote said.
The multinational’s entry comes at a time when cement prices in Kenya have dropped significantly on the effect of increased imports and expansion by established and new players.
The excess capacity, contributed to by the setting up of new firms such as National Cement and Savannah Cement, has seen the average retail price of a 50kg bag of cement drop to Sh670 from the peak of Sh740 in 2008.
The resultant price wars have cut margins, leaving cost cutting and volume sales as the major profit drivers.
Despite the excess capacity, cement firms are planning more expansion in what will further heighten competition. ARM Cement, for instance, intends to build a new clinker and cement factory in Kitui in the medium term, backed by its new single-largest shareholder, CDC Group.
Read More News Here Source link