Tanzania is the latest price-pressured African market
While South Africa's cement market is wrapped up in merger talk and oversupply, and Ghana's cement industry is crying out for protection against low imports, Tanzania is the latest African country to find that the bustle for greater market share is pushing prices down to unsustainable levels.
Tanzania's price war
Tanzanian cement producers are facing a sudden collapse in profitability as cement prices are falling in an increasingly competitive market. Heidelberg-owned Tanzania Portland Cement, Tanzania's biggest cement maker with a 36 per cent market share, reported a 1H17 net profit of TZS12.35bn (US$5.5m), around half of TZS22.71bn (US$10.1m) reported a year ago.
Another cement producer that is coming under pressure is ARM, as it posts heavy half-year losses.
"The commodity's price in the Dar market fell from US$88/t in September last year [2016] to lows of US$60/t this year. This has greatly affected us," said Predeep Paunrana, ARM's CEO. But ARM is fighting back. In its half yearly statement, it announced that "cement prices have begun to improve in Tanzania with a positive impact on cash generation and profitability."
Shaking up existing markets
A key player in the affected markets is Dangote Cement. The Nigeria-based producer is well experienced in entering new markets at competitive prices to realign market share in its favour. In Ghana many of the cement producers lowered their retail cement prices in October 2016. Ghacem (HeidelbergCement group) set the bar at GHS30/50kg bag (US$6.78), while Dangote reduced its price to GHS26/50kg bag (US$5.88) and Diamond cement sold at GH30/50kg bag. By December Dangote's ex-factory price was GHS29.30 and Ghacem's was set slightly lower at CGHS28.60 to protect its market share. Dangote Cement reported that 2Q17 prices had stabilised at US$110/t.
In Zambia Dangote Cement has been rivalling LafargeHolcim in the retail markets, where cement prices fell by around 20 per cent in 2015, from ZMW80 (US$8.40) to ZMW62 (US$6.51), after Dangote Cement's Ndola plant came on-stream in August 2015. Prices had stabilised though to around US$79/t in 2016.
In its home market of Nigeria, ex-factory cement prices have been rising this year from US$141/t bag in January to US$156/t in February, but this is still well below the peak prices that were around US$189/t in December 2014.
In Cameroon new cement capacity has not brought down prices. In May 2017 a 50kg bag of cement still retailed as high as XAF5000 (US$9.14), according to South Africa Today. However, this is expected to change as new capacity is brought online.
As for Tanzania, Dangote is advancing as it brings a gas-powered plant online this month to reduce production costs at its 3Mta Mtwara cement plant even further.
Onne van de Weijde, Dangote Cement’s CEO, stressed that the company's success is not simply based on discounting prices. The company is always focussed on building a new market from scratch and then it "starts competing with a lot of existing players". "Areas where some of our competitors have been for 50 years before us, we've gone there, we've struggled with them, we’ve taken more market share… with no advertisements, nothing," he added. "What we're doing is making sure the quality is unquestionable… You're providing the highest quality product in the market, you're able to attach a very good price to that product."
Looking ahead
Competition is expected to intensify in Tanzania and across Africa as Dangote and other cement producers continue to start up new cement capacity across the region. Dangote's business strategy of successfully ramping up its capacity on the African continent to 45.8Mta as of June 2017 has also led to further expansion in Sierra Leone, where the company commissioned a 0.7Mta import terminal in Freetown in the 1Q17. Moreover, in 3Q17, the cement producer has scheduled the commissioning of a 1.5Mta plant in Mfila, Republic of Congo.
