Displaying items by tag: CRBC

Kenyan cement producers kicked off this week about Chinese cement imports for the Standard Gauge Railway Project in Kenya. Local producers, including ARM Cement and Lafarge, have asked the Kenya Railways Corporation to explain why the Chinese-backed project is importing cement. Project builders the China Rail & Bridge Corporation (CRBC) has imported 7000t of cement so far in 2015 according to Kenya Ports Authority data.

Project completion is planned for 2017 with a requirement of 1Mt of cement. If CRBC carried on this rate then, roughly, the project might only use 42,000t of imported cement if the import rate holds. This is less than 5% of the estimated requirement. However, cement imports increases into Kenya have stayed steady since 2012. Imports rose by 2000t from 2013 to 2014. CRBC's imports will stick out significantly in 2015.

Kenya National Bureau of Statistics (KNBS) data places Kenyan cement production at 5.8Mt in 2014, an increase of 16.3% from 5.1Mt in 2013. Production growth has been steadily building since the late 1990s with, more recently, a dip in the rate of growth in 2011 that has been 'corrected' as the growth has returned. Consumption has risen by 21.8% year-on-year to 5.2Mt in 2014 with imports also rising and exports dropping.

Imports for the railway project are duty free as ARM Cement Chief Executive Officer Pradeep Paunrana helpfully explained to Bloomberg. Producers have also recently upgraded their plants to specifically supply 52.5 grade cement to the project. Given this, it is unsurprising that local Kenyan producers, including ARM Cement and Lafarge, are complaining about this situation, especially given the increasingly pugnacious African response to foreign imports led by Dangote and companies in South Africa. Both ARM and Lafarge hold integrated plants and grinding plants in Nairobi and Mombasa. This is the route of the new railway line.

The backdrop to this is that the Chinese cement industry is struggling at home as it adjusts to lower construction rates and reduced cement production growth. Profits made by the Chinese cement industry fell by 67.6% year-on-year to US$521m for the first quarter of 2015, according to National Development and Reform Commission (NDRC) statistics. At the same time the Shanghai Composite, China's principal stock market, has seen the value of its shares fall by 30% since June.

Although it is unclear where the cement imports in this particular row are coming from, informal or formal business links between large state controlled corporations such as a China's major cement producers will always be questioned by competitors outside of China for both genuine issues of competitiveness and simple attempts to claw more profit. If the Chinese cement producers are sufficiently spooked or they really start to lose money then what is to stop it asking a sister company building a large infrastructure project abroad to offer it some help? Or it might consider asking the Chinese bank providing 90% of the financing towards the US$3.8bn infrastructure project to force the Kenyan government to offer more concessions to foreign firms. Meanwhile one counter argument goes that Kenya has a growing construction market with a giant infrastructure project that may unlock the region's long-simmering low cement consumption per capita boom. The Kenyan government may face some difficult decisions ahead.

Kenya: According to Reuters, Kenyan cement producers have said that they are being left out of a US$3.8bn railway project that China Rail & Bridge Corporation (CRBC) is building, after the company gave an assurance it would source all of the raw materials domestically.

Companies including Lafarge South Africa's Kenyan unit and ARM Cement have asked Kenya Railways Corporation, the implementing agency, to provide clarity on CRBC's local procurement plans, five months after work on the project started, according to ARM Cement CEO Pradeep Paunrana. Kenya Ports Authority data show that CRBC has imported at least 7000t of cement so far in 2015.

"There was an assurance that all of the cement would be supplied by local producers," said Paunrana, who is also chairman of the Kenya Association of Manufacturers. "There has not been transparency on how much we will supply and we don't understand why they are importing cement when we can clearly supply cement to their specifications."

The 'Standard Gauge Railway Project' (SGR) is Kenya's biggest investment in infrastructure since it gained independence from Britain in 1963. The Export-Import Bank of China is funding 90% of the railroad, which will connect Nairobi to Mombasa, East Africa's biggest port. It is scheduled to be completed by 2017. Kenya's Treasury is pinning its 7% growth target for 2015 partly on activities generated during construction of the 609km link. In June 2015, treasury secretary Henry Rotich allocated US$1.46bn to the project for the 2015 - 2016 financial year.

The SGR project requires 1Mt of cement, all to be sourced in Kenya, according to a master list of supplies that the manufacturers' association was given by CRBC. Kenya is a higher cost producer of cement than China and imports for the project are duty-free, according to Paunrana. Kenya Railways spokeswoman Mary Oyuke has said that the company isn't importing cement because the material is available locally and ARM and Bamburi are already supplying the project.

ARM and other producers, including Lafarge's unit Bamburi Cement, have upgraded their plants to produce the 52.5 grade cement required by the contractors. The enhancements cost 'several million dollars' and were commissioned on the understanding that CRBC would buy the cement from domestic manufacturers. "We undertook significant investments in an endeavour to seamlessly supply cement to the project, including long-term agreements with transport companies to make deliveries," said Bamburi CEO Bruno Pescheux. "It is our hope that the project will continue to purchase cement locally rather than import, in light of the above investments." Bamburi supplied 20,000t of cement in April 2015.