cement factory

Cement Shortage, Price Hike Reoccurs

It is to be expected that whenever demand is high, the market usually responds by supplying more. But this year in Ethiopia, supply of cement was 5.5 million tons below demand. Though shortages began in 2018, major fluctuations have twice been seen in 2021 owing to spare part and maintenance problems on one side, and political insecurity and war on the other—even to the extent of the full shutdown of Messebo Cement Factory in Tigray and its 2.1 million tons of production.

Additionally, the government is handicapped to effectively oversee distribution of even produced cement, to the point where it could only be accessed from the black market for a certain period. EBR’s Ashenafi Endale assesses how Ethiopia could go from self-sufficiency to the reconsideration of cement imports.

Berhanu Neway, Contractor, was excited when his enterprise was awarded the construction of a public health center in Sebeta town last year. His happiness, however, was short lived as finishing the project upon the agreed quality and timetable was not as easy as thought.

“The project cost grew by 25Pct from the initial ETB1.2 million, mainly because the price of cement doubled within a year,” Berhanu tells EBR.

On the other hand, Zinabu Tebeje is CEO of special projects at Ovid Group, a leading company developing 500 luxury apartments in Gerji of Bole Subcity for the Federal Housing Corporation. He also says that access to cement has become a deciding factor in finalizing construction projects on time. “We try to avoid the cement market’s fluctuation from affecting our projects by buying in bulk and storing. Yet still, we are facing problems.”

The supply shortage and surge of cement prices puts many contractors in limbo by escalating the overall project’s cost. Currently, the retail price of cement has reached ETB800 per quintal, although factory gate rates are around ETB350 on average, according to EBR’s market assessment.

In February 2021, when cement prices hiked beyond reasonable levels to reach ETB700, the government introduced a cap on factory prices to less than ETB300 per quintal and retail prices to less than ETB500. Through price caps and rigorous monitoring of cement distribution, the administration managed to reduce cement prices from ETBB700 to 400.

The Ministry of Trade and Industry (MoTI) also introduced a new law forcing any cement buyer to source cement only after submitting a construction permit from respective woreda administrations.

By mid July 2021, however, the government lifted the price cap and abandoned cement market control across the country. Resultantly, the retail price of cement rocketed to a high of ETB800 from around ETB500.

“The government lifted the price cap and stopped monitoring cement distribution because the demand for cement decreases during the rainy season.” says Kassahun Mulat, Director of Pricing, Research, Monitoring, and Control at MoTI.

Nonetheless, the fundamental and real reason for the cement price surge remains the widening gap between demand and supply. The supply gap has grown from 2.4 million tons in 2018/19 to 5.5 million tons in 2020/21.

Ethiopia’s current cement demand is at 13.2 million tons, up from 11.8 last year and 7.2 million tons in 2015/16, according to data from the Chemical and Construction Input Industry Development Institute (CCIDI). However, all active cement manufacturers combined managed to produce only 7.7 million tons during the 2020/21 fiscal year that ended July 30, 2021. This is below half of the industries total installed capacity. Existing industries could bridge the current demand-supply gap, if they utilize at least 85pct of their installed capacity on average.

“Actual production declined further this year mainly because Messebo Cement Factory completely stopped production following the law enforcement moves in Tigray Region. This has reduced the cement supply by 2.1 million tones,” explains Simegn Degu, Director of CCIDI.

While Messebo halted production, the remaining factories have been producing below installed capacities. Cement manufactures can theoretically utilize up to 85Pct of their installed capacity. But this has not been the case lately. Mugher Cement Factory, for instance, stopped one of its production lines due to technical reasons.

“Importing spare parts is taking over six months,” says Simegn. “Once all factories import enough spare parts, then they could utilize 85Pct of their capacity.”

The government has allocated USD85 million for the import of spare parts and installed dedicated power lines for the plants. However, many factories are still unable to import spare parts, according to Simegn.

There is another further factor limiting cement factories from utilizing their maximum capacity. “By conducting studies, MoTI has uncovered that the machines in the plants are fast depreciating due to continuous operations for five years without overhauling maintenance,” Simegn reveals.

Additionally, the substitution of imported coal—used as a source of energy for the sector—with local varieties has also contributed to the low cement productivity and production in Ethiopia. Although the nation has managed to substitute 65Pct of coal imports in last two years—saving more than USD120 million annually—the calorific output of local coal remains lower than imports.
As a short-term solution, some experts EBR spoke with recommend introducing auction marketing. “Both public and private projects must access cement through auction. This can also avoid price collusion,” argues a construction expert who spoke to EBR requesting anonymity.

According to the expert, cement is a perishable product. “So, it is impossible to buy in bulk and store. But if contractors can access cement by bidding at least once in a month, the problem can be resolved.”

However, Simegn argues auction marketing is not convenient in Ethiopia’s context. “The construction industry requires other inputs like rebar and others which aren’t always available at the same time as cement .”

According to Simegn, MoTI is planning to introduce a new profit margin threshold for factories, distributors, and retailers. “The ministry has established four research teams which are currently studying the production costs of each cement factory. Once we know this information, we will set individual profit margin thresholds for factories, distributors, and retailers,” says Simegn.

However, many agree that the long-term solution is to attract new investments. There are currently three new cement projects in the pipeline, according to information obtained from MoTI. These three projects are expected to boost the supply of cement by 7.5 million tons.

In addition, Derba and Dangote cement factories are also finalizing feasibility studies to expand their factories, which is expected to add an extra five million tons to the market. “Once all of these projects are realized, supply of cement will match demand,” Simegn anticipates. EBR

9th Year • September 2021 • No. 100


Leave a Reply

Your email address will not be published. Required fields are marked *

Ethiopian Business Review | EBR is a first-class and high-quality monthly business magazine offering enlightenment to readers and a platform for partners.

2Q69+2MM, Jomo Kenyatta St, Addis Ababa

Tsehay Messay Building

Contact Us

+251 961 41 41 41