CEMENT makers are experiencing a bearish run at the Dar es Salaam Stock Exchange as they struggle with increased competition in the market and overcapacity challenges.
Share prices for Tanzania Portland Cement Limited which trades as Twiga and Tanga Cement Company Limited trading as Simba depreciated by 33.62 per cent to 1,460/- and 25 per cent to 1,200/- respectively since January.
Orbit Securities Head of Research and Financial Analyst, Fortius Rutabingwa attributed the downward trend of the share price to "a lot market headwinds" which have impacted negatively in their financials. According to him, intense competition increased after the entry of new players in the market and high costs of production were making local cement producers to struggle in the market.
“Going forward, their (Twiga and Simba) profitability margins will be challenged both from price war and internal cost structure/mix,” Mr Rutabingwa told the ‘Daily News’ yesterday. In the first half of this year Simba posted a first ever net loss of 14.6bn/- from profit of 11.39bn/- in similar period last year and declared no dividend.
Twiga net profit dropped by half to 4.2bn/- last year compared to 8.2bn/- in 2015. But according to Mr Rutabingwa said Simba "had energy cost disadvantage” as it is transporting coal from over 1,200 kilometres from Ngaka coal mine in Ruvuma Region to Tanga.
This came from a government ban on the use of imported coal by local cement makers. Zan Securities Chief Executive Officer, Raphael Masumbuko said the country cement demand was still high as most new cities Arusha, Mwanza, Tanga and Mbeya infrastructure supposed to expand to reach the Dar es Salaam level.
“Yes, still it worth investing on cement firms…our construction sector is still at an infant stage. It has a room for growth and expansion,” Mr Masumbuko told the ‘Daily News’ yesterday.
The CEO said the bearish run of cement equities at the stock market was based on increased competition that brought down cement prices in the market and the current economic situation that seems to hit hard on the construction sector.
Depending of a brand a bag of cement price went down to between 10,500/- and 11,500/- from around 13,000/- in Dar es Salaam. “I think the price might go even further down due to increasing competition,” Mr Masumbuko said.
According to him the construction sector has been affected by liquidity challenges among private developers while real estate firms seem to direct investment to manufacturing sector. In August, cement stakeholders said the industry is heading to a cliff-edge if clinker importation continues unabated.
The industrial analysis showed that clinker installed capacity will reach 5.0 million tonnes in the next four years from the current 4.8 million tonnes. Other cement producers are Mbeya Cement-Tembo, Arthi River Cement Rhino, Kilimanjaro Cement, Dangote Cement, Lucky Cement, Lake Cement-Nyati, and Amsons Cement-Camel.