Messebo Building Materials Manufacturing SC, one of the subsidiary companies of Endowment Fund for Rehabilitation of Tigray (EFFORT), exported 2,000ql of cement to South Sudan last week.
The export came at a time when prices of cement in the local market nosedived from nearly 500 Br a quintal to 230 Br, due to cutthroat competition after Derba MIDROC announced to sell at 170 Br. The state-owned Mughar Cement Factory, which could not meet more than 43pc of their sales target for the two quarters, is also in the process of exporting to Kenya, Southern Sudan, and Djibouti, sources disclosed.
Triggered by the sudden drop in the local demand of cement, Messebo and the state-owned Mughar secured export permits two months ago, in search of markets abroad.
The national estimate of demand was around eight million tonnes, which includes the 213,941tn projected for the Grand Ethiopian Renaissance Dam, according to a study by the Ministry of Industry (MoI). Lower by 5.8 million tonnes projected under the federal government’s growth plan for five years, the national estimate has seen a sudden turnaround in demand at a time when existing companies boosted their production capacity and new ones entered the market. There are now 15 cement factories supplying the market with 7.8 million tonnes, while five more factories are on their way to start producing, which will bring the total national production capacity to 12.6 million tonnes.
The anticipated surplus in production has transformed the market from a sellers’ to a buyers’ market.
Managers of Messebo blame the conduct of managers at Derba for distorting prices in the market.
“Many people in Mekele and Bahir Dar have stopped buying cement from us after it (Derba) announced that it will enter these markets with drop-dead prices,” a manager at Messebo told Fortune. “Despite its product not being seen in the market [yet] as promised, it would flood the market and create unnecessary tension so that we just could not sell our products.”
Indeed, Derba’s products are hardly seen in any market in the country, despite its managers’ offer of 170 Br for 50 quintal for those who can afford to order 400ql a pop through the Commercial Bank of Ethiopia (CBE) or Dashen Bank. Stating that the company has been busy training and recruiting new staff, Haile Asegide, chief executive officer, admitted that the cement is not available in all parts of the country.
He claims to have been limited to supplying construction companies that run bigger projects but declined to disclose the names of these companies.
However, Haile sees the reason for drops in prices elsewhere.
“It is because cement factories are not allowed to hoard any more, as the artificial demand that had occurred as a result of artificial scarcity is gone,” Haile told Fortune.
While reasons behind the unexpected fall in prices is debatable among those in the industry, existing cement companies are compelled to look for markets overseas.
It will be a particular challenge for managers at Mughar, a state-owned company devoid of experience in international trade, as it has only been a dominant domestic supplier for a long time. They are now in discussion with officials at the Ethiopian Sugar Corporation, which had exported sugar a decade ago, according to sources.
Senior managers at Messebo have a bit of experience from exporting upwards of 100,000ql of cement to Sudan in 2005.
Messebo was first established in early 1993, with a registered capital of 60 million Br. The company underwent a major restructuring in August 1995, after five of its founding shareholders, all TPLF members, donated their shares to endowment companies such as Meskerem Investment Plc, Sur Construction, Trans Ethiopia, and EFFORT itself. With the company’s capital expanded to 240 million Br, EFFORT remains the largest shareholder, at a value of 232.8 million Br.
The first northern cement plant, erected in the mountainous area on the outskirts of Mekele, Tigray Regional State, was built by a Turkish company, Enka Sanayi, at a cost of 1.2 billion Br and have production capacity of 3,000tn of clinker a day. Its second plant, built next to the first, was built by the Chinese Hefei Cement Research & Design Institute (HCRDI) at a cost 2.3 billion Br. The expansion doubled its production capacity to 7,000tn of clinker a day.
Nevertheless, managers of the company are not happy with their current export plans, for the road to Juba is not suitable for transporting cement.
“Though we have noticed South Sudan has huge demand, our exports are not promising, as the mode of transportation is discouraging,” said a senior manager at the Factory.
Indeed, South Sudan, a newly born country where 98pc of its revenues come from oil exports, is directing hundreds of millions of dollars into construction.
However, it takes 15 days a trip, driving through farmland, including a 600km drive from the Ethiopian border to a town near Juba, the capital, according to the senior manager.
It is better for the factories if the local demand rises rather than exporting, as the international market offers less than what the domestic market currently offers, experts in the industry perceive. Both Mughar and Messebo sell a quintal of Portland cement for 230 Br and 200 Br at factory gates, respectively, while the same product is available in the international market at 11.3 dollars a quintal this month, according to the European Cement Association.
