AFRICA: KENYA: Cement share prices firm on rising demand in Kenya

Rising prospects for cement manufacturers and increased demand for the commodity in the region have pushed stocks of listed cement firms in Kenya to a new high.

Athi River Mining’s (ARM) shares are trading at an all time high of $2.4 per share at the Nairobi Stock Exchange, signalling an expansion in the region’s construction sector which has triggered fresh demand.

Since the beginning of the year, East Africa Portland Cement share price has gone up 36 per cent, trading at $1.47 per share on thin volumes.

Likewise, Bamburi Cement’s shares are trading at $2.48 per share reflecting a 5.7 per cent growth since the beginning of the year.

East and Central African countries are pumping billions of dollars into upgrading their infrastructure, raising the demand for building material which could still edge higher as the continent’s newest nation South Sudan begins reconstruction following a successful secession referendum.

The total cement capacity which also includes imported clinker is set to reach 11.6 million tonnes per annum in East Africa by the end of the year, from eight million tonnes per annum at the beginning of the year.

But the question analysts are asking is what investors are seeing in the cement makers to price their stocks so highly.

Take ARM for example. At a price of $2.4, the stock is trading at a price-to-earnings (P/E) ratio of 27, which simply means investors are paying 27 times for every shilling ARM earns to acquire the shares.

Value investors would keep off this stock in belief that a stock trading above 25 times its earnings is grossly overvalued.

But using P/E alone would be taking a one dimensional view of the stock.

“It would be difficult to say whether ARM is overvalued based on the P/E alone although there are indications that it could be, compared with the Bamburi stock which has a P/E of 11.11 and much superior dividend yield,” says Renaldo D’souza an analyst with Genghis Capital. 

“On the other hand one could argue that they have strong upside earning upon completion of their plants in Tanzania which are due to happen this year and next year,” Mr D’souza adds.

The completion of ARM’s Tanzanian plant in Maweni, Tanga, is set for January 2012, according to the company, which would see it add 1.5 million metric tonnes in capacity.

This would take the total capacity to 2.5 million tonnes.

“We will be the biggest player in the market in the next 18 months,” says Pradeep Paurana, managing director of ARM. “There is no capacity in Tanzania hence ARM is putting up such a huge plant.”

INDIA: Budget impact on sectors| Cement

The cement industry is hoping that there may be some abatement provided on non-production related elements, such as freight, which would mitigate the impact of increase in excise duty

Cement

With the cement sector struggling because of oversupply, the increase in excise duty would harm it in the near term. The industry is, however, hoping that there may be some abatement provided on non-production related elements, such as freight, which would mitigate the impact.

Yet, firms may face additional excise duty of at least Rs. 4-8/bag. The reduction in customs duty from 5% to 2.5% on pet coke and gypsum may help some importers.

Meanwhile, rising material and power costs are estimated to hit margins by at least 200 basis points from the present levels. One basis point is one-hundredth of a percentage point.

Not surprising then that share prices of big cement firms such as ACC Ltd, Ambuja Cement Ltd and India Cements Ltd fell sharply.

Other factors affecting the sector: oversupply due to high capacity build-up; demand-supply mismatch has led to weak cement prices; rising freight and power costs are affecting profits.

INDIA: Cement companies up price in Mumbai by about 6 rupees

Cement manufacturers on Tuesday increased prices by an average 6 rupees per 50-kg bag in Mumbai, following a proposal in the budget to restructure the present excise duty, dealers and analysts said.

Cement Stockists and Dealers' Association of Bombay President Sanjay Ladiwala confirmed the development, adding, all the companies have increased the prices.

At present, the hike has been affected only in Mumbai, he said.

India's Finance Minister Pranab Mukherjee, in his budget announcements for 2011/12, has proposed to replace existing excise duty rates with composite rates having "an ad valorem and specific component with some rationalisation".

"The budget proposal has resulted in a 2.50-3 rupee increase per bag, and with effect from today cement manufacturers are increasing the prices, passing on the excise duty to customers," said Ravi Sodha, analyst with Elara Capital.

The average cement prices are in the range of around 260-265 rupees a bag in Mumbai, he added.

The industry had termed the budget as "slightly negative" for the sector, and feared a rise of 8 rupees in cement prices.

The only relief for the sector was a reduction in basic customs duty on petcoke and gypsum, both used in cement production, to 2.5 per cent.

"Apart from the budget proposals, an increase in coal prices of around 30 percent is another reason (for the cement price increase)," said Rupesh Sankhe, sector anlayst with Angel Broking.

The companies will have to raise the prices in the northern and southern regions too, Sankhe said, adding, "Otherwise they would start reporting losses."

INDIA: February cement dispatches show mixed bag

Top three domestic cement players ACC, Ambuja Cements and UltraTech Cement posted a mixed performance in their cement dispatches for the month of February 2011. 

ACC registered an impressive performance with a strong 17% growth in its dispatches whereas Ultra tech and Ambuja Cements dispatches grew in the range of 4% to 5%. The increase in cement off take is on account of a pickup in the infrastructure activity (though by a lower magnitude compared to previous year). On a sequential basis the cumulative dispatches of top players have declined by 1.8% mainly on account of a lesser number of operational days in the month of February.

In terms of demand, dealers have confirmed that the cement off take is picking up except in the southern region. In Maharashtra the key concern of poor availability of river sand has been resolved to a great extent with supply of river sand coming in from Karnataka, Gujarat and Maharashtra itself.

Cement prices during the month have increased in most parts of the country by INR 10 to INR 15 per 50kg bag in February 2011. The price hike during the month was largely supported by supply control and a pick up in the volume. Further with the announcement of the change in the excise duty structure for cement in the Union Budget 2011-2012, the cement manufacturers have increased prices by INR 6 to INR 8 per bag from March 1st 2011 across the country. The price hike announced post budget is higher than the incremental duty burden.

EEUU: Cement producer fined $1.4 million for clean air violations

The United States Environmental Protection Agency (EPA) and the United States Justice Department announced that Cemex, Inc., one of the largest producers of Portland cement in the United States, has agreed to pay a $1.4 million penalty for Clean Air Act violations at its cement plant in Fairborn, Ohio. In addition to the penalty, Cemex will spend an estimated $2 million on pollution controls that will reduce harmful emissions of nitrogen oxides (NOx) and sulfur dioxide (SO2), pollutants that can lead to childhood asthma, acid rain and smog.

The settlement addresses modifications Cemex made to its cement plant without obtaining the proper permit, as required by the Clean Air Act. Major sources of air pollution are required to obtain permits which require the installation of pollution control technology before making changes that would significantly increase air emissions. Today’s settlement ensures that the proper pollution control equipment will be installed to reduce future emission levels.

Cemex will install state of the art control technologies that will reduce annual emissions of NOx by approximately 2,300 tons and SO2 by approximately 288 tons. Air pollution from cement plants can travel significant distances downwind, crossing state lines and creating region-wide health problems. These effects can have greater impacts on communities disproportionately exposed to environmental risks and to vulnerable populations, including children.

Reducing air pollution from the largest sources of emissions, including cement facilities, is one of EPA’s National Enforcement Initiatives for 2011-2013. The initiative continues EPA’s focus on improving compliance with the new source review provisions of the Clean Air Act among industries that have the potential to cause significant amounts of air pollution. In fiscal year 2010, EPA’s enforcement actions in the cement manufacturing, coal-fired power plant, glass and acid sectors led to approximately 370 million pounds of pollution reduced or treated, $1.4 billion in estimated pollution controls and $14 million in civil penalties.

Cemex, a global building materials company provides cement and concrete products to construction projects in every sector: industrial, commercial, residential and municipal, with more than 100 aggregate quarries and hundreds of ready-mix concrete plants in the United States. Cemex is one of the largest producers of cement in the United States, owning and operating 14 Portland cement kiln plants. Its headquarters is located in Houston.

In January 2009, Cemex agreed to reduce emissions and pay $2 million fine to settle Clean Air Act violations at another one of its cement plants, located in Victorville, California.

The $1.4 million penalty will be distributed between the United States, the state of Ohio and the Regional Air Pollution Control Agency serving Ohio’s Clark, Darke, Greene, Miami, Montgomery and Preble counties. The state will contribute 20 percent of its share of the settlement to Ohio EPA’s Clean Diesel School Bus Program Fund.

The proposed consent decree lodged with the United States District Court for the Southern District of Ohio, Western Division, will be subject to a 30-day public comment period.