Why cement prices are high despite surplus production

Dar es Salaam. Manufacturers in Tanzania are producing surplus cement, but an anticipated drop in prices has not materialised due to high production costs, according to a prominent industry player.

Official statistics show that current annual cement production in the country is 11 million tonnes against domestic demand of around 7.5 million tonnes.

Since there is surplus cement in the market, it was expected that prices would automatically fall.

However, cement prices have remained in the range of Sh17,000 to Sh19,000 per 50-kilogramme for several months now.

Producers say they cannot afford to lower prices due to rising operating costs.

The commercial manager of Tanzania Portland Cement Plc, which trades as Twiga Cement, Mr Danford Semwenda, told The Citizen that cement manufacturers were grappling with high production costs and this had prompted them to maintain current prices, which are deemed inordinately high.

“We spend huge sums in meeting production costs and that is why prices have consistently remained where they are. As is the case with other manufactured goods, cement prices are largely determined by production costs.

“If production costs rise, it means prices will increase too and if production costs drop, prices will drop without affecting manufacturers’ profitability,” Mr Semwenda said.

He added that the importation of production machinery and spare parts was a major contributing factor to the high cost of cement production in the country.

“Traders in the country are currently facing a shortage of dollars and, needless to say, this has come as a huge challenge for cement manufacturers because we sell our products in Tanzanian shillings, but import machinery and other essentials using dollars. To be honest, it’s a very challenging situation indeed.”

Mr Semwenda said another driver of high operating costs was the lack of reliable electricity, which compelled manufacturers to turn to alternative, but expensive sources of power to sustain production.

“We have electricity challenges in the country at the moment, but cement manufacturers have maintained high production levels despite this problem. Using alternative sources of electricity is very costly…it may be up to twice or even thrice the cost of electricity from the national grid.

“Companies invest in production. No company invests to incur a loss. So, current prices are in line with production costs cement manufacturers have to meet.”

Confederation of Tanzania Industries (CTI) policy and advocacy director Akida Mnyenyelwa said the prevailing situation had prompted manufacturers to set prices that assured them of modest profits.

“There is a need to resolve all the challenges that push up cement production costs so that prices paid by the end-user can come down. It should be noted that prices are high despite manufacturers producing surplus cement,” he said.

“By doing that, we will be in a good position to be competitive in AfCFTA (African Continental Free Trade Area) and possibly win a big chunk of the continental market because we produce high-quality cement. We have to address all challenges that impact on our competitiveness.”

Industry and Trade ministerAshatu Kijaji told The Citizen recently that the government held talks with cement manufacturers and encouraged them to grab opportunities within AfCFTA by exporting cement produced in the country.

However, the firms said Tanzanian cement would not be able to compete effectively in the continental market because high production costs made it much more expensive than cement produced elsewhere.

Dr Kijaji said the government was working on cement manufacturers’ concerns.

“We have started addressing issues that make our cement expensive and thus uncompetitive in AfCFTA,” she said.

“Once these issues are resolved, it shouldn’t be too difficult to introduce our cement in the AfCFTA market because of the surplus production in our country. This will ensure that domestic demand will not be adversely affected if we start selling cement outside in large quantities,” Dr Kijaji added.