Prime
Cement prices shoot up amidst scarcity
A man mixes cement for construction.
What you need to know:
- Tororo Cement’s production capacity stands at 1.8m tonnes per annum and the factory is currently using 100 per cent of its capacity.
- On January 20, 2017, the dealership received an email from Hima Cement indicating a Shs300 increment on its cement. Early February, another message came through indicating a Shs500 increment on its cement.
Over the last one and-half months, cement prices have been rising, pushing wholesalers and retailers to hike prices so as to maximise profits.
Unlike last year, a bag of cement today costs between Shs29,000 and Shs30,500 at wholesale price, dealers say.
Alex Kintu, a procurement manager at Kampala Blessed Hardware Limited says the price changes are appalling.
“The price increase is terrible. Prices have been increasing per day from the beginning of this month. Tororo retail price is Shs33,000 from Shs28500 while Hima is Shs32,000 from Shs27500 last year,” Mr Kintu says.
While requests for information from Kampala Cement and Hima Cement fell on deaf ears, Tororo cement chief marketing manager, Mr Alok Kala said on Monday that the price of a bag of cement bag has increased to Shs29, 500 up from Shs28, 500 in the first week of January this year.
“There is an increment of Shs1,000. At wholesale level, the price is Shs2,9500. It is due to the fuel price hiking and the dollar price currently at Shs3,650,” he said.
Diesel and petrol prices hit a new record pump price and currently at an average reading of Shs3,450 and Shs4,030 respectively.
Dealers like Mr Kintu are unimpressed as sales have gone low because some of his distribution contracts have been terminated.
“By December last year, we were selling between 100 and 150 tonnes of cement a day. Now we do not even sell 10 tonnes because most of the budgets have stopped running,” Mr Kintu says about his consumers’ reaction.
At Seroma Limited, one of Uganda’s hardware dealership, sales and marketing manager, Ms Mary Bategyeka admits price changes are starting to hurt.
“In this week alone, we have increased the price twice,” she says.
On January 20, 2017, the dealership received an email from Hima Cement indicating a Shs300 increment on its cement. Early February, another message came through indicating a Shs500 increment on its cement.
Prior to the changes, Seroma Limited was purchasing its stock at about Shs28,000 per 50 kilogramme bag, depending on the brand. The price as at end of January was Shs28,800 and has since increased to Shs29,500.
“It is affecting us. They are increasing it and the cement is not even there,” Ms Bategyeka says.
“Factory books have to be done three days in advance and as for Hima, you book a whole week head yet the price has risen.” Her customers are yet to understand the circumstances within which cement dealers are operating, she notes.
Ms Jenina Namiro (not real names) has come to Seroma Limited, one of Uganda’s biggest hardware dealership, to apply for cement distribution as she prepares to kick start construction. However, she is likely to consider delaying construction due to current prices.
“Huh! Tororo is costly at Shs31,000,” Ms Bategyeka tells her. “Cement price has risen yet there is no cement at the factories. In the morning, we expected eight trucks but nothing entered.”
According to Ms Bategyeka, the supply deficit is attributed to power challenges, servicing of machines and inadequacy of clinker, a key ingredient in cement manufacturing.
Under normal circumstances, the head office holds about 30,000 bags of cement on a daily business. In the last nine days of scarcity, the dealership has managed to sell about 100,000 bags of cement “but she says this is a drop in the ocean.”
Mr Kala explained that cement scarcity around the country is growing due to a sudden demand for the construction material.
He said, “December, January and February are the peak season for cement consumption and being a dry season, construction is on a high level.”
Tororo Cement’s production capacity stands at 1.8m tonnes per annum and the factory is currently using 100 per cent of its capacity.
Mr Kala predicts that as demand picks up this year, expansion of the factory’s tonnage will address scarcity.
“Our plant machinery delayed us. It was supposed to start in December but now it is going to start in March,” he said.
“By March 2018, our capacity will be 3m tonnes so we are expanding it by around 45-50 per cent so we will have no problem with scarcity of cement.”
Ms Bategyeka expects the prices to lower in May this year, once Simba Limited sets up shop in the eastern district of Tororo.
Impact
Mr Micheal Muhumuza, director Kingstone Engineering and Construction Consultants Limited (KECCO) is bothered by high cement prices because real estate industry is not booming as it used to. He thought the entry of Kampala Cement would raise quantities and force players like Hima to drop prices but not even the closure of cement markets in South Sudan has dipped prices, he says. Higher prices mean less profits for Mr Muhumuza.
“It definitely reduces the profit because we cannot compromise on the quality of the job. Once price increases, you cannot use nine bags instead of ten,” he says, “when you make the bills of quantity, you are going to incorporate all the prices and you have to declare to revenue authority the worth of the project out of which you are charged 18 per cent VAT and other taxes.”
For companies like Seroma, the price hike affects contracts.
“We have a contract with United Nations, in particular Hima Cement. We cannot change the price so we have to serve them at that very price we gave them that time. It has been a five year contract so it does not matter if there is a price hike,” Ms Bategyeka says.
Asked what happens if the dealership is unable to supply given that Hima is hardly supplying cement, she says, “If you breach their contract, you have to pay. They have our guarantee so if we are unable to supply, they cash the guarantee.”
