HeidelbergCement Shuts Tanzania Capacity on China Oversupply

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HeidelbergCement AG will shut about a quarter of plant capacity at its Tanzanian unit due to oversupply and lower prices partly caused by cheaper imports from China and Pakistan.

Tanzania Portland Cement Co. Ltd. will cap output at 1.4 million metric tons of cement this year, compared with capacity of 1.9 million tons, Managing Director Alfonso Rodriguez said in an interview on April 27 at the company’s offices in Dar es Salaam, the East African nation’s commercial capital. TPCC, 69 percent owned by Germany’s HeidelbergCement, plans to scale back expansion and may cut jobs if the situation persists, he said.

“With current oversupply our business is not viable in the medium term,” Rodriguez said. “We may be forced to restructure our human resources.” Imports from China and Pakistan to Tanzania total about 400,000 tons, more than 10 percent of total demand, and are driving down prices as they aren’t subject to the same taxes and regulations as local producers, according to Rodriguez.

Cement companies are expanding in Africa as governments invest in infrastructure, boosting the need for building materials. Demand in Tanzania, East Africa’s biggest economy after Kenya, has grown by about 7 percent each year since 2011 to around 3.3 million tons, Rodriguez said. Major construction projects include a gas pipeline, power plants and the $565 million expansion of Dar es Salaam harbor, with work expected to start before the end of the year.

‘Unfair Competition’

The oversupply of about 2 million tons has been further stoked by companies including AfriSam Group (Pty) Ltd., South Africa’s second-biggest cement maker, which has about 1.2 million tons of capacity at its local unit, Tanga Cement. Lagos, Nigeria-based Dangote Cement Plc, Africa’s biggest producer, is building a $500 million, 3 million tons-per-year plant in Tanzania to start up by the end of the year.

“The price is under pressure due to unfair competition from imports,” Rodriguez said. “With the Dangote plant coming into operation, the pressure on our margins is unavoidable.”

Imports from China and Pakistan have reduced the retail price of cement to an average of 12,000 Tanzanian shillings ($6.05) per 50 kilogram (110 pounds) bag from 15,000 Tanzanian shillings in 2013, Hussein Kamote, director of policy and advocacy at the Confederation of Tanzanian Industries, said by phone on Wednesday.

Investor Concerns

“We have heard investors’ concerns and the government is addressing them tirelessly to ensure there is a friendly investors’ environment ensuring quick return on investments,” Dar es Salaam-based Daily News cited Industry and Trade Minister Abdallah Kigoda as saying on April 28. The ministry didn’t return calls on Wednesday.

Exporting cement from Tanzania isn’t a solution due to poor roads and railways linking to neighboring countries such as Rwanda and Burundi, Rodriguez said, as the transportation costs would be too high. HeidelbergCement’s other African markets include Ghana, Liberia, Burkina Faso and the Democratic Republic of Congo.

“Banning of imports would be the obvious reaction we expect from the government,” Tanga Cement spokesman Mtanga Noor said in an e-mailed response to questions. “A stricter policy is required where all imports be taxed to equivalent values as locally produced cement.”

TPCC profit gained 45 percent to 54.5 billion Tanzanian shillings last year, while Tanga’s profit fell 12 percent to 28.4 billion shillings. TPCC shares were unchanged at 3,800 shillings at the close in Dar es Salaam on Wednesday, valuing the company at 684 billion shillings.

“I have 500,000 tons idle capacity because I can’t sell on the market,” Rodriguez said. “We are not afraid of competition but if Dangote enters the market there will be a struggle.”

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