2 August 2012

Tanzania: Cement Production to Double

TANZANIA has been projected to become a net exporter of cement in the next two years, fully supported by strong demand from import dependent neighbouring countries of Burundi, Rwanda and Democratic Republic of Congo (DRC).

The projection is based on the fact that currently the country's production capacity stands at 3.25 million tonnes per annum that is expected to double in the next three years to 6.75 million tonnes.

The stock analysts' recommendations are supported by strong production and export growth in the medium term, entrance of new producers, growing economies of neighbouring countries, cement importers and a relative prevailing social and political stability.

An Equity Research on cement sector Local Listed Companies conducted by Tanzania Securities and released yesterday indicates that favourable retail prices will give the country a comparative advantage over its competitors throughout Africa.

"We consider the Tanzania's prevailing price of 120 US dollars per tonne to be competitively very low versus West Africa's 200 US dollars per tonne," the research analysts said:

"Our projections show that prices will continue to fall to between 90-105 US dollars per tonne in the medium term and translate into higher export levels to available markets (of Rwanda, Burundi, DRC or Zambia (with a 200 US dollars per tonne price) with higher prices.

The study was conducted as a way of trying to shed lights to equity investors on where to shop for equities in the future, bearing in mind a good buy or hold or sell when it come for cement stocks.

"We recommend a medium term buy on shares of both (cement companies listed on the DSE) - Tanga Cement Company Limited (Simba and Tanzania Portland Cement Company Limited (Twiga), the study said.

On local projection, the study shows that consumption is also projected to increase from the current 2.25 million tonnes annually to 3.75 million tonnes in 2015. "Consumption per capital in Tanzania is expected to remain over 70kg this year higher than 60kg for the East African Community (EAC)," the report said.

The residential and commercial housing, according to the report, will continue to dominate local cement demand, at around 85 per cent in the medium term. Analysts, however, continue to remain cautious of the fact that Sub-Saharan Africa (SSA) economies are unpredictable and subject to swings.

"Factoring this fact, we hold our projections to be true 'Ceteris Paribas' (everything remain equal)," The analysts, Moremi Marwa and Magabe Maasa, said in the report.

At the closing of the Dar es Salaam Stock Exchange (DSE) on Wednesday price of Twiga shares was 2,080/- each, while of Simba 2,380/- a share. They are also trading on respective trailing price/earnings ratios (P/Es) of 8.60 per cent and 6.91 per cent.

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