Cement Wars to Continue
Construction, Lafarge

If TFHZPC sat in one of the three boardrooms of Dangote, Lafarge Holcim and Zambezi Portland, we would have been deeply reflective of the ground breaking ceremony in Masaiti area Ndola that happened recently. The announcement that the Industrial Commercial Bank of China (ICBC) would be putting up over $500 million into construction of another cement factory should serve as a warning that price competition will be back in 3 years’ time (construction of the plant concludes then).

However, before jumping the gun, it is important to understand what $500 million can get you. For example, according to Reuters in their August 3rd 2015 article, Dangote built one cement plant ata cost of $450 million in Masaiti which produces about 1.5 million tons of cement annually at full capacity. Zambia-advisor.com documented the establishment of a US$40 million worth Zambezi Portland cement with a projected capacity of 330,000 tons per year. Lafarge Holcim currently operates 2 integrated cement plants (situated in Ndola and Lusaka) with a total production capacity of 1.4 million tons per annum after their last 90 million euro face lift of their Chilanga plant.

Echoes of the new plant’s capacity projecting over 1.8 million tons per annum would place this coming competitor ahead of the incumbent pack of cement producers (however,the numbers do not add up). However, the devil is in the detail. For example, the questions in the 3 boardrooms will probably include the following:

1.       Will the new entrant be able to ramp up production from the start?

2.       Will the new entrant have a distribution channel and network that will cover all the 10 provinces?

3.       Will the new entrant have a diverse product portfolio?

4.       Will the new entrant compete on price?

5.       Who will the new entrants target market in construction be?

6.       What sort of technology will the new factory have?

Whatever the grocery list of questions that the 3 management teams will have, it is important that they have a strategy for the incoming player. It maybe north of 3 years coming, but it requires that the management teams adequately prepare for it. Lafarge Holcim is on course with its diverse product range (product differentiation ergo Economies of scope). In addition, their strategy toget closer to the consumer (Kumanga outlets) will make it even harder for new entrants to compete. Dangote will probably be dealing with depreciation of its supply chain equipment therefore will probably consider planning of how it will remain dominant. The allure of additional capital injection is inevitable considering their strategy was to enter the Zambian market by competing on price in order to gain market share (Baumol player strategy analogous to low cost airlines purchasing additional planes to compete on scale). Zambezi Portland looks like a prime candidate for acquisition. Following their management debacle that was played out in the press, snapping up the smallest of the three is a prospect that the larger players should consider.Furthermore, as construction matures in Zambia, economies of quality will play an important role. Lafarge Holcim of all the players looks poised to play this angle. This could be the difference between achieving competitive advantage in a bloody cement war or having your company’s value being destroyed.

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