Fortune News | Jul 24,2021
Cement retail shops run short of supplies even though the regulatory burden imposed on the market was lifted last week, following months of complaints by manufacturers and end users. According to Teshale Belihu, State Minister for the Ministry of Trade & Regional Integration (MoTRI), the move allows cement distribution directly from factories, limiting its mandate to monitoring transactions.
Trucks loaded from cement factories must possess a document verifying their destination. The fate of distributors and retailers is left in the hands of factories. The Ministry announced the factory exit price between 795.9 Br and 751.3 Br that will be decided every six months until they can operate at full capacity.
He said that while the government's involvement helped state-owned projects advance, the challenges in the distribution and marketing chain have been recognized.
Price distortion has been rampant in the cement market, where government policy forced manufacturers to sell to agents at determined prices. The retail price for a quintal of cement reached 2,000 Br before the product disappeared from the retail market a few weeks ago.
Five months ago Authorities at the MoTRI reintroduced price caps, compelling cement factories to sell a quintal of cement to designated distributors, increasing the value by close to 67pc. The attempt to regulate the supply chain faced a backlash and pushed retail prices to an unprecedented 2,000 to 2,500 Br for a quintal.
Retailers blame intermediaries for playing a significant role in the rapid increase in cement prices. Earlier this year, the Ministry’s officials attributed the shortages to the intermediaries, pledging that there is no shortage of the product.
For wholesalers at the Megenagna, the supply chain was frequently disrupted with the opportunity to get four trucks of cement from Derba, Dangote, Ethio Cement, and National Cement, each carrying 400qtl for the past four months.
Melkamu Abera, a salesman for one of the retailers around the Megenagna area, a hub for cement retail in the capital, says the cement price has lowered following the move. However, he did not see much change in the supply chain. He gets the cement price from brokers for 1,200 Br to 1,400 Br a quintal.
Industry players applaud the move through the Cement Producers Association President, Haile Assegide. He hopes that the cement market will get relief.
According to the President, accessing foreign currency has created an issue with productivity, turning their heads to locally produced coals. The production level has lowered by 30pc as the inputs are not up to standard compared to the imported ones.
As the security issue in the north settles, the Association hopes to get Messebo Cement Factory in the Tigray Regional State on board. According to Haile, it will start production in the coming weeks with basic infrastructures reconstructed, and electricity restored.
The spare parts for the factory will be supplied from various cement factories using the newly restarted air and land transportation to deliver the equipment.
Cement factories could not operate to their capacity with close to eight factories such as Dangote and Derba cement factories out of operation. They were shutting down production due to a shortage of inputs such as coal and security issues.
The CEO of Derba Cement under Midroc Investment Group said that his company was not operational due to maintenance and security issues around the area. Haile said that Derba is fully operational after maintenance and has started building its second manufacturing plant with 30 billion Br in the same area.
Derba Cement, 70km northwest of the capital, remains the most prominent plant producing 2.5 million tonnes, followed by Dangote’s 2.3 million tonnes annual production.
Industry players are hopeful once factories start operating at optimal capacity, the situation will turn around. The Board Chairman of the Association, Fitsum Nigusse warns that retailers should consider the consumers' purchasing power.
The Association has set a cap for retailers to sell, adding 10pc to the factory exit price.
Mesfin Abi, former CEO of Habesha Cement argues that the government should take its hands off the price cap altogether as market irregularities only benefit intermediaries. Works should be done to close the gap from where cement exits the factories and reaches the retailers. For now, unfortunately, the cement hub for the cement market around Megenagna stays dried out of cement.
PUBLISHED ON Jan 01,2023 [ VOL 23 , NO 1183]
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