8/8/2019 Nigerian Cement Industry Set for Period of Major Growth

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 Nigerian cement industry set for period of major growthThu, 06 Aug 2009 10:28

Ian Furnivall and Tunde Abidoye

 Nigeria's cement sector is entering a phase of major change, as producers expandcapacity to cope with the country’s critical infrastructure and housing needs. Thelarger cement companies are beginning to find their own resources to overcome thegas and power shortages that have hampered production for years. Elderly production

 plants are being replaced with newer and more efficient assets. The result is adramatic change in the fortunes of Nigeria's cement industry.

In 2008, the Nigerian cement industry had an estimated market size of N361 billion (US$2.4 billion), or in aggregate consumption terms, 13.4 million tonnes, of which 46% (6.2 million tonnes) was produced in Nigeria. The Federal Ministry of Commerce and Industry estimates that effective demand was around 18

million tonnes. Driven by the acute infrastructure deficit and significant demand for housing, domestic production volumes have grown at 25% (CAGR) over the last four years. Given the strong correlation between GDP growth and cement consumption,cement production growth has also been helped by Nigeria's strong economic

 performance in recent years.

According to the Central Bank of Nigeria, the country needs US$510 billion ininvestments in infrastructure over the next eleven years if the nation is to achieve itsvision of being one of the top-twenty economies in the world by 2020. The increasingdemand for good quality housing, which is estimated at around 16 million housingunits, is also expected to be a key catalyst for industry sales growth. Consequently, weanticipate that demand will remain strong, with industry growth averaging between12% and 15% in 2009 and 10%-12% in 2010, despite the weak economicenvironment.

Cement consumption in Nigeria is currently one of the lowest in the world. Weestimate consumption at around 91kg per capita, well below the global average of 450kg per capita and those of other African countries such as South Africa, Egypt andMorocco. China dominates global cement consumption at 1,105kg per capita,representing about 50% of global cement consumption. While Nigeria’s lowconsumption reflects the historically weak investment in infrastructure for socio-

economic and political reasons, it also lends support to the long-term growth potentialof the industry. The Federal Government’s commitment to revamping the nation’sinfrastructure should spur cement consumption in coming years.

The Dangote Group is by far the biggest player in Nigerian cement production, butseveral other major entities dominate their respective regions. While Lafarge WAPCOdominates the south-west markets with the exception of Lagos, Ashaka controls salesin the north-eastern region of the country. Both Benue Cement (BCC) and ObajanaCement Company have their sales concentrated in the north and central markets (both

 part of the wider Dangote Group). The recently commissioned UNICEM cementcompany and the Cement Company of Northern Nigeria (CCNN) are strategically

 positioned to serve the south-eastern and the north-western markets respectively. Thisregional segmentation of the cement market in the country is largely due to high

8/8/2019 Nigerian Cement Industry Set for Period of Major Growth

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haulage costs, given the lack of basic transport infrastructure such as rail and goodroads.

The Dangote group is the industry leader with a market share of 60% of currentinstalled capacity and around 48% of 2007 industry output. The Lafarge Group

follows with 26% of the industry’s installed production capacity and 45% of totaloutput.

There has been a vigorous expansion of capacity since 2006, with Obajana (DangoteGroup) commencing production in 2007. Benue Cement (also controlled by Dangote)increased its capacity from an estimated 0.45 million tonnes to 2 million in 2008, andnow some 2.9 - 3.0 million tonnes, as a result of successive additions to its capacity.This year, UNICEM has added a further 2.5 million tonnes of capacity, while LafargeWAPCO will also increase its available production by 2.2 million tonnes, planned for 2011.

Capacity utilisation rates have historically been low across the industry, due to fuel

supply problems and power outages. Average utilisation was probably around 60%for the industry as a whole in 2008, although this is now improving because of better stockage of fuel and improvement in electrical generating capacity.

The stock market is now giving full recognition to the industry’s turnaround. Thecement sector has been the best performer alongside conglomerates this year, andfrom its low point in the spring, has far outstripped the performance of the rest of themarket.

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 Authors: 

 Ian Furnivall is Head of Research at CSL Stockbrokers

Tunde Abidoye is a Senior Analyst responsible for cement and several other sectorsat CSL Stockbrokers

CSL Stockbrokers Limited (CSLS) is a wholly owned stockbroking subsidiary of  First City Monument Bank and a member of FCMB Capital Market Subgroup. CSLS is oneof the oldest stockbroking firms in Nigeria and was licensed in September 1977 by the

 Nigerian Stock Exchange to deal in securities quoted on the Exchange.

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