Nigerian cement industry set for period of major growth

Thu, 06 Aug 2009 10:28

Ian Furnivall and Tunde Abidoye

Nigeria's cement sector is entering a phase of major change, as producers expand

capacity to cope with the country’s critical infrastructure and housing needs. The
larger cement companies are beginning to find their own resources to overcome the
gas and power shortages that have hampered production for years. Elderly production
plants are being replaced with newer and more efficient assets. The result is a
dramatic 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 in
investments in infrastructure over the next eleven years if the nation is to achieve its
vision of being one of the top-twenty economies in the world by 2020. The increasing
demand for good quality housing, which is estimated at around 16 million housing
units, is also expected to be a key catalyst for industry sales growth. Consequently, we
anticipate that demand will remain strong, with industry growth averaging between
12% and 15% in 2009 and 10%-12% in 2010, despite the weak economic
environment.

Cement consumption in Nigeria is currently one of the lowest in the world. We

estimate 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 and
Morocco. China dominates global cement consumption at 1,105kg per capita,
representing about 50% of global cement consumption. While Nigeria’s low
consumption reflects the historically weak investment in infrastructure for socio-
economic and political reasons, it also lends support to the long-term growth potential
of the industry. The Federal Government’s commitment to revamping the nation’s
infrastructure should spur cement consumption in coming years.

The Dangote Group is by far the biggest player in Nigerian cement production, but
several other major entities dominate their respective regions. While Lafarge WAPCO
dominates the south-west markets with the exception of Lagos, Ashaka controls sales
in the north-eastern region of the country. Both Benue Cement (BCC) and Obajana
Cement Company have their sales concentrated in the north and central markets (both
part of the wider Dangote Group). The recently commissioned UNICEM cement
company and the Cement Company of Northern Nigeria (CCNN) are strategically
positioned to serve the south-eastern and the north-western markets respectively. This
regional segmentation of the cement market in the country is largely due to high
haulage costs, given the lack of basic transport infrastructure such as rail and good
roads.

The Dangote group is the industry leader with a market share of 60% of current
installed capacity and around 48% of 2007 industry output. The Lafarge Group
follows with 26% of the industry’s installed production capacity and 45% of total
output.

There has been a vigorous expansion of capacity since 2006, with Obajana (Dangote
Group) 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, and
now 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 Lafarge
WAPCO 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. The
cement sector has been the best performer alongside conglomerates this year, and
from its low point in the spring, has far outstripped the performance of the rest of the
market.
Authors:
Ian Furnivall is Head of Research at CSL Stockbrokers
Tunde Abidoye is a Senior Analyst responsible for cement and several other sectors
at 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 one
of 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.

Contact Details

CSL Stockbrokers Limited

Head Office: 2nd - 3rd Floor,

Primrose Tower,
17A, Tinubu Street,
Lagos

Email: cslstockbrokers@firstcitygroup.com
Website: http://csls.firstcitygroup.com/