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CHAPTER SIX

MARKET ANALYSIS 6.1 GLOBAL ALUMINIUM BUILDING PRODUCTS SITUATION

Global demand for aluminum in the building industry remains strong, and worldwide aluminum production continues to rise. In 2007, global production of aluminum building products reached 7.64 million t, up from 6.62 million t in 2006, according to the U.S. Geological Survey's (USGS) Mineral Commodity Summaries. China continued to lead the world in both production and consumption of aluminum building products, while high energy costs caused U.S. production to continue its steady decline. China produced 2.11 million t of aluminum building products in 2007, up from 1.8 million t in 2006, according to estimates by the USGS. Russia followed with 1.1 million t, a slight increase over 2006. Canada, the United States, and Australia rounded out the top five production countries in 2007 producing 0.9, 0.75, and 0.66 million t, respectively. The forecast for growth in aluminum demand for 2007 is 7%, according to Rusal. This growth will be supported by increasing demand from construction industries in the United States, Europe, and Asia. Alcoa predicts mat annual global consumption of aluminum products, both upstream and downstream, will double over the next 15 years. 6.2 NIGERIAN ALUMINIUM BUILDING PRODUCTS SITUATION

6.2.1 INTRODUCTION The aluminum building products industry in Nigeria could, in relative terms, be described as an industry still in its growth stages, especially when compared to its counterparts in the industrialised countries. The local industry took off in earnest in 1959 with the establishment of the first Aluminum Rolling mill in Nigeria by then Eastern region Government in Trans-Amadi in Port Harcourt. The mill which represents the second stage in the processing of Aluminum into its one of its many end products was intended to produce Aluminum coils and Aluminum circles. The coils being the primary input in the fabrication of Aluminum roofing sheets and the circles being the primary input in the production of Aluminum pots, pans and hollowware. Since then, the Aluminum industry has experienced tremendous growth and as of today there are two rolling mills and five aluminum extrusion plants in Nigeria. The extrusion plants produce the aluminum profiles used in the fabrication of windows, doors, curtain walling systems, partitions etc. (Commonly referred to as the Windows and Doors sub sector of the Aluminum building products industry). Imported coils and

extrusions today complement the outputs of these primary mills and plants. Indeed, it is thought that the tonnage of imported profiles now exceed by far that of the local mills by 2:1. This is an indication of the rapid growth of the industry. Imported aluminum coils also account for close to 50% of the total tonnage in the market.

Fig 6.1: Snap Shot Nigerian Market Demographics

The rolling mills and extrusion plants therefore, are the major suppliers to the aluminum building products industry, which industry our company Integrated Aluminum participates in. The aluminum building products industry can be divided into two segments. The first segment being the Roofing sector, which offers products such as aluminum corrugated sheets, claddings and sidings, and aluminum flashing. The second segment which is the Windows, Doors sector offers products such as aluminum window, doors, partions, cashier cubicles, sun louvers, curtain walling systems, suspended ceilings etc. The segmentation being defined in terms of the type of machines and equipment deployed during the production process. It is said that the consumption of aluminum is one of the indices with which the level of industrialisation of a country can be measured. The current size of the industry defined in terms of the tonnage sold in the market is estimated to hit 300,000 tonnes in 2011. This represents an growth annual growth rate of about 15.8% . Forecasts also expect this trend to continue as the building and construction sectors in general are considered to be experiencing a boom period. Also with the broadening of the product lines currently available in the market, most analysts and industry watchers foresee an even more vibrant market in the coming years.

6.2.2 INDUSTRY OPERATORS AND COMPETITORS

There are many companies currently offering products and services in the aluminum building products industry. This is not unexpected considering the size and growth potentials of the market. As stated earlier, the industry is broadly divided into the roofing and windows and doors sectors. Most of the companies participating in the market operate in either one of the sectors. However at the top echelons of the market are a few companies, which offer both product lines.

Roofing Sector The major players in the roofing sector are the Tower group (consisting of Tower Aluminum, Asaba Aluminum, Queensway Aluminum and Borno Aluminum), Chartered Aluminum Systems Ltd, Metalum, Abumet, Best Aluminum, Alo Aluminum, Aluminum City and Total Aluminum. These companies to a large extent could be considered as national in outlook as they operate in the three geographic regional markets. These markets being the Western market with activities concentrated in Lagos, the Eastern market with Port Harcourt as the focal point and the Northern market which is based mostly in Abuja. Other important players who are mainly regional in outlook are Lento Aluminum, Eagle Aluminum and Systemetal based in Abuja and operating mostly in the North. In the East, there is Robertson Aluminum Enugu, Crystal Link Aluminum Port Harcourt, and Ginpat Aluminum Onitsha. In the Western market also are Eurotech, Beriliac and Qualitech all based in Lagos. These companies share a common feature of having factory facilities with the Roll forming and bending machines, the key equipment required in the production of roofing sheets. Aside from these companies listed are a vast number of other companies in a market, which at those lower levels could be described as fragmented. These smaller companies depend on those with the necessary equipment for their materials and engage mainly in marketing and installation of the roofing sheet product. Entry barriers to the lower ends of the roofing sheets market are low as often times the operators literally move about looking for clients whose key buying decision is based solely on pricing. They then offer low prices ostensibly on account of a low overhead structure but usually end up supplying materials of lower specifications than ordered. These sharp practices whilst detrimental to the overall image of the industry has also increased in some ways the level of competition in the industry which could be described as very keen. However it has also led to some defined segmentation of the market as some clients who are aware of these issues insist on dealing with only the reputable bigger firms with price becoming of secondary consideration.

Windows and Doors Most of the major companies involved in the fabrication of the windows and doors product line are based in Lagos. The major players are Omnia Ltd, General Metal Products Ltd (GMP), Metalum, Chartered Aluminum Systems Ltd, EBM Ltd and Syndicated Metal Industries (SMI) Ltd. The only major company situated outside Lagos is Abumet Ltd, located in Abuja. These seven companies constitute what may be considered the top division of the windows industry and cater mostly to the top end of the market. There are other companies worthy of note, who while not commanding the type of market share of the top companies, nonetheless have formal structures and do indeed compete in the same markets. These include Critall Hope Ltd, UTC Aluminum, Alumaco, Aluminum City, NAECO and AMP Ltd. The first three companies had significant market shares in the past. Indeed, in the case of Alumaco, the brand awareness was so strong as market leaders that aluminum windows are still referred to in some areas as Alumaco windows. Most of the companies listed in the two categories above use window profiles and systems, which are proprietary and unique to each individual company. The companies therefore compete strongly on the basis of the product offered in addition to other key buyer values they may have identified. Below these companies are companies, which utilize window profiles and systems commonly available through the extrusion companies and imports. Windows made from these systems are referred to as General Profile windows. A large section of the players in the windows and doors market therefore fall into the category of general profile manufactures. Some do have the basic equipment and machines required in the fabrication of windows. However most in this category do not. They depend on contract machinists and equipment found in areas commonly referred to as Aluminum Villages. The quality of the products offered leaves much to be desired when compared to those of the top companies. Operators in this sector do still find a ready market amongst clients who are either not well informed or who wish to install aluminum windows in their houses regardless of the quality and for whom price in the major decision making variable.

Dual product companies There are companies who have the resources and structures to operate in both the roofing and windows and doors markets. The basic equipment used in the manufacture of both products are different. Those companies therefore have managed to integrate both operations.

There are advantages to be derived from a dual operation especially in the area of marketing and sales. A single sales team can market both products at no incremental cost to the same clients. The companies who have production facilities for both products are chartered Aluminum systems Ltd, Metalum, Aluminum City, abumet and Alumaco. All the companies listed are also based in Lagos with the exception of Abumet, which is based in Abuja. 6.3 RAW MATERIAL SUPPLIERS

The supply side of the Aluminum building products industry could be described as an oligopoly especially up to the end of 1998. In the roofing sector, there were only two rolling mills supplying the whole industry up until 1995 when foreign imports started to come into Nigeria. The rolling mills are the First Aluminum Nig. Ltd rolling mill situated in TransAmadi, Port Harcourt and the Tower Aluminum rolling mill in Otta, Ogun state. As of then, First Aluminum supplied close to 70% of the aluminum coils sold in the market whilst the balance was supplied by Tower mainly and primarily to its sister companies (Tower Building Products Ltd, Asaba Aluminum, Queensway and Borno Aluminum). As can be expected, the net impact of this was that the prices of aluminum coils changed arbitrarily, as the mills passed on any additional production costs, Sometimes due to internal inefficiencies, to the Building products industry. The end-users were the ultimate losers and this gave rise to the widely held notion that an aluminum roof was an expensive and a luxury product to be used only by clients in the high-income brackets. This balance of power, which was titled in favour of favour of the mills, started to reverse with the inflow of imported coils and the establishment of colour coating plants (who import coils and apply the colour coating locally). Today with the imports accounting to close to 50% of total consumption, the structure of the industry is rapidly changing. In the first instance, the imported coils are usually of a higher quality than those supplied locally. In addition due to the fact that modern mills with lower production costs manufacture most of these imports, they are available at prices lower than the local supplies. This has led to a boom in the market as aluminum has now become more widely available at prices which puts it in a stronger position to compete with substitute products (such as Zinc, Steel and Asbestos roofing sheets) which hitherto held appeal due to low costs. The market is now on a renewed trajectory as it breaks new grounds. For example, it was unheard of for aluminum to be used in low-cost mass housing estates. Yet today, it has become fashionable to use aluminum for such projects. The strong aesthetic qualities of aluminum gives such project the much-required visibility especially in government-sponsored projects. In the windows and doors sector, similar tends are also emerging. However in contract to the roofing, the effect of the imports are not felt in the top

segments of the market. This is because this market deals almost exclusively with proprietary profiles. As seen in the roofing sector, exports have also opened up the mass market for aluminum windows. The major local suppliers in the industry are Nigerian Extrusion Company Ltd (Nigalex), Tower Extrusions (Towerex), Aluminum Extrusions Ltd (Alex) and Rubicon Ltd.

Fig 6.2: Aluminium Profile Extrusion Local Manufacturers Market Share

In the roofing sector, there exists the threat of backward integration by the rolling mills. Indeed, First Aluminum up till 1994 had a strong downstream subsidiary, which was later, sold and renamed Altech Ltd. Aluminum City is also a subsidiary of First Aluminum . Tower Aluminum as mentioned earlier, has a group of sister companies which represents its interest in the downstream sector. Best Aluminium which used to be a player in only the roofing sector has also set up its own aluminium coil coating plant. However due to the increasing prominence of imports in this sector, the advantages hitherto enjoyed by these subsidiaries seems limited to the brand name. 6.4 THE CUSTOMER GROUPS

The aluminum building products market can be defined along both geographical lines and more importantly by buyers characteristics. Along geographical lines, the key markets are the a) Western. b) Eastern and c) Northern markets. Along buyers behavioural patterns, the markets can be classified as a) Specifiers market b) Mass market and c) Resale market. The two market definitions are not mutually exclusive. For example, the Western market can further be sub-divided along the buyers behavioural pattern classification. Specifiers market This market is defined as the market where the primary focus of the marketing activities is directed at specifiers within the building industry. Specifiers are Architects, Engineers, Quantity Surveyors and Building contractors. They are not usually the owners of the projects but act as intermediaries between their clients and the aluminum companies. This is a sophisticated market where the key purchase criterion is usually the quality of products and services offered. It is not on all-comers market.

Brand awareness and tract record are also important criteria in this market. This market exemplifies the Pareto Principle, whilst it may account for less than 20% in terms of the number of projects, it certainly accounts for over 80% of the total market size in terms of turnover. The margins of 60% and over can typically be achieved at the higher ends of the market especially in the windows and doors sector. Mass market The mass market comprises of that segment of the market where the purchase decision usually resides with the owner of the project. This is typical of residential housing developments and some commercial projects. Whist the owner may seek advice from professionals working on the project, the key buying criteria in this market appears to be price. Other issues taken into consideration in the purchase decision includes speed of service and brand image. The mass market is the largest segment of the market and usually does not feature repeat purchases, as most buyers are not in the building industry. It does however depend on referrals. The market is also widespread and good market intelligence is required alongside a vibrant sales team. Another key feature of this market is that the purchase decisions are usually deferred until the project is at the stage where the aluminum products are required. (This is unlike in the specifiers market where payments are sometimes made based on drawings before the commencement of the project.) Due to the large size of this market. The low entry barrier and the price consciousness of the buyers, competition in this market is extremely fierce resulting in low margins. These competitive pressures have led to unwholesome and unethical practices within this market. Incidences of supply of materials with lower specification are commonplace. The central importance of this market from the point of view of the operators is that it is usually provides the bread and butter business. Unlike the specifiers market, it is a cash and carry business with little or no trade receivables generated. The cash flows usually compensate for the low margins. The mass market accounts for about 70% of the total aluminum market and is to be found in the three geographical markets. It is however strongest in the Eastern Market The Resale market The resale market is the third tier in the aluminum building products market. It is basically only confined to the roofing sector. It comprises of that segment of the market where the buyers are the small, usually one-man companies who have no factories or production facilities. They buy the finished corrugated aluminum sheets from the bigger companies and then re-sell to the end users. This is indeed the low end of the market where quality is simply not an issue and the product offered is usually of the lowest gauge available.

The resellers have virtually no loyalty to the bigger companies who are their suppliers. The key criteria are availability of the material and the lowest possible price. Like the mass market, it is also a cash generating business. However, the margins are even lower than that of the mass market, typically as low as 10%. The volumes to be generated here and the fact that it accords the bigger companies access to some geographic markets they are unable to service makes it worthy of note. The key resale market is located in Monish, with Aba and Lagos also having significant market shares. Geographical Classification Western market This is the market defined loosely by the boundaries of the old western region. In essence however the market is largely concentrated in Lagos, which accounts for over 90% of the activities within the market. Lagos also accounts for about 90% of the industry operators in the county as a whole. Therefore some of the business, which originates in Lagos, may not necessarily be executed in Lagos. In terms of market size and share, the western market has declined in significance over the years. It is thought to account for only about 25% of the total market. The market is unarguably the best informed of all the geographical markets. Buyers in this market are more conscious of quality requirements and also have more access to alternative sources of the product. As a result the competition within this market is fiercer and margin generally lower especially in the mass market. In spite of this, the market is too important to be ignored not only because of the strategic nature of Lagos as the commercial capital but also because Lagos has the bulk of the specifiers market. (Estimated at over 70% of the total specifiers market in the country). In terms of segmentation, the Lagos market is divided into Specifiers market 30%, Mass market 50% and Resale market 20%. Eastern market This comprises of the markets situated within the old eastern region. Its key markets are Port Harcourt, Onisha, Aba and Enugu. This market is one of the fastest in terms of growth rate especially within the Port Harcourt axis. It is also the largest geographic market and accounts for about 45% of the total market. The major market is situated in Port Harcourt and is largely driven by the business generated through the oil companies. The Eastern market also accounts for a greater percentage of the resale market and the mass market. In the roofing sector, the market is serviced by thirteen roll-forming machines located in Port Harcourt (5), Onisha axis (6) and Enugu (2). (By way of contrast, there are 10 rollformers located in Lagos alone).

The mass market in the east is very vibrant and is driven partly by sciocultural behaviors of the indigenes, which encourages development of so called country homes. These residential developments, which are located far and wide, present interesting marketing challenges in terms of tapping into the market. The specifiers market in the east is mostly located in Enugu and Port Harcourt. Enugu is host to a large concentration of architects and specifiers who are involved in projects, which are mostly located outside of Enugu. Port Harcourt as can be expected is also a key specifiers market in the east by virtue of its position as the industrial nerve centre. Government-driven mass housing projects are also becoming a feature of the eastern markets as rival states compete with one another in terms of visible developmental projects. This is also complemented by community-based projects being executed by the oil companies in the oil-producing areas. One interesting feature of the Eastern market is that there are no locally based factories offering proprietary and high quality windows and doors product. As the market gets increasingly more sophisticated and the awareness for quality windows grows, this gap is still being filled by companies based in Lagos. The Eastern market is segmented into specifiers market (10%). Mass market (60%) and Resale market (30%) The Northern market The Northern market is growing at a pace similar to that of the Eastern market. Indeed, it features the fastest growing individual market in the country, Abuja. Abuja alone accounts for about 80% of the total Northern market. The other key market is in Kaduna. On the whole the Northern market represents about 35% of the Nigerian market. Abuja, its major market has in the last three years recorded over 40% growth (year-on year) and the trend looks good to continue over the foreseeable future. The market has a good mix of both the specification and mass market. It is however driven to a large extent by government sector business. The Federal government initiatives towards providing mass housing in Abuja have fuelled this growth. This, coupled with the boom being experienced in the housing sector in Abuja as a result of the high returns recorded, has made Abuja one of the most important aluminum markets in the country today. Indeed some of the major players within the roofing sector in Abuja do not operate outside the city, having enough business locally to sustain their operations. There are five roll-formers in Abuja and nine operational rollformers in the rest of the Northern market. The specifiers market in the windows and doors sector is also starting to pick up. Presently, it is dominated by Abumet, which, in spite of the fact that

it conducts its business solely in Abuja, is the leading manufacturer of aluminum windows in Nigeria going by 2001 sales figures. The opportunities existing in the market are indeed limitless. The resale market is not so strong in the North. This is due to the fact that comparatively, there are fewer large companies that can supply the market. Therefore , the resale companies sometimes have to get their supply from either Lagos or Onisha. 6.5 SUBSTITUTE PRODUCTS

Roofing sheets. The major substitute products to aluminum roofing sheets are Asbestos roofing sheets, Galvanized zinc roofing sheets, steel (or alloys of steel) roofing sheets and clay tiles. However, most of these substitutes are limited in their uses and in certain application like warehouses, aluminum has no strong substitute product. The listed substitute products were very strong in the lower ends of the roofing market because in certain cases their prices are as low as one-third that of aluminum. The recent trends in aluminum prices have reduced that price differential. In addition, the specific advantages of aluminum over the other products include:a) Longspan properties; unlike roofing tiles, Asbestos sheets and galvanized roofs. This reduces the number of length laps reducing the possibility of leakage and adding to the overall aesthetics. b) Non- corrosive properties: unlike other metal roofing sheets such as galvanized zinc and steel, aluminums unique property ensures that it will not rust nor corrode. In addition it has strong tensile properties. c) Does not support fungoid growth: unlike some clay and asbestos products. This makes it very safe for collection of drinking water, which has further made it a more preferred product in low-income mass housing projects. d) Architectural aesthetic qualities: aluminum can be finished in a wide range of distinct colours, which gives each roof a character of its own. This is unlike clay, zinc and asbestos products. e) Salvage value: unlike other roofing products, aluminum has strong salvage value. It can be resold as scrap metal for recycling after use at good prices.

Windows and doors The major substitutes to aluminum windows are steel windows, timberframed louver windows and PVC windows. Again in certain applications such as internal office partitions, the fire rating of aluminum makes the other product ineffective substitute. The aesthetic quality of aluminum windows,

especially its availability in different colours and finishes also gives it an advantage over the other products. In summary, aluminum is fast gaining market share at the expense of the other products. It is almost unlikely that any modern house built in Nigeria today would not use either aluminum roofs or windows or both. Indeed an emerging market is the refurbishment market where aluminum products are being used as a replacement for other products in renovation projects. 6.6 BUILDING INDUSTRY AND GOVERNMENT POLICY

The Nigerian building, construction, housing and real estate industry accounts for 4-5% of the country's total gross domestic product (GDP), and represents nearly 70% of the national capital base. The state plays a dominant role in the industry. Yet, previously, the industry has reported lacklustre performance due to a poorly enforced rule of law, high levels of corruption and political instability. Nigeria's economy reported growth of 7.5% in 2006. This comprised a 12% growth in the non-oil sector, which accounts for 7.3% of the country's total revenue. Nigeria's foreign exchange inflows reached US$16.6bn in 2006. The country is highly dependent on the oil sector that accounts for 53% of the total Nigerian revenues. The government has outlined plans to establish a fund that would cater for the building and maintenance of road infrastructure in Nigeria. Also, the Federal Executive Council, in November 2006, approved about NGN7.2bn (US$56.33mn) for the construction and engineering designs of roads in Nigeria. Major infrastructure projects on the anvil in Nigeria include the US$8.3-bn railway line connecting Lagos to Kano; the US$8-bn Trans-Saharan gas pipeline linking Nigeria and Algeria; the US$6-bn Olokola liquidfied natural gas (OKLNG) project, and the US$3.5-bn Brass River liquid natural gas (LNG) plant. Nigeria was ranked last on the BMI's Business Environment Rankings matrix for the Middle East and Africa region. The country has the potential to become one of the largest construction markets in Africa if it gets rid of its endemic economic, social and political problems. The year 2007, saw a sharp rise in the building sector by about 30% and it is expected to continue rising. Mortgage banking has taken off in Nigeria. Available information reveal that about N1.065 billion was granted as loans and advances by the insurance companies to the housing sector between 1990 and 1998. This represented an average of 39.4 percent of their total loans and advances during the period. The analysis of the Private Mortgage Institutions (PMIs) operations also indicate that loans to customers amounted to N5.987 billion within the period 1992 2001. The Central Bank of Nigeria (CBN), under its reform agenda for the financial sector, recently increased the minimum capital

base for mortgage banks in the country from N200 million to N2 billion, thus increasing the amount of funds available for the building construction sector. With 94 institutions surviving, the sector has a minimum capital base of NGN 188 billion. Find below data on financing of mortgage, in the past years.

Source: Federal Mortgage Bank of Nigeria.

6.7 SUPPLY ANALYSIS 6.7.1 GENERAL OVERVIEW OF KEY PLAYERS Our direct and primary competitors are the wellestablished companies who have been in this business for a considerable period of time and who are focused exclusively on the specifiers market. In the roofing sector our primary competitors are Metalum and Abumet, Eurotech, Tower Aluminum, Total Aluminium, AluminumCity and Chartered Aluminum. In the windows and doors sector, our primary competitors are Omina, Metalum and Abumet, GMP, Crittal Hope, AlunimumCity, EBM, SMI and Chartered Aluminum. There are only three aluminium profile extrusion companies two are owned by tower group namely, Aluminium Extrusion Plc, and Tower Extrusions Plc; while the third company is Nigerian Aluminium Extrusion Industry Limited. There are also only two Aluminium Sheet Rolling Mills in Nigeria presently operating namely Aluminium Rolling Mills Limited (ALEX) and First Aluminium Rolling Mills Limited. Each of the companies has a coating plant attached to it, there are however three independent coating plants that do not have affiliations with rolling mills, they are Qualitec Industries Limited, Best Aluminium Limited, and East Chase Aluminium Limited. Our secondary competitors are so classified because although they do not have their primary focus on the specifiers market, they do tend to operate in that market as the opportunities arise. They operate in most market and often do not have any discernible focus. Tower Group

The Tower Aluminum group consists of Tower Aluminum, Queensway Aluminum, Asaba Aluminum, Borno Aluminum, Aluminium Extrusion Plc, Tower Extrusions Limited and Kolorkote Limited. Although the Tower group operates across the three customer groups identified, their large overall market share makes them a dominant player in the sub groups. The group has between 35-40% of the entire Roofing market but probably about 20% of the specifiers market. Strengths i. ii. Large share of the market and the consumer awareness that comes with it The backing of the Tower Rolling mill which is a sister company. This gives them greater flexibility in pricing often times through the manipulation of Surplus chain variables. Also gives them access to vast inventory of raw materials. Factory presence in all the geographical regions allows for better logistics management and also helps in consumer awareness. Solid financial resources and the staying power that it provided. Good operating systems that is also computerized. Foreign technical development. partners and access to new products

iii. iv. v. vi.

Weaknesses i. Weak service delivery apparatus. The Tower group tends to view its business as selling the roofing sheets. They do not engage in the installation of the product, instead preferring to sub-contract this aspect out. Poorly defined focus A Jack of all trades Large and impersonal., unable to satisfy the specific needs of individual clients

ii. iii.

Metalum and Abumet Metalum and Abumet although two separate companies by virtue of separate incorporation are basically sister companies. Abumet, which is based in Abuja, could rightly be described as the Abuja operations of Metalum. They share a common Chief Executive and an almost common board. In addition, the products lines are the same. Metalum was started in the early 70s and falls into the category of the companies commonly

referred to as expatriate companies. Abumet was established in the late 80s in response to the market opportunities that were emerging in Abuja. Strengths i. Good product. Particularly in the windows and doors sector, Metalum and Abument proprietary systems are generally acknowledged as being of a very good quality and are manufactured also to a high quality standard. Very good technical department able to satisfy the needs of the specifiers market. Well trained personnel. Very good track record and brand awareness Very strong linkages with the expatriate construction companies which still control a large chunk of the market

ii. iii. iv.

Weaknesses i. ii. Long delivery periods for products Pricing strategy still a carry-over from days when market was a near monopoly for expatriate companies. Metalum has probably hit its peak in terms of growth. Products although good, are outdated and do not compare favorably with newer products developed in the industrialized nations Inability or unwillingness to re-invent itself for current market realities Lack of management dept. Companies still run as one-man businesses. The expatriate CEO secures all contacts and major contracts.

iii. iv. v.

First Aluminium Plc (AluminiumCity) AluminiumCity is a fully owned subsidiary of First Aluminum PLC and was established in 1992. It was established partly as a result of First Aluminum forward integration plans to secure a foothold in the lucrative building products market. AluminiumCity also acts as a depot for the rolling mill and sells aluminum coils directly to some of its competitors. In addition to aluminum roofing sheets and windows, they also stock and sell a range of office furnishing products like carpets, raised floors, blinds etc Strengths i. Relationship as a subsidiary of the First Aluminum rolling mill

ii. iii. iv. v.

Good proprietary window product Strong focused marketing strategy: very good brand name Wide range of products allows for cross-selling Good contracts within the expatriate community

Weaknesses i. Single office structure limits national scope ii. iii. Over-reliance on brand name as a marketing tool Use of subcontractors for installation services

Qualitec Industries Limited Best Aluminium Limited Imperial Aluminium Limited Imperial Aluminium was Incorporated in December, 2000 under a parent body, IMPERIAL CONTRACTS AND PROPERTIES LTD and commenced operations fully in 2001 fiscal year . Its major products include Windows Demountable Partition ,Aluminium Hinged Door, Aluminium Swing Door, Aluminium Sliding Door, Fixed Light Glazing, Projected Windows with Flyscreen and Aluminium Burglar, Crank Operated Casement Window. The company is acknowledged as one of the biggest players in the windows and doors market. (Having Handled big projects like the new MM2 Airport).

Total Aluminium Limited Total Aluminum established in 1997 is undoubtedly one the fastest growing aluminum roofing sheet company in the country. In a space of eleven years, the company has established two factories in the two geographical markets. Its strong points lie in its large acceptability in the specifiers market (having handled jobs like the new multi-billion naira Seven Up plant in Abuja which was constructed by Eldarado Nigeria Ltd. They have also been involved in the construction of various Dangote Projects ranging from the sugar refinery to the flour mills. The Obajana Cement Housing Estate which was handled by Arab Contractors. The

Guinness Breweries Plc plants at Aba and Benin which were built by Palagra contractors.). It is also a strong player in both product lines Total is the market leader in the Western and Eastern roofing markets and is estimated to control about 10% of the total national market. Strengths i. Generally acknowledged as having the largest concentration of high quality skilled professionals in the industry ii. iii. iv. Good geographical spread has enabled it serve the country completely Strong financial position and asset base Good brand awareness and acceptability

Weaknesses i. Operating systems have been unable to keep up with rapid growth ii. iii. Sometimes poorly defined marketing focus Insufficient product and service quality

East Chase Aluminium Limited

Nigerian Aluminium Extrusion Industries Limited Nigerian Aluminum extrusion Industries Limited (NIGALEX) established in 1973 is one of only two companies in the country which can manufacture extruded aluminium profiles. Its strong points lie in its large acceptability in the specifiers market It is also has the largest powder coating capacity

in the country and is estimated to control about 30% of the total national market. Strengths i. Good human capital base ii. iii. Strong financial position and asset base Good brand awareness and acceptability

Weaknesses i. Unlike its competition does not own any door or window fabrication company, thus creation of demand is not within its control ii. iii. iv. Sometimes poorly defined marketing focus Over-reliance on brand name as a marketing tool European manufacturing model makes its products more expensive than competition.

6.7.2 ROOFING SHEETS AND TILES There are over 50 aluminium roofing sheet and tile manufacturing companies in Nigeria. The companies have a total annual capacity of approximately 140,000 tons. The table below shows some of the major manufacturers and their various capacities.

TABLE 6.2 Roofing Sheet and Tile Companies in Nigeria and their capacities

S/N COMPANIES 1 Tower Group


Sources: (1) Association of primary aluminium producers (2) IACL - Market Investigation, June 2008

2 Aluminium City (First Aluminium


6.7.3 ALUMINIUM COMPOSITE PANEL

3 Total Aluminium (North South A


Currently there is no existing local manufacturer of Aluminium Composite Panel (ACP), all the products used in Nigeria are imported majorly from Asia. Nigerian Customs Service sources indicate that in 2007 about 5000 tons of ACP were recorded as imports.

4 Qualitec

6.7.4 EXTRUDED ALUMINIUM PROFILES

5 East Chase Aluminium 6 Integrated Aluminium 7 Chartared Aluminium


10,000 tons/yr 7,500 tons/yr

There are 3 aluminium profile extrusion companies in Nigeria, however one of them has been shut down for over one year now because of outdated equipment and thus will not be considered in this report. The other two companies have a total annual capacity of 17,500 tons extruded profiles, 15,000 tons anodizing capacity and 11,000 tons powder coating capacity. The table below shows their various capacities. Tower Group NIGALEX

6.7.5 COATED ALUMINIUM COILS

8 Best Aluminium

There are 5 major aluminium coil coating companies in Nigeria. The companies have a total annual capacity of 140,000 tons of coated metal

11 Others

coils, however these coating capacity is shared in a ratio of 70:30 between aluminium and galvanized steel coating respectively The table below shows their various capacities.

S/N
6.8 Projected Supply

6.8.1 ROOFING SHEETS AND TILES

There are strong indications that the yearly increase in supply of roofing sheets will persist into the future for several reasons.

With the democratically elected government in place and more conducive economic environment, investors are prepared to invest. This is because the financial sector is better placed to solve the problem of sourcing working capital funds; the energy sector is expected to improve significantly to minimize the logistic problems; while capital inflow may encourage new entrants or existing producers to modernize their machinery. These would enhance capacity utilization of the existing installed capacity and increase the national installed capacity thereafter. In projecting the supply of roofing sheets, the following assumptions were made; (1) That the present known and unknown manufacturers will operate at 90.0% of installed capacity i.e. 125, 550 tonnes. (2) This is thereafter projected at 2.8%, which is the estimated growth rate of the Nigerian population. The resultant projection is shown in Table 6.3

COMPANIES 1 Tower Group 2 East Chase Aluminium 3 Best Aluminium 4 Qualitec 5 First Aluminium

YEAR
6.8.2 EXTRUDED ALUMINIUM PROFILES

2008 2009

PROJECTED SUP (Tonnes) 125,550 129,317

The average capacity utilization in the aluminium profile extrusion industry in 2007 was about 75%. Therefore in estimating the future supply of extruded profiles in the country, 90% of the total annual installed capacity (17, 500 tonnes) of the known existing producers has been taken as the supply figure for year 2008. This is thereafter projected at the rate of 2.8%, which is the official rate of population growth in the country. The results are shown in Table 6.4 below:

YEAR
6.8.3 COATED ALUMINIUM COILS

The average capacity utilization of the Aluminium coated coil industry in 2007 was about 65%. This is basically because all coils manufacturers have roofing sheet manufacturing Plants. Major competition from imports were mostly imported to substitute/ fill the gap created by insufficient supply of coated coils to roofing sheet manufacturers who do not own their own coating plants. In projecting the supply of coated aluminium coils, the following assumptions were made:

(1) That the present known and unknown manufacturers will operate at 70.0% (Dedicated to Aluminium coil coating) of installed capacity i.e. 98, 000 tonnes.

(2) This is thereafter projected at 2.8%, which is the estimated growth rate of the Nigerian population. The results are shown in Table 6.5 below:

2008 2009 2010 2011 2012

PROJECTED SUP (Tonnes) 17,500 18,025 18,566 19,123 19,696

YEAR 2008 2009 2010

PROJECTED SUP (Tonnes) 98,000 100,940 103,968

6.9

Demand Analysis

6.9.1 DEMAND FOR ROOFING MATERIALS The aluminium building materials industry is intrinsically tied to that of the engineering contracting (Building, roads, power, Oil and Gas etc) Companies; and since these are experiencing a growth due to high capitalization of the banks, Increase in revenue generated from Oil and Gas trading, and growth in the Nigerian economy, the aluminium building materials industry is benefiting. We shall however analyze the market under the following sectors: Aluminium Roofing Sheets Coated Aluminium Coils Extruded Aluminium Profile Aluminium Composite Panels 6.9.2 DEMAND FOR ALUMINIUM ROOFING SHEETS The demand for roofing sheets in Nigeria is influenced by a number of factors amongst which are; population, income, education, urbanization and price of substitutes. Generally speaking, the higher the population and income, the greater the demand for consumer housing. Our market investigation revealed that the use of aluminium roofing sheets is predominant in the urban centres and that income plays a vital role in the demand for substitutes such as galvanized iron roofing sheets, asbestos and plastic roofing sheets, which may sometimes affect the demand for the products. However, the substitution is not perfect as there is growing awareness within the upper income consumers to use aluminium roofing sheets which have higher recycling value against the substitutes. An Analysis of the total number of housing units which will be built in Nigeria from 2008 to 2010 stands at 3 million units. ( Source:Strategic Integration of Surveying Services FIG Working Week 2007) It is assumed that 60% of that target can be met with the inflow of capital that has characterized the real estate industry, however we will assume a conservative figure of 30% which means the market will consume a total of 900,000 tons of roofing sheets in 3 years (The average size of one residential roofing project is
about one tonne while that of a commercial project is usually between 2-3 tonnes.)

This figure is thereafter projected at 2.8% growth rate as shown in Table 6.6

YEAR 2008 2009 2010 2011 2012 YEAR


2008 2009 2010 2011 2012

6.9.3 DEMAND FOR COATED ALUMINIUM COILS The demand for aluminium coated coils is intrinsically tied to the demand for aluminium roofing sheets. Analysis has shown that the demand for aluminium roofing sheets which stands at 160,000 tonnes will continue to grow at a constant rate of 3%. It is also assumed that 65% of the demand will be supplied by local manufacture and that this will grow by about 7% per annum (considering increasing labor costs in Asia, the cost advantage of imported coils will be eroded) Table 6.7 below shows the projected demand for locally coated aluminium coated coils.

PROJECTED DE (Tonnes) 291,177 299,912 308,910 318,177 327,722 PROJECTED DE

6.9.4 DEMAND FOR EXTRUDED ALUMINIUM PROFILES The demand for extruded aluminium profiles is influenced by the demand for aluminium windows, doors and curtain walling. These are largely influenced by the local building industry. The building industry in Nigeria has in the past five years experienced a boom which is expected to continue for the next decade. From a 5 billion naira industry in 2002, it has leapfrogged to a 119 billion naira industry in 2007. Also with the glut in the stock market, most people are turning to real estate as a means of securing their investments. As earlier mentioned, we have projected that the total number of housing units which will be built in Nigeria from 2008 to 2010 will be 3 million units. ( Source:Strategic Integration of Surveying Services FIG Working Week 2007) It is assumed that 60% of that target can be met with the inflow of capital that has characterized the real estate industry, however we will assume a conservative figure of 30% which means the market will consume a total of 180,000 tons of profiles in 3 years (The average size of one residential window
and door project is about 0.3 while that of a commercial project is usually between 1.5 2.5 tonnes.)

(Tonnes) 104,000 111,280 119,070 127,404 136,323

This figure is thereafter projected at 2.8% growth rate as shown in Table 6.8

YEAR 2008 2009 2010 2011 2012

6.9.5 DEMAND FOR ALUMINIUM COMPOSITE PANEL Aluminium Composite Panel (ACP) popularly called aluco-bond or alu-bond is becoming very popular as a rendering material in Nigeria. Most new corporate buildings are, belonging to financial institutions; Oil and Gas companies and Manufacturing companies are rendered with ACP. The main advantage it has over other rendering materials especially for high rise application are light weight (over marble and granite), superb insulation properties (over curtain walling) and great aesthetics features being able to come in various types of finishes. From trickles of ACP imported into the country (made popular by Guaranty Trust Bank), Nigerian Customs statistics show that a total of 5000 tonnes were imported in 2007. It is expected that with greater awareness being created about the properties and advantages of using ACP, the demand is expected to grow at a rate of 2.8%. Table 6.9 show the projected demand for Aluminium Composite Panel

PROJECTED DE (Tonnes) 58,235 62,311 66,673 71,340 76,334

YEAR 2008 2009 2010 2011 2012

6.10 SUPPLY GAP ANALYSIS Table 6.10 below compares the projected supply with the projected demand for Aluminium roofing sheets, Aluminium Coated Coils, Extruded Aluminium Profiles and Aluminum Composite Panels to determine the supply gap.

PROJECTED DE (Tonnes) 5,000 5,150 5,305 5,464 5,628

PROJECTED SUPPLY (000 tons) P Roofing Coated Extruded ACP Roofi Sheets Coil Profile Shee 125.55 98.00 17.50 0.00 291. 6.11129.32 PROSPECTS MARKET 100.94 18.03 0.30 299. From our analysis as shown in Table 6.10, the supply gap for roofing sheets, coated coils, extruded profiles and 18.57 Aluminium composite panels 133.20 103.97 0.36 308. averaged 175,000, 15,000, 48,000 and 4,800 tons per annum respectively. 137.19 107.09 19.12 0.86 318. Another prospect for aluminum building product manufacturers is that the 141.31 1.04 327. Nigerian population has 110.30 grown steadily over19.70 the years. More importantly, is the increasing drive to use real estate as a means of securing investments by Nigerians. Average Supply Ga
The present glut in the stock exchange will further increase the amount of Nigerians who want to invest their money in real estate. This will create opportunities for the Nigerian manufacturers of Aluminium building products. The market prospects for aluminium building products in Nigeria is very bright because there is still a large gap between the local demand and supply. This demand cut across the whole west and east African sub region. Nigeria is the central market for building materials in these sub regions, for example, various traders from Cameroon, Niger and other countries in these sub regions source their stock of building materials from Onisha Market. 6.12 MARKET ACCEPTABILITY Our major strength lies in the experience, track record and extensive industry contacts of our team. This we intend to parlay to our maximum advantage in penetrating the market. Integrated Aluminium is already an accepted brand in the specifiers market in Nigeria, the team members involved are deeply familiar with the market and have the required credibility and goodwill to make an immediate impact. We have structured the company to begin our operations in those locations where this strength can be effectively utilised. We are also focusing on a customer group that is better positioned to understand our offerings and where repeat orders can easily be obtained provided customer satisfaction has been achieved. Specifiers are generally a closely-knit association and referrals are common. We will start by cultivating those specifiers identified as influential opinion leaders within their sub-groups.

Also two of the proposed new products will namely Aluminium Coated Coils and Extruded Aluminium profile will be used as raw materials for Integrateds present products. Integrated intends to absorb 60% of the coils for its roofing sheet plant, in fact at present capacity the company can absorb 15% of the proposed product. Integrated also intends to make the products available in all markets of the federation through efficient distribution channels. Effective advertising and monitoring will be embarked upon almost immediately the company commences production. 6.13 PRICING AND DISTRIBUTION STRATEGY

Pricing is of course an important element of the marketing mix. Integrated Aluminum will pursue a pricing strategy that is intended to give maximum value for money. At the beginning, we intend to offer an introductory pricing strategy that will see our products within the lower 30% percentile mark. This will be done without lowering either the product or service offering. Our lean structure will ensure that the margins achieved through this strategy are sufficient to leave the company profitable. Our price will be such that it will be sufficiently attractive to first time users who may have little information about our services. As can be observed from the Table below, the average price per metre for aluminium roofing sheets was N1,750 in year 2005 as against N1,850 and N1,920 in 2006 and 2007 respectively. The rising price trend was a reflection of high cost of production as a result of high cost of Aluminium largely affected by the global energy crisis, high cost of machinery spare parts for the maintenance/replacement of ageing equipment, sharp increases in tariff on public utilities especially electricity and transport cost due largely to fuel scarcity.

AVERAGE PRICES Aluminium Roofing Sheet (Metres)


To enable Integrateds new products gain quick acceptance in the market, it intends to charge the following prices for the products. a) Aluminium Roofing Sheets b) Aluminium Coated Coils c) Extruded Profiles N 1,800.00 per Metre N 650,000.00 per ton

Aluminium Coated Coils (Ton) Extruded Aluminium Profiles (Ton) Aluminium Composite Panels ( Metres)
N 1,100,000.00 per ton d) Aluminium Composite Panel N 16,000.00 per Sq Metre

6.14 MARKETING MIX A crucial element in every marketing strategy is the marketing mix which is the particular group of variables offered to the market at a particular point in time, in order to maximize revenue and profit. These variables are product, price, promotion and place. PRODUCT Product signifies anything that is offered to the market for its use or consumption. Within the building materials sub sector in Nigeria, it goes without saying that a firm stands or fails by the, quality, brand name and perception of its products. Therefore, for effective launching of Integrateds new products into the market, we recommend the following: There should be adherence to quality control measures to withstand the intense competition from the existing substitute producers/import. The company will implement Six Sigma quality control measures to Define Customer Need Dashboards, Measure Response and Analyze results. This will enable Integrated to continually improve on product and service quality to ensure customer statisfaction. PRICING The ability of a company to get its pricing policy right is a major variable for a successful marketing strategy. Accordingly, a low penetration pricing policy designed to gain easy access to the market is advocated. The companys pricing design should be based on what other local producers are charging. In order to ensure an empirical and sustainable pricing entry strategy, surveys should be undertaken at regular intervals of three months or so to adjust prices in line with market forces. The prices recommended above are competitive for a start.

PROMOTION Every product needs to be promoted, to draw the attention of the market place and its benefits identified. Since Integrateds products are building materials, we propose advertising via direct marketing (direct mail, electronic mail and professional journals/magazines). Furthermore, the company should at least once a year organise a customers forum, where specifiers such as Architects, Building, Civil, and Structural Engineers are invited to share their views on the products and enlighten then on the properties of the product. PLACE/DISTRIBUTION

Our products will be distributed through an internal sales force. Our products will be custom made to specific customers orders. We will therefore gear our logistics towards delivering from the factory directly to the clients sites without the intermediate warehousing. Freight and packaging charges will be offered as an optional added item to the overall cost of selling the product. Customers will be encouraged to delegate this responsibility to our company. It is for this purpose that the company intends to acquire trucks that will be utilized for distribution purposes.