Nigeria’s demand for cement on the rise

Dangote cement leads Nigeria cement production industry.

Dangote Cement Plc, a major market share holder in Nigeria’s cement industry, seems to be having a good time in the market as it declared that the demand for cement in Nigeria is on the rise despite the wet weather condition.

The cement company made this known while presenting its 2013 half year results.

“For first half 2013, Dangote Cement Plc.’s management estimates Nigerian cement demand grew 14%, to 11million tonnes (mnt), with March 2013 recording the highest ever monthly sales of cement in the country with 2mnt shipped over the month. In demand terms, second quarter 2013 was stronger than first quarter 2013, despite seasonally better weather conditions in the first quarter, historically” Renaissance Capital, an investment bank, said.

Cement imports into Nigeria have also reportedly declined significantly, with less than half the 1.3mnt imported in the first half 2013 being brought in this quarter. Dangote Cement’s market share remained at 62% in the first half, despite volumes increasing 29%, to 6.8mnt for the period.

The cement company has released results for first half 2013, showing Earnings Per Share (EPS) up 52% on first half 2012, at N6.33 for the period. The EPS growth rate for 2Q13 was slower, at 32% versus 2Q12, with EPS coming in at N3.17 for the quarter.

“We attribute this growth largely to improved market share in a faster-growing market, better gas utilisation for the period and benefits from the direct-to-customer delivery model. Management expects demand and margins to drop in 3Q13, on account of the rainy season, planned maintenance and lower gas utilisation,” Renaissance Capital said, while analysing the company’s half year results.

Global cement demand is expected to reach four billion tons by the end of the year 2013. In Nigeria, the demand for and consumption of cement is expected to increase in line with global demand, while cement production will grow at a slower rate than demand. Average cement consumption in the world is estimated at 273kg/Capita which is much higher than that of Nigeria at 105kg/Capita, a 2013 cement industry report by Lead Capital Equity research said.

“Over the years the cement industry has grown but has not been able to fully meet the demands of the Nigerian economy. The gap between the demand for cement and local production has always been met by importation of the product. However, in 2012 the Industry turned things around by surpassing the local demand for cement by approximately 55% and has even gone further by exporting. The total productive capacity of the industry has risen by approximately 21.4 million tonnes from 2008 to 2012 representing a Compounded Annual Growth Rate (CAGR) of 43.5%” the 2013 report stated.

Some industry operators have attributed the astronomical growth in capacity to the Backward Integration Policy, introduced by the administration of former President Olusegun Obasanjo, which challenged investors to build adequate local cement productive capacity.

“The cement industry in Nigeria has experienced immense growth over the past few years although it is capital intensive due cost of construction of high capacity plants and the heavy machinery deployed in running the business” Lead Capital said.

“Cement demand has been on the rise since the conception of cement production in 1957. At present, the total installed capacity is about 28 million tonnes as at 2012, while local consumption is estimated at 19 million tonnes” the report said, adding that in all business environments, the level of infrastructure provides the basic foundation for the overall economic development and growth.

Striving to meet demand

Players in the Nigerian cement industry have been aspiring to close up the demand versus supply gap.

The Management of Dangote Cement estimates the Obajana and Ibese cement plants operated using 83% and 98.8% gas/low-pour fuel oil (LPFO), respectively, over 1H13 – well ahead of the 80% full-year guidance issued earlier this year. Industry watchers say the plant’s adaptations to use coal and the construction of a coal mill at Obajana, in addition to the soon-to-be-commissioned mill at Ibese, should help the Group to reduce LPFO usage, in favour of cheaper coal.

Utilisation at Dangote’s Obajana and Ibese increased to 80% and 68%, respectively, in 1H13; and the Gboko plant reopened early in the period.

However, the firm’s Ghana and South Africa branches remain loss-making, despite contributing a combined N7.7bn to the top line in the first half. The Management expects South Africa to begin cement operations in 2014, with Ghana expected to break even by Year End 2013. The next plant completions are expected to be in Zambia, and Cameroon (grinding plant), as well as import facilities in Sierra Leone and Liberia (all in 2014).

Dangote Cement is, however, not the only company seeking to explore and maximise Nigeria’s cement market. Earlier this year, Forbes reported that Nigerian multi-millionaire tycoon, Abdulsamad Rabiu, is reportedly constructing a $500 million ultra-modern cement plant in Edo State in the south of Nigeria.

The cement plant, which will have a three million metric tonnes per annum (mtpa) capacity, is near completion and is expected to be commissioned early next year. The report stated that Mr. Rabiu disclosed this during the signing of a $35 million contract agreement between his company, BUA Group and Siemens for the construction of a gas turbine power plant for the new BUA Group Edo Cement factory, earlier this year. Siemens is expected to supply three Siemens Gas Turbines (SGT) 500 turbines with a total capacity of 450 megawatts to supply power to the cement plant.

With this new cement production facility, Mr. Rabiu will compete with Africa’s richest man, Aliko Dangote, for a share of Nigeria’s lucrative cement market.

Mr. Rabiu, who is worth $675 million by FORBES’ latest estimates, is easily Aliko Dangote’s fiercest and most formidable competition in Nigeria, according to the report. His conglomerate, the BUA Group, has substantial interests in the key sectors Dangote is heavily vested in- cement, flour and sugar production.

“Dangote has always held the upper hand in all these sectors, but BUA Group has been a worthy challenger. With BUA’s new facility, Dangote’s monopolistic dominance in the very lucrative cement sector might be endangered, but only a little bit. BUA’s 3 million-mtpa facility is only a tiny fraction of Dangote’s cement production assets in Nigeria, which have a combined capacity of 20 million mtpa” Forbes said.

Lafarge Wapco Cement Nigeria plc, which earlier in the year estimated that Nigeria has a market potential of cement consumption of over 50 million metric tons per annum, against the present 28 million metric tons and $6 billion investment, and said the nation’s cement consumption potential of the Nigerian market is huge, is also a major contender in the nation’s cement industry.