In a recent sector update on the Nigerian cement industry, Renaissance Capital forecasts a robust expansion of supply and demand for Africa’s third-largest cement market.
Nigeria consumed 17.5Mt in 2009, up seven per cent YoY, with demand expected to double to 35Mt by 2015. Indeed, the potential growth will be even greater if the government is successful in realising its “Vision 2020” programme for housing and transportation.
Key indicators reveal that Nigeria has a housing stock of just 36 homes per 1000 persons vs the Emerging Market (EM) average of 292 homes per 1000, implying a deficit of 16m homes. Road density is also extremely low at 1.3km per 1000 persons vs the EM average of 4.2km per 1000. Thus, to implement recommendations put forward by the Vision 2020 Working Groups on Housing and Transport, the government will have to build 1m homes annually and 2.9m kilometers of road over the next 10 years. Moreover, Renaissance Capital estimate that the economy, supported by recent economic reforms and high oil prices, will grow at six per cent per annum until 2015, thereby underpinning continued and accelerating cement demand growth going forward. Cement producers that can leverage on scale to satisfy the expected demand will be the big winners over the long-term, the report argues. Benue Cement Company (BCC) is highlighted as a strong prospect in this regard after its parent, Dangote Group, announced plans to merge BCC with Obajana Cement and Ibese to create a combined capacity of 14.8Mt by 2012. Lafarge Cement also plans to add 2.2Mta at Ewekoro to consolidate the capacity of its subsidiary, WAPCO. The Cement Company of Northern Nigeria (CCNN) and Ashaka have also announced plans to increase their capacity by 1Mta and 350,000tpa, respectively.
Total production capacity in Nigeria has now reached 13.7Mta, up from 3.4Mta in 2007, with capacity utilisation rates currently noted at 68 per cent. Over the past two years, 10.3Mt of new capacity has been added, and an extra 9.6Mt will be installed by 2012, supported by government initiatives to incentivise local cement production. However, while Nigeria is moving steadily towards self-sufficiency in cement, cement imports nevertheless reached 8.5Mt cement in 2009.
Energy efficiency continues to be a key operational issue for producers and a central driver of earnings. Companies are looking to create energy cost savings by migrating to more efficient and cheaper energy sources. The report estimates that by 2012, Nigerian cement producers will cut their energy costs by 35 per cent to US$49/t, from US$75/t in 2009. This will partly depend on the stability of the gas supply from the Niger Delta region, reliance on imported heavy fuel oil, and the extent of investment in the domestic coal industry.
In terms of pricing, the shortage of domestic production and high cost of doing business in Nigeria has translated into high wholesale prices currently reaching US$180/t, level with the regional average for Sub-Saharan Africa, though two to three times higher than prices recorded in other emerging markets. Further coverage of Dangote Cement and the Nigerian cement sector will feature in the forthcoming May issue of International Cement Review.