What's driving Nigerian cement demand?

What's driving Nigerian cement demand?
02 September 2022

BUA Cement announced this week that it would seek finance from the International Finance Corp (IFC) for a 6Mta cement expansion of its Sokoto cement plant in Kalambaina, Nigeria. The aim is to make Nigerian cement production more sustainable and reduce the cost of the product, according to BUA Cement. But what other drivers have continued to bolster cement capacity growth in the west African country?

While domestic demand has been growing rapidly and caused cement prices to spiral upward, the reasons behind it may have changed since last year. Cement demand rose by 40 per cent between September 2020 and April 2021, according to Edwin Devakumar, Dangote Cement’s group executive director. Cordros Research added: "We believe the double-digit growth [in 2021] was supported by strong demand from the private sector, underpinned by the recovery in activities in the real estate sector." This view has also been championed by Cardinalstone, suggesting that the demand is primarily from private retail sector. "While time will tell when the real estate boom suffers some stagnancy, we do not see construction/real estate-related spending slowing down in 2022."

More recently, Dr Muda Yusuf, an economist and private sector advocate, suggested that, "Since there is improvement in government spending as a result of the hike in global oil prices and non-oil revenue, we have seen government spending more in infrastructure and it is expected to grow cement sales."

According to the Canadian Center of Science and Education, 90 per cent of cement in Nigeria is sold in bags and only 10 per cent in bulk. Generally, about 75 per cent of cement is used in the country's construction industry while the remainder is used for paving roads or in oil extraction. Whether privately- or publicly-funded, housing construction and infrastructure development are the main drivers of domestic cement demand.

Reducing the housing deficit
While the Ministry of Works and Housing has contributed over 13,542 houses between 2019-21 through the Nigeria Mortgage Refinance Co and the Family Homes Funds scheme, the country grapples with a sizeable housing deficit. This is estimated to be around 17m affordable homes, according to Mr Sunday Okpe of the Manufacturers Association of Nigeria. Closing the gap may prove a challenge. The country has a shortage of available land to build on in urban areas and there are challenges affecting the optimal use of tall buildings in many cities. However, high-rise buildings are being considered for new construction projects in Lagos and Abuja.

Infrastructure projects are stacking up
The 2022 budget allocations report that NGN1.42trn (US$3.36bn) or 8.9 per cent of the government budget was allocated to infrastructure spending. Infrastructure projects are stacking up. The Lagos Rail Mass Transit system seeing two new lines becoming operational this year. Eventually, the project will run for 27km from Marina to Okokomaiko. The remodelling of Abuja’s Nnamdi Azikiwe International Airport and the reconstruction of Lagos, Port Harcourt and Kano airports are being financed by a US$500m Chinese loan.

Meanwhile, the Minister of Mine and Steel Development, Olamilekan Adegbite, has stated that the country has about a 70 per cent deficit in road infrastructure and only 50,000km out of 200,000km of road networks currently have pavements. 

Production and market share
The Nigerian cement sector is led by Dangote with a capacity of 32.25Mta and approximately a 60 per cent of the market. It is followed by BUA Group with 11Mta and a market share of approximately 20.4 per cent, before Lafarge Africa (Wapco) with 10.5Mta and a market share of around 19.5 per cent. The country would need a further investment of approximately US$5bn to meet local cement demand, according to the Leadership online newspaper.

Of the three established Nigerian cement producers, BUA Cement is currently expanding its capacity fastest at home. It has a greenfield 3Mta project in Guyok as well as its expansion projects of 3Mta each in Sokoto and Obu. The ongoing expansion at BUA cement will increase the company’s overall cement capacity to 17Mta by the end of 2023. Eng Yusuf Binji, the company's MD, said that by this time, "BUA Cement will be better positioned to increase existing export volumes and, in the process, take advantage of some of the benefits of the African Continental Free Trade Area." Therefore, increased exports are likely to figure in plans for future cement sales for BUA Cement.

Meanwhile, Dangote Cement has a 3Mta expansion of its Obajana plant ongoing, and new entrant IBETO Group is building two greenfield projects in Effium (1Mta) and Enugu (2.2Mta), plus a 3Mta expansion project at its Nkalagu plant where line 1 has been out of service for a while.

The increasing demand for cement has also seen the establishment of other new players in the industry. Mangal Industries Ltd has recently held the groundbreaking ceremony for a 3Mta cement plant in Iluagba, Kogi state. In addition, Madugu Cement aims to establish a 5Mta integrated plant in Yalmatu Deba, Gombe state, in two stages comprising two separate 2.5Mta kiln lines.

Cement prices
This Day Live claims the retail price of 50kg bag of Dangote cement in the 1H22 was sold between NGN3900-4200 (US$9.20-9.95), while BUA Cement and Elephant Cement produced by Lafarge Africa (WAPCO) are sold for NGN3800 and NGN4000, respectively.

Nigeria's cement sector continues to expand despite inflationary pressures. The cement shortages have encouraged the domestic cement producers to keep adding capacity. Meanwhile they are posting record revenue and examining the opportunity to export if the market suffers a downturn. While there is still room for new players to enter the market, there seem to be no signs yet that Nigeria's cement demand will see a slowdown in the short- to medium term.

Published under Cement News