1. Nigerian Cement Sector
Unbundling Potentials
January 4, 2011
In this report, we update our views on the Nigerian cement industry, Analyst
assessing the sector’s long term potentials from a global standpoint. On Tosin Oluwakiyesi
t.oluwakiyesi@vetiva.com
a company-specific level, we upgrade our rating on Nigeria’s biggest
cement producer – Dangote Cement to “Accumulate” whilst downgrading
our rating on Ashaka Cement to a “Reduce”.
Market Cap: N2,060bn (US$13.7bn)
Slight price cuts likely in the short term… In view of the recent
% of NSE: 26.2%
inventory build-up in the industry, we envisage some reduction in prices, albeit
in the short term. In our view, cement producers, in a bid to clear out Forward 2011 P/E: 10.1x
accumulated inventory, may further reduce prices directly or indirectly through
bonuses and rebates. In contrast to our previous views, we are not likely to see EV/2011 EBITDA: 9.0x
the anticipated boost in private sector lending till late Q2, hence strong demand 2011 Div Yield: 6.5%
would only resume in the latter half of 2011 into 2012. Whilst sluggish demand
persists in the short term, we believe maintaining lower prices at current or YTD perf: 38.81%
higher capacity utilisation rates is a better option, compared to reducing
Recommendations list
capacity utilisation, in view of the huge operational gearing of the industry.
Dangote Cement: ACCUMULATE
…Notwithstanding, mid to long term fundamentals remain
impressive: The need to meet Nigeria‟s huge infrastructural deficit cannot be Lafarge WAPCO: ACCUMULATE
overemphasized. Despite its large population and rapidly growing urbanisation, Ashaka Cement: REDUCE
Nigeria's roads network significantly lags comparable African countries and
emerging markets countries (30% paved, in comparison to North Africa average Cement Co. of North. Nig: UNDERWEIGHT
of 68%, BRIC average of 64%). Housing deficit has been widely reported as 16
– 18 million units, with an estimated N60 trillion (more than twice Nigeria‟s
GDP) needed to bridge the gap. It is evident therefore that the sector‟s long 52-week share price performance (rebased to Dec
‟09)
term potential is unquestionable; nonetheless, we believe the potentials are
1.8
gradually unfolding.
1.6
Pivotal to SSA‟s infrastructural development: With the bigger global
1.4
players (Lafarge, Heidelberg, CEMEX) focusing on deleveraging, there would
probably be little on-going investment in cement plant expansion in Africa. 1.2
Thus, given the inherent possibility of exports to other African countries in the 1
medium to long term, the Nigerian cement sector can potentially become a
0.8
dominant player within the continent. Furthermore, the planned expansion of
31-Aug
30-Apr
31-Oct
31-Dec
31-Dec
28-Feb
30-Jun
Dangote Cement in southern, central and western Africa shows the important
role Nigeria‟s cement sector is set to play in sub-Saharan African.
ASI Building Materials Index
Valuations: On a relative valuation basis, the cement producers are cheap;
Source: NSE, Vetiva Research
Nigerian cement producers are trading at a 2011 weighted P/E and EV/EBITDA
of 10.1x and 9.0x relative to emerging market peer average of 14.2x and 8.9x Vetiva Capital Management Limited
respectively. Our valuations for the cement producers are based on an 80/20 266B Kofo Abayomi Street
Victoria Island, Lagos
weights of Discounted Cashflow and EV/EBITDA valuation methodologies
respectively. Thus, we upgrade our rating on Dangote Cement to an Tel: +234-1-46175213
“Accumulate” (11% upside to our fair value), maintain our “Accumulate” Fax: +234-1-4617524
Email: research@vetiva.com
and “Underweight” rating on Lafarge WAPCO and CCNN respectively but
downgrade our rating on AshakaCem to a „reduce‟ (11% downside to our
fair value).
Nigerian Cement Sector: Unbundling Potentials I January 2011 I

2. Nigeria I Building Materials I Equities
Table of Contents
Summary ................... 1
A global perspective .................... 3
Nigerian Cement Sector: The Value Proposition................... 4
Industry Outlook ................... 8
Industry Structure .................. 13
Demand Dynamics .................. 19
Changing Landscape of Supply ................... 21
Pricing dynamics ................... 23
Regulatory Perspective ..................... 26
Investment Summary .................... 28
Quoted Companies ................... 34
 Dangote Cement Plc
 Lafarge WAPCO Cement Plc
 AshakaCem Plc
 Cement Company of Northern Nigeria Plc
Non-quoted Companies ................... 90
Disclosures ................... 91
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3. Nigeria I Building Materials I Equities
A global perspective
Times are changing for global cement producers as they struggle to grow earnings More global cement producers are
under a weight of debt and slowing demand in developed economies. The focus of shifting focus to deleveraging and
global players on minimising costs and debt exposure, and slowing down on cost cutting
expansion and investment may make them lose out on the growth prospects
expected in frontier markets in sub-Saharan Africa. Among the global cement
producers, Lafarge is perhaps the only one well poised to benefit from the
ongoing and expected economic growth in Africa and the Middle-East, as the
region has the second highest contribution to its global revenue, unlike Holcim
and Heiderberg which have very little presence in these regions. The five key
players dominating the global cement industry - Lafarge (France), Holcim
(Switzerland), Heidelberg (Germany), CEMEX (Mexico) and Italcementi (Italy),
account for c.20% (Industry HHI* is 6,685) of global cement sales in 2008,
indicating the highly concentrated nature of the industry. Furthermore, the Apart from Lafarge, other global
mature state of most of the global players, has been compounded by the recent players are not likely to embark on
any major expansion in Africa
downturn in global economy, thus there is considerable pressure on the growth
potentials of the global players, especially in developed economies.
Figure 1: Market Share (mill. tonnes of top five global cement producers)
2008 data
220 205 194
165 155
143
103
110 96
89 87
77
63
55
0
Lafarge Holcim Heidelberg Cemex Italcementi
Cement Sales Capacity
Source: CemNet
In Western Europe, where the global players have a major market share, Decline in construction activities in
construction activities have been on a decline since the onset of 2010. The Europe considerably affected the
eurozone debt crisis further slowed down recovery as the affected earnings of the key global players
governments embarked on fiscal cuts, thus reducing the spend on new
infrastructural and non-residential public projects which should have
stimulated construction activity. Regional split of sales for the producers (as at
half year 2010) shows declining sales in Europe, with slight pick-ups in North-
America, Asia and Africa.
* HHI means Herfindahl HirschMan Index, calculated as the sum of the squared market share of
industry players. It‟s a measure of industry concentration.
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4. Nigeria I Building Materials I Equities
Figure 2: Regional Split of Sales (based on interim quarterly results) of the top three global cement producers
Lafarge Africa/ Africa/
Middle
Holcim Middle Heidelberg
East: East:
Africa/ 5.3% 1%
Middle Asia
East: Pacific:2
Europe: Europe:
27% 1%
36.0% 29.40% Europe:
37%
Asia
Pacific: Latin
37.40% America
Asia North : 13%
Pacific:1 Latin America North
5% North America : America
America : 12.50% : 28%
Latin 15.40%
:17%
America
: 5%
Sources: Company‟s websites, Vetiva Research
While we still see some potential in less developed eastern european countries,
we believe the expected slow-down in growth in more developed western
europe would cause an overall strain on earnings growth from the european Global cement producers with
market. Apart from Lafarge, who virtually had presence in almost all the significant presence in Africa are
better poised to grow earnings in
African sub-regions – North Africa (Lafarge Ciments – Morocco, Orascom -
the long term
Egypt), East Africa (Bamburi Cement – Kenya), West Africa (Lafarge WAPCO
and Ashaka Cement - Nigeria) and Lafarge S.A (South Africa), the other global
players at best only operate in one or two sub-regions. Therefore, based on
the current low level of social and physical infrastructure penetration in Africa,
and the boom expected from increasing discovery of mineral resources and
commodities, we make a case for Africa as the next frontier of global
economic growth, with Nigeria‟s cement sector strategically positioned
to drive the expected growth in physical infrastructure.
The African story: the next frontier of growth With the growth in the developed
economies expected to slow-down
Though the African continent still lags significantly in infrastructure, we believe over the next decade, whilst SSA‟s
the next pioneer of global economic growth would be Africa. Asia, aided by the growth trends up, Africa can be the
very rapid growth of China, India, Singapore, Malaysia, Indonesia, Thailand, next pioneer of global growth
which are classified by the International Monetary Fund (IMF) as Newly
Industrialised Asian Economies (NIAE) over the last two decades, has been the
propelling force of global economic growth.
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5. Nigeria I Building Materials I Equities
However, economic growth in Asia would gradually slow down over the next
decade; thus we expect growth in Africa, especially SSA (excluding south Africa)
to gradually trend up on the back of increasing discovery of mineral resources,
strong commodity prices and improving political landscape.
Figure 3: Economic growth of some regions1 of the world (2000-2015E)
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2010E
2011E
2012E
2013E
2014E
2015E
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-2.00%
-4.00%
Advanced Economies NIAE MENA SSA
Sources: IMF, Vetiva Research
1
MENA: Middle East and North Africa, NIAE: Newly Industrialised Asian Economies, SSA: Subsaharan Africa
In our view, there‟s an increasingly lesser potential for infrastructural
Africa‟s infrastructure deficit
development in advanced and fast growing Asian economies. Thus, Africa has
portends significant growth
the highest untapped potential for economic growth and infrastructural
opportunities in the longer term
development. According to a recent World Bank report – Africa Infrastructure:
Time for Transformation, Africa is estimated to have an infrastructural deficit of
$93 billion out of which we estimate that about a third, c.$31 billion would be
used for electric power and about $25 billion for the construction of physical
infrastructure (roads, bridges, ports and rails). Based on the same report,
most African cities face the challenge of acute housing shortage. In most
African countries, real estate and government agencies are only able to meet
at most one quarter of housing demand, leaving three-quarter to the informal
market. Based on UN Habitat estimates, as much as 70 percent of Africa‟s
urban population reside in slums. However, the infrastructure deficit is not
evenly spaced across the African sub-regions. For instance, countries in the
Northern Africa region particularly Egypt, despite its inherent minor challenges,
is way ahead of others in cement consumption, housing delivery and other
physical infrastructure.
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6. Nigeria I Building Materials I Equities
The major deficits in housing and other phyiscal infrastructure in Africa is more
concentrated in West, Central and East African sub regions. In view of Nigeria‟s
enormous population (a sixth of Africa‟s population), we see the highest
prospects for infrastructural development in Nigeria. Hence, we believe the
Nigerian cement sector offers a very robust growth potential.
Nigeria‟s cement sector: The value proposition
Among the top five major markets in Africa (South Africa, Egypt, Algeria, Given Nigeria‟s massive
Morocco and Nigeria), Nigeria offers the highest growth opportunity in the population and fast-paced
cement sector. Using cement consumption patterns, Nigeria‟s cement urbanisation, Nigeria offers the
highest growth in the cement
consumption per capita significantly lags that of the remaining top four
sector among the top markets in
markets. Egypt has the highest cement production capacity on the continent
Africa
(as at 2008). Owing to the impact of the rapid development of the Middle East
region on North Africa, the sub-region generally leads in cement consumption
pattern on the continent. Average cement consumption per capita for North
Africa is slightly above 300 kg, the highest on the continent. Given Nigeria‟s
heavy cement supply deficit and historically low local production capacity,
Nigeria‟s cement consumption level is significantly lower at about 105 kg per
capita. The dynamics of Nigerian cement production is however changing
tremendously since the entrant of key players like Dangote Cement. We
present the following as the Investment thesis for Nigeria‟s cement sector.
Based on our estimates, c.112m
 Robust Housing Deficit: According to estimates from industry experts, tonnes of cement would be
Nigeria has an estimated deficit of 16 million to 18 million housing units. In required to meet just half of
2009, the Presidential Committee on Implementation of Affordable Housing Nigeria‟s estimated housing
has estimated that about N60 trillion would be needed to bridge the deficit. deficit
Assuming that federal, state governments, and private sector makes very
Africa
significant efforts, within the next 10 years to provide cheap and affordable
ideal housing stock (at least a 2- bedroom apartment) to meet half of the
estimated deficit (c.9million housing stock), cement consumption based on
this premise would be c.112 million tonnes. With expected rise in local
manufacturing capacity to c.28 million tonnes by 2012, it would take 5 to 6
years to provide half of the estimated housing deficit. On a more realistic
stance, we believe it would take longer than 6 years to at least provide half of
the estimated housing deficit. However, with the Federal Housing Authority‟s
2009 – 2013 action plans to provide 100,000 units of houses annually, the
increasing mass of private real estate developers and state governments‟
participation in housing delivery; we expect Nigeria‟s housing deficit to shrink
considerably over the next 10 years.
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7. Nigeria I Building Materials I Equities
Figure 4: Comparison of Nigeria‟s housing deficit
120
90
60
30
0
South Africa Nigeria Egypt India Brazil China
Housing Deficits(Mill units) Housing deficit per capita(1/1000 units)
Sources: Nationsencyclopedia, National housing ministries websites, Vetiva Research estimates
Roads: Another major case for the strong potential of Nigeria‟s cement sector
is the current insufficient and inadequate road transportation network. With
the shift of the global construction industry to concrete and steel (from the
more primitive stone and mortar) in construction activities, cement demand Nigeria‟s total road network is
only 30% paved compared to
has occupied a pivotal position in the construction industry. According to the
North Africa average of 69% and
Federal Ministry of Transport, Nigeria has a road network of c.195,000 km
“N-11” average of 63%
with only 30% paved in comparison to 63% average for emerging N-11
countries and 69.7% average for Egypt, Algeria, Morocco and Tunisia, based
on data from World Bank and International Road Federation (IRF), see figure
5 below. Based on IRF definition, paved roads refer to length of roads that are
surfaced with crushed stone (macadam) and hydrocarbon binder or
bituminized agents, with concrete or with cobblestones. Therefore, the use of
concrete in road construction implies a concurrent use of cement.
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8. Nigeria I Building Materials I Equities
Figure 5: Comparison of Nigeria‟s paved road network
100%
80%
60%
40%
20%
0%
Egypt
China
Germany
UAE
South Korea
Libya
Italy
Morocco
France
Japan
Nigeria
N/Africa Average
Algeria
Tunisia
India
Malaysia
N-11 average
Russia
Czech Republic
Sources: World Bank database, World Road Federation, Vetiva Research
 Rail and ports construction: The increasing use of concrete ties in railroad
construction (rather than wood), has meant a significant surge in cement Nigeria‟s 3,505 km rail network
ranks lowest amongst highly
demand globally. Thus, in Nigeria, the current abysmal state of railroad
populated countries
network portends a major opportunity for continuing growth in the cement
sector. With a total rail network of 3,505 km (from Federal Ministry of
Transport), Nigeria‟s rail network ranks among the lowest for highly
populated countries. In line with the Federal Ministry of Transport‟s 25 year
National Ports Master Plan, several port development projects including sea-
ports expansion, rehabilitation of facilities and channel towage development
have been embarked upon. If the master-plan would be diligently followed,
more investments in ports development and maintenance are underway,
even into the longer term.
 Vast raw material deposit: Apart from the expected boom in physical
infrastructure, which would be the key propeller of growth in the cement
sector, the presence of limestone and other additives used in the production Infrastructural boom and
of cement in vast quantities, is an additional plus for Nigeria‟s cement sector. abundance of raw materials
would also encourage cement
Nigeria has an estimated 837 million tonnes of limestone deposits in 22 out
production
of 36 states, but currently has cement plants in only 6 states. Gypsum, the
major binding substance used in the final stage of cement production is also
present in commercial quantities in some Nigerian states, even though it is
not being mined or produced in commercial quantities; leaving producers to
import the substance. According to China‟s leading cement equipment
supplier – Jiangsu Pengfei Group Co. Ltd, the high purity level and shadow-
buried depth of Nigeria‟s limestone deposits are characteristics which make it
easily exploitable and desirable. Limestone is mined in just about half of
West African countries, but then not as major economic activities.
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9. Nigeria I Building Materials I Equities
Hence, cement production is significantly low in West Africa and the region‟s
countries rank among those with lowest cement consumption per capita on
the continent. Nigeria‟s vast limestone deposits therefore potentially place
the country at an advantage in the sub-region if it can harness the
opportunities.
 Potential FX earner: Nigeria depends almost entirely on crude oil as the
main government revenue and foreign exchange earner. Like the developed
Asian countries – China, Japan and Thailand which are top exporters of Cement deficits in African
cement globally, Nigeria can also become a net-exporter of cement through countries drive potential for
continuous investment in local production. The cement deficits across West export, as local production is
expected to exceed demand in
and Central African countries present Nigeria with immense opportunity for
the longer term
export when local production exceeds demand. We predict that this would
likely occur by 2013 at which point local production, estimated at 28 million,
would slightly surpass demand (estimated at 27.5 million tonnes). In our
view, more investments in local manufacturing would be needed beyond this
point for the sector to contribute meaningfully to the country‟s exports.
 Government‟s Medium term Fiscal Commitment: We view government‟s
recent medium-term budgetary frame-work (based on National
Improved efficiency of
Implementation Plan for NV2020) as a catalyst for sustained spending on
Government‟s short-term plan for
capital projects. Whilst noting that NV2020 has been flawed with criticism in projects is expected to boost
view of Nigeria‟s poor history of implementation of national goals, the physical infrastructural projects,
medium term frame-work offers a more realistic expectation in government‟s hence demand for cement
commitment to achieve the goal, and also presents a shorter-term frame
work to examine and monitor performance and progression. Therefore, with
government being the biggest spender on physical infrastructure and
perhaps the largest consumer of building materials, one can readily project
cement demand, at least in the short to medium term. More important in the
recently launched medium term National Implementation Plan (NIP) is the
fact that emphasis is placed on capital expenditure (CAPEX) in the
development of critical infrastructure.
Industry Outlook
Cement consumption hinged on government‟s revenue
 We restate that Nigeria‟s investment case for the cement sector and the
broader building materials industry is quite attractive, thus we reaffirm our
long term optimistic outlook for the industry. Our outlook on cement
demand is hinged on expected government revenue from crude oil
(since crude oil constitutes c.90% of government‟s revenue), the
proportionate spending of the revenue on physical infrastructure
while drawing historical correlation between federal government‟s
physical infrastructural spending and cement consumption.
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10. Nigeria I Building Materials I Equities
Figure 6: Federal Government Revenue assumptions
2010 2011 2012 2013
Crude Oil Production (mbpd) 2.4 2.5 2.5 2.5
Crude Oil Price (US$) 60 60 60 60
Real GDP Growth rate (%) 8.2 10.9 11.8 13.1
Population Growth rate (%) 2.8 2.8 2.8 2.8
Source: NIP implementation plan
 In our view, projecting cement consumption this way presents a fundamental
Poor economic conditions argue
basis for the expected boom, especially because with the vast majority of against domestic demand by the
Nigeria‟s population living below the poverty line, it is difficult to justify that masses, putting the spotlight on
the expected rise in cement production can be absorbed by the rather weak the government
purchasing power of the of the citizenry.
 Thus, a base case assumption for cement consumption that is directly linked
to government‟s expected revenue, in our view, provides a more fundamental
backing for our outlook on cement demand. We note however, the increasing
involvement of the private sector through Public Private Partnerships and the
rising spate of debt issuance by governments (both state and federal) to fund
major capital projects. Thus, we reiterate that our outlook represents a base
case on which higher expectations can be built, in view of other possible
sources of funding for physical infrastructure.
Medium term outlook on cement consumption
Following from our overall expectation of government revenue being the key However, fundamentals still point
driver of cement consumption, we expect, based on the analysis of a little in the direction of the
governments‟ (both states and federal) medium term CAPEX on housing and Private sector contribution
road construction, that cement consumption will increase at 4-year CAGR of through Public-Private projects
16.7% to 27.54 million tonnes by 2013. Over the four year period, 2010 –
.
2013, we expect cement consumption to sum up to c.70 million tonnes.
Figure 7: Estimated CAPEX on housing and transportation infrastructure
(2011 – 2013)
State Government (N‟Trn) 3.55
Federal Government (N‟Trn) 1.68
Total (N‟Trn) 5.23
Cement Consumption ('000 tonnes) 69,088
Sources: National Planning Commission, Vetiva Research
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11. Nigeria I Building Materials I Equities
Figure 8: Federal and State government CAPEX on housing, roads, rail and ports
(N‟bn) and cement consumption construction (million tonnes) 2006 – 2013E
30000 2000
24000
1500
18000
1000
12000
500
6000
0 0
2006 2007 2008 2009 2010E 2011E 2012E 2013E
Cement Consumption Government CAPEX
Sources: CBN, Ministry of National Planning Vetiva Research estimates
As seen in the table above, we arrive at an estimated sum of N5.2 trillion
(c.US$35 billion) for housing, road, ports and rail transportation CAPEX Estimates show N5.23 trillion in
(including only projects which based on our view are directly correlated to government spending on
cement consumption while adjusting for outliers). Following from minister of Infrastructure with 50%
implementation and a potential to
finance recent affirmation of about 50% budgetary implementation for 2010,
ramp up in subsequent years
we assume about 60% execution of physical infrastructure projects (relating to
housing and transportation only) for 2010 and while gradually scale percentage .
execution upwards to 75% by 2011, 85% by 2012 and 95% by 2013. We also
assume that unspent allocations on these projects would be automatically
rolled over to the following year.
Potential for export in the medium term?
Based on the medium term outlook presented for cement consumption above,
Actualizing the export potential
the potential for export in the sector may not be realized prior to or by 2013.
might take more than 2 years
Exports of about 4 million tonnes of cement would only be feasible by 2012 if due to the ramping up associated
we make an aggressive assumption that all existing and new cement plants with cement plant expansion
would operate at full capacity by 2012. While this might be possible, we
consider it very unlikely in view of the usual ramping up phase for most .
cement plants. Historically, based on Dangote Cement‟s Gboko Plant expansion
(former Benue Cement Company) in 2008 and Obajana Cement Plant built in
2007, we believe that it will take a minimum of 2 to 2.5 years before a new
cement plant or line can reach full capacity utilisation.
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12. Nigeria I Building Materials I Equities
Figure 9: Aggressive case: Cement production vs Figure 10: Normal case: Cement production vs
consumption (million tonnes) consumption (million tonnes)
30000
30000
22500 22500
15000 15000
7500 Production outstrips 7500 Production lags
consumption; exports likely consumption; exports
unlikely
0
0
2009 2010E 2011E 2012E 2013E
2009 2010E 2011E 2012E 2013E
Consumption Production Consumption Production
Sources: Industry, Vetiva Research estimates
Longer term outlook – Where will it swing?
The outlook for the cement industry in the longer term is strongly correlated to
In the long run, economic
economic and population growth. From the development pattern of most prosperity and population growth
developed economies and emerging markets, the link between GDP growth and would be the major drivers of the
cement consumption is well established. (Figure 11 below shows the correlation of demand for cement
the two)
.
Figure 11: G-20 countries: Cement Consumption Vs GDP per
consumption
1400
S/Arabia
1200
China S/Korea
1000
800
Italy
Turkey
600
Japan
Mexico Germany
400 Russia Canada Australia
Brazil
S/Africa Argentina France USA
200 Indonesia United Kingdom
India
0 Nigeria
0 10000 20000 30000 40000 50000 60000
Cement Production Per Capita
Sources: Industry, Vetiva Research estimates
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In our view, the potential for strong economic growth in Nigeria is Nigeria‟s economic growth is
largely dependent on government‟s ability to intensely increase its strongly linked to increased
revenue and the success of its medium term (2010 – 2013) power funding and the success of the
sector reform. We highlight the following as the reasons undergirding this power sector reforms
view.
.
 Government‟s oil revenue is not sufficient to cater for all its long term
investments; hence the private sector is pivotal to the achievement of these
goals. However, the power sector reform must be successfully implemented to Diversification of sources and
encourage sustainable private sector investment. Notwithstanding, we believe private sector participation are
government can achieve more if its revenue base becomes substantially expected to back up Crude oil
proceeds in boosting revenue
diversified to reduce the heavy dependence on crude oil revenue. Agriculture
and Manufacturing are two key sectors that can help Nigeria achieve the .
desired diversification.
 The growth prospects in the Agriculture and Manufacturing sectors are almost
entirely dependent on the success of the power and banking sector reforms.
Stable power supply would significantly minimize overheads and encourage
large scale private sector involvement in these sectors. Furthermore, re-
structuring of the banking sector to enable Small and Medium Scale
Enterprises (SMEs) access credit facilities is imperative. If these are achieved,
the effect on the broader economy would be higher revenue to government,
lower unemployment and a significant improvement in the purchasing power
of the citizenry.
 Government spending has historically been the major driver of cement A slight shift off the Government
consumption in Nigeria. While we believe government‟s expenditure would still in cement consumption may help
close the cement deficit faster as
account for a sizeable portion of cement consumption in the medium to longer
effective demand grows
term, a more rapid growth could be achieved in the longer term if purchasing
power becomes less concentrated in government‟s hands. Currently, there‟s .
still a huge deficit in Nigeria‟s cement consumption despite the inventory
build-up which had plagued the industry in the last few months as a result of
lower effective demand (demand backed by purchasing power).
Barring failures in Government‟s
 Assuming a successful implementation of government‟s medium term plan on
infrastructural programs and local
critical infrastructure and steady strengthening of commodity prices,
demand boom, cement
particularly crude oil, cement consumption would continue to rise beyond consumption would soon outpace
2013 and would soon out-pace local capacity except new capacities are local production capacities
added.
.
 In line with this, we assume a base case outlook of cement consumption
continuing to rise at a constant CAGR of 13.5% beyond 2013. However,
cement consumption may grow at a much quicker pace if there is massive
influx of the private sector in real estate development, higher purchasing
power and stronger government revenue base.
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14. Nigeria I Building Materials I Equities
Homogeneous product - prospects for integration?
Competition gradually rising...In our view, the Nigerian cement sector is
becoming increasingly competitive. Industry players have attributed the slower While manufacturers blame
waning sales on odd rains and
sales that characterised the industry for most part of this year to heavier-than-
lack of funding, facts point to
usual rainfalls and strained credit flow. While this is partly valid, we believe
increased competition especially
competitive pressures are gradually increasing in view of rising surplus. Recently, in the cities
Lafarge WAPCO launched a new brand of its cement - “Elephant Supaset”- which
portrays, as explained by the company, that the brand would harden or set faster .
under water compared to the usual Portland cement. As we have always
maintained, this buttresses our view that Lafarge WAPCO would be facing intense
competition from Dangote Cement and would gradually incur higher marketing
expenses to defend its market share. We expect the competition to heighten,
especially in the Lagos and Abuja regions when the on-going expansion projects
from Dangote Cement and Lafarge WAPCO are completed next year.
...Vertical integration possible in the longer term: We believe the Nigerian
cement industry would move towards vertical integration in the longer term, as Product homogeneity and market
obtainable in developed countries and emerging economies. Cement is relatively structure are bound to encourage
homogenous in physical attributes and little brand differentiation can be achieved, vertical integration in the long
therefore, as it has historically being in Nigeria, competitive effects relating to term as profit margins eventually
pricing arise more from market structure rather than product alterations. For softens
instance cement is usually cheaper in areas closer to plant or depot locations.
.
Eventually, in the longer term, profit margins would either start reducing or
remain constant, if prices decline or at best remain constant. We believe players
who generate huge volumes would have the upper-hand, until a saturation point
when volume increases might create a glut, and vertical integration would
become imperative to achieve some cushioning in revenue base.
Dynamics of vertical integration in the cement industry: The most common
form of vertical integration in the cement industry involves the acquisition or
Common integration involves
setting-up of ready-mix concrete, aggregate businesses and production of
obtaining ready-mix and
gypsum. Construction activities in most developed countries have been quite
aggregate business units; these
simplified with the use of ready-mix concrete and aggregates. Ready-mix would help simplify construction
concretes (also referred to as customised concrete), which have significant and accelerate permeation of
advantages over site-mix concrete in terms of labour costs and wastage, would be low-cost housing
needed to achieve faster and cheaper housing delivery in Nigeria.
.
Industry Structure
High concentration: The Nigerian cement industry (importation and local
production) is highly concentrated. Based on available data for 2009 cement
consumption from industry sources, the cement industry had a HHI of about
2,840 which based on global standards on anti-thrust policies implies a highly
With a HHI of 2,840, the Nigerian
concentrated and less competitive industry. According to US anti-thrust policy an Cement Industry is quite
industry with a HHI of less than 1000 is considered a competitive market; HH1 of concentrated
1000 – 1800 is considered moderately competitive, while HHI greater than 1800
implies a highly concentrated and less competitive industry. The higher the HHI,
the closer the industry is to being a monopoly. Using FY‟09 data from industry
sources, Dangote Cement controls c.50% of the Nigerian cement industry (both
local production and importation).
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15. Nigeria I Building Materials I Equities
Though 2010 cement consumption data are unavailable, we guesstimate from the
interim earnings announcement of publicly listed cement producers that industry
concentration has increased with Dangote gaining market share, as most other
producers recorded YoY decline in sales. In view of the much anticipated
completion of Dangote Cement and Lafarge WAPCO‟s expansion next year, the
concentration level of the industry would rise further as we expect Dangote
Cement‟s market share to rise to c.70% by end of 2011.
Figure 12: Current market share of Nigerian Figure 13: Expected market share at the
cement producers completion of on-going expansion
4.4%
6.2% 8.8%
18.3%
Ashaka
Ashaka 14.8%
Dangote
Dangote
1.8% CCNN
CCNN
14.7%
Lafarge WAPCO
Lafarge WAPCO
Unicem
57.1% Unicem
70.3%
3.7%
Sources: Industry, Vetiva Research Estimates
Wide variations in operating efficiency: The different fuel types and energy/
cost dynamics of Nigerian cement producers have translated into varied
profitability margins in the industry, with big producers like Dangote Cement
having PBT margins slightly in excess of 50% (based interim Q3‟10 earnings),
whilst that of small-scale producers like Cement Company of Nigeria and
AshakaCem Plc are as low as 11% and 20% respectively.
Figure 14: Industry Average PBT/tonne (N) and Figure 15: Industry Average PBT/tonne (N) and
PBT margin (%) with Dangote Cement PBT margin (%) without Dangote Cement
10000 40%
8695 10000 40%
8304
34%
7286 32%
7500 30%
7500 30%
26% 6284 6357
5537
5544 24%
23%
5000 20% 20%
5000 4447 20%
18%
16%
2500 10%
2500 10%
0 0%
0 0%
2009 2010E 2011E 2012E
2009 2010E 2011E 2012E
PBT/Tonne PBT Margin
PBT/Tonne PBT Margin
Sources: Annual, Vetiva Research Estimates
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16. Nigeria I Building Materials I Equities
Even with the least profitable producer having a PBT margin in the low double-
Though technology sets Nigerian
digits, the cement industry, having an average PBT margin (based on latest
cement players apart, the sector
interim results) of 28%, is still more attractive than the food/beverage,
is profitable on the overall,
conglomerates and breweries sectors of the Nigerian Stock Exchange, which has outclassing the local FMCG‟s and
average PBT margins of 12.4%, 11.6% and 21.0% respectively. matching continental
counterparts.
Figure 16: Average Pre-tax profit margins of key sectors on the Nigerian Stock
Exchange (based on latest interim earnings) .
30%
28%
21%
23%
19%
15%
12% 12%
8%
5.4%
0% Petroleum
Banking
Breweries
Conglomerates
Food/Beverage
Building Materials
Marketing
(Cement)
Sources: Company Filings, Vetiva Research
Operational gearing: Given the huge fixed asset base of the industry, Manufacturers would aim to
operational gearing is high and producers can only reduce its impact through soften gearing effects by upping
higher sales. Overall, the bigger players have the best opportunity to minimise sales, tipping the scales the way
operational leverage at higher volumes. of the big players.
Domination by local players: In comparison to bigger cement markets in Africa
which are still dominated by global players, the Nigerian cement industry has
witnessed a radical shift with the entry of the Dangote Group into cement
production. Suez group, the biggest cement producer in Egypt is owned by the Dominated by Dangote Cement,
Italcementi group – the fifth largest cement producer globally. Other global local influence is strong in the
players like Lafarge, Holcim, and Cemex also have major presence in other North Nigerian cement market, as
African countries. In a similar vein, the Lafarge Group has a significant presence against trends in other African
in South Africa. Although, the Lafarge Group (through its subsidiaries – Lafarge countries.
WAPCO and Ashaka Cement) is the second largest producer in Nigeria, its market
share of c.13% significantly lags behind Dangote Cement‟s 50%.
Prior to 2007, Lafarge WAPCO dominated cement production in Nigeria with a
market share of c.60%. Whilst the Dangote Group has always had a significant
hold on cement importation, its backward integration which culminated in the
commissioning of the Obajana plant in 2007, pushed its dominance to local
production, hence displacing Lafarge WAPCO. Germany‟s top cement producer -
the Heidelberg group, until 2009, had a minute exposure to Nigerian Cement
industry through the Cement Company of Northern Nigeria (CCNN).
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17. Nigeria I Building Materials I Equities
Perhaps due to inability to compete adequately as a result of the small production
scale of CCNN (0.5 million tonnes annual capacity) and its obsolete state, the
Heidelberg group pulled out of the Nigerian cement industry, selling its stake in
CCNN to a local conglomerate – the BUA group, in 2009. The Holcim group, which
entered the Nigerian cement industry in 2005, operates through the Unicem plant
in Calabar (South-South Nigeria). The company is a Joint Venture with Flour Mill,
and Lafarge.
Figure 17: Dominant Cement Producers in some African Countries (put company
before parent)
Production1
Country Company Parent Capacity
Egypt Suez Italcementi 12.0
Morocco Lafarge Ciment Lafarge 7.0
**
South-Africa PPC Barloworld 8.0
Kenya Bamburi Lafarge 2.5
Ghana Ghana Cement Heidelberg 2.4
Nigeria Dangote Cement Dangote 8.0
Source: Vetiva Research
**
PPC - Pretoria Portland Cement, 1Current Production Capacity only
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18. Nigeria I Building Materials I Equities
Figure 18: Emerging market cement producers‟ comparable metrics
EBITDA
(Mkt Mn EBIT Margin ROE (%) EV/EBITDA P/E (x) Dividend yield
Company Margin
USD)
Country 2010E 2011E 2010E 2011E 2010E 2011E 2010E 2011E 2010E 2011E 2010E 2011E
Pret. Portland
S/Africa 2,715.5 38% 38% 33% 34% 112.9 99.3 8.7 7.8 13.1 11.5 5.9 6.7
Cement
Anhui Hong Kong 13,400.2 26% 26% 20% 20% 15.4 16.5 12.1 9.9 21.5 17.8 0.9 1.1
Ambuja India 4,771.3 28% 26% 21% 21% 19.6 18.0 9.4 9.1 15.9 15.1 1.8 1.9
Bamburi
Kenya 885.5 30% 33% 32% 32% 26.6 29.0 7.1 5.5 12.9 9.9 4.7 6.3
Cement
ACC Limited India 4,191.8 25% 24% 22% 19% 20.4 17.9 8.4 8.0 14.1 13.7 2.2 2.3
Gulf Cement UAE 359.8 18% 26% n/a n/a 5.3 12.0 8.5 5.5 24.8 11.5 n/a n/a
Sib Cement Russia 714.0 30% 33% 22% 22% n/a n/a 7.5 5.1 15.0 7.0 n/a n/a
Huaxin
China 1,098.9 17% 19% 8% 9% 6.8 9.5 10.7 7.8 23.6 14.9 0.7 1.0
Cement
Siam Cement Thailand 12,842.1 17% 17% 11% 12% 22.9 23.9 10.9 9.2 14.7 12.2 3.1 4.0
Holcim
Phillipines 1,561.7 33% 33% 27% 27% 23.9 24.9 7.9 7.1 15.0 13.1 3.8 5.5
Phillipines
MISR Cement Egypt n/a 52% 50% 46% 44% 45.2 41.7 n/a n/a 7.3 7.6 11.7 11.0
Sinai Cement Egypt 588.9 51% 49% 45% 47% 36.6 32.4 3.7 3.9 5.0 5.1 12.1 13.1
Tai Shan
China 4,182.1 20% 26% 20% 21% 18.0 20.0 12.8 9.9 18.3 13.9 0.7 1.0
Jidong
Ashaka Nigeria 358.5 25% 34% 23% 32% 20% 25% 10.8 7.4 15.8 11.5 2.3 3.2
Lafarge
Nigeria 860.2 35% 29% 26% 22% 14% 18% 9.9 7.8 18.2 12.9 0.6 1.2
WAPCO
Dangote
Nigeria 13,553.40 58% 61% 51% 56% 59% 83% 18.3 11.1 20.9 12.7 3.7 5.9
Cement
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19. Nigeria I Building Materials I Equities
Demand Dynamics – What drives consumption?
Government‟s expected spend on the built environment- Government, As capital expenditure grows,
both at state and federal levels, would still be the major driver of cement government spending on
demand in the medium term, as it has been historically. The expected CAPEX on Infrastructure follows suit, even
infrastructural development as detailed in the medium term National Plan would as new road construction
be the boost for demand in the next three years, if adequately implemented. techniques use to cement
Cement constitutes about 7% to 15% of concrete-(a mixture of cement and
.
other aggregates), a key material in construction; thus an increase in
construction activities naturally means a rise in demand for cement as well. As a
pointer to the fact that increasing government spending on housing and road
construction has been a key driver of the upswing seen in demand for cement in
Nigeria, the federal government‟s capital spending rose by c.212% between
2004 and 2008. In the same vein, state governments (Federal Capital Territory
inclusive) CAPEX on housing and transportation infrastructures have also peaked
significantly over the last five years. According to figures from CBN‟s 2008
annual reports, state governments and FCT capital spending on housing and road
construction rose to N388.3 billion in 2008, from N50.2 billion in 2004. We
expect an additional 144% rise in federal and state governments CAPEX on
housing and transportation (road, rail and port construction) between 2009 and
2013 (See figure 19 below).
Figure 19:Actual and forecast Government (state and federal) CAPEX (N‟Bn) and
yearly growth (%) on housing and physical infrastructure in transportation
2000
104%
100%
1500
76% 78%
60%
1000
23% 21%
500 17% 17% 20%
-8%
0 -20%
2006 2007 2008 2009 2010E 2011E 2012E 2013E
Government CAPEX Y-o-Y growth
Sources: CBN, Vetiva Research Estimates
Apart from government‟s CAPEX, recurrent expenditure on road maintenance
and housing are key contributors to the increase seen in the demand for cement
over the years. Recently, the chairman of Dangote Group, Alhaji Aliko Dangote
proposed the use of concrete, rather than bitumen, in road maintenance. Whilst
some local government roads in major cities like Lagos are already being re-
constructed using pre-cast concrete, the suggestion may cause stakeholders to
introduce more of concrete in road maintenance, as it is the case in South Africa.
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20. Nigeria I Building Materials I Equities
If the use of concrete in road maintenance receives increased acceptance,
cement consumption would considerably rise faster than our forecasts, which
have been solely based on expenditures on capital projects.
Public-Private Partnerships (PPPs) in real estate development: The
growing involvement of public-private partnerships in real estate development With about 600,000housing units
across the country would also continue to contribute substantially to cement expected from PPPs, close to
demand. In 2009, the federal government signed partnership agreements with N105 billion would be spent on
ten private sector real estate developers and investors, to increase national housing provision in the next 3
housing stock by 1,694 units in Osun, Adamawa, Ondo and Niger states, and the years
Federal Capital Territory. According to the erstwhile minister of works, housing
and urban development - Dr Muhammed Lawal, the federal government had
signed 80 partnership and Development Lease Agreement to spur development
of affordable housing in Nigeria. Also in the government‟s national development
plan on housing, increased emphasis is placed on forming more PPPs to help
drive the national plan on housing delivery. Thus, the federal government plans
to deliver 600,000 housing units under Public Private Partnerships (PPPs)
arrangement, estimated at cost of c.N105 billion over a three year period from
2011 to 2013.
Growth in private sector real estate development: Whilst admitting
governments‟ (at State and Federal levels) efforts on housing delivery to its While the Private sector plays a
citizenry, one should note that the complexities surrounding the effectiveness of growing role in housing provision
the land use regulations in Nigeria, and the fast rate of urban migration in for Nigerians, funding challenges
Nigeria have continued to promote the growth of private sector in housing have limited delivery in 2010
delivery. We conclude therefore, that the private sector (either at organized level
as real estate development companies, or through individuals) is increasingly
becoming the major provider of housing to Nigerians. This year however, the
slow-down in credit to the private sector has adversely affected overall cement
consumption.
Figure 20: Credit to Government vs Credit to Private Sector
(% growth over 2009 levels)
70
Credit to Government
60 Credit to Private Sector
50
40
30
20
10
0
-10
Jan Feb Mar Apr May Jun Jul Aug Sept Oct
Source: Central Bank of Nigeria, Vetiva Research
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21. Nigeria I Building Materials I Equities
Private real estate developers became quite pivotal in housing delivery in the
country after federal government‟s housing reforms of 2003/2004. We note also
Private real estate developers
some key features of the reform which catalysed the rapid growth seen in the
benefitted from the 2004 housing
number of private estate developers between 2004 and 2008. Some of these
reforms, riding on the 2008
features include; assignment to government of primary infrastructure for new economic boom to boost demand
estate development, an amendment of the Land Use Act, development of a for housing ergo cement
secondary mortgage market and a five-year tax holiday for developers. In line
with the general economic boom of the 2007/2008 era, real estate development
also witnessed a significant boom during this period, translating therefore into
huge demand for cement and other building materials.
Changing landscape of supply
Cement glut…possible? The dynamics of cement supply in Nigeria is gradually
changing from being predominantly dominated by imports to local production. In Local manufacturing is growing
line with the additional supply expected to come from new capacities by 2012, fast, significantly cutting imports
we believe imports would gradually shrink within the next 2 to 3 years. Whilst we
do not expect the slow-down in cement demand this year to persist, we are not
overly bullish on cement demand rising significantly next year for political
reasons, as development projects typically slow-down during election years in
most African countries. Furthermore, credit to the private sector is not yet at the
desirable level after last year‟s shake-up of the banking sector.
Further compounded by the Central Bank‟s rising concern on inflationary
pressures and its somewhat weariness to continue to stimulate banks to lend to
the real economy as indicated by recent rate hikes, credit extension to the
We expect minimal improvements
private sector is not likely to witness any significant improvement in the short over this year‟s consumption
term, at least until after the April 2011 polls. This implies that the slow-down seem likely, in view of the slow-
seen in demand this year may only improve slightly in 2011, if weather down in new infrastructure spend
conditions (heavy rainfalls) are not as adverse as they were in 2010. In our view expected pre-elections
therefore, supply would likely still outstrip effective demand next year and big
producers like Dangote Cement and Lafarge WAPCO, which expect additional
capacities next year, must begin to seek creative means to sell their product.
Dangote Cement which is currently planning to commence exports, would likely
see its revenue cushioned by exports to other West African countries. The
alternative for Lafarge WAPCO and other smaller producers might be to reduce
capacity utilisation rates.
Post-elections, especially by 2012, we believe there would be major
improvements in demand and purchasing power, especially in view of the
expected improvements in power supply, coupled with stability and increased
As availability of power, political
lending to the private sector. With our expectation of increasing implementation
stability and access to loans
rate of the medium term National Development Plan, local demand would likely
converge in 2011; demand for
surge again to fully absorb cement supply. Prior to 2010, cement demand had cement is bound to increase
significantly outstripped supply and the resultant supply deficit made Nigeria the
third largest importer of cement in the world. Between 2004 and 2008, imports
accounted for about 64% on average of cement supply, while local production
only accounted for 36%.
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22. Nigeria I Building Materials I Equities
Supply dynamics however changed in 2009 as Dangote Obajana and BCC
recorded higher utilisation rates. We note that local production now accounts for
With the expected up-shoot in
the larger proportion of cement supply in Nigeria. Industry estimates for 2009
local supply, companies have
put production at c.59% and importation at c.41% of total cement supply. In
developed more frameworks for
view of the bulky nature of cement which posts significant problem in distribution, with Dangote cement
transportation over long distances, supply is typically localised to the immediate running the broadest network
region of cement manufacturers. The south west region has historically been
dominated by Lafarge WAPCO‟s Elephant Cement, Flour Mill‟s Burham Cement
and Dangote Cement. In a similar vein, the north-west region is dominated by
Cement Company of Northern Nigeria - CCNN‟s Sokoto Cement while the north-
east region is largely controlled by Ashaka Cement. Benue Cement Company and
Obajana Cement - both owned by Dangote Industries (before the Merger of the
two entities), accounted for the larger portion of local production and cement
supply in 2009. Dangote Cement is however able to penetrate most regions of
the country because of its extensive depot network.
Tighter importation policy: In line with the changing dynamics of cement
supply in Nigeria, government policies on cement imports have become tighter. Regulations favour local
production as conditions for
The new cement import policy announced by the federal government in August
importation have become more
2010, involves re-stating the 20% import duty on bulk cement and the
stringent
imposition of a 15% levy on the cost, insurance and freight price of bulk cement
to substitute the existing N500 per tonne, which would be utilised in the
development of the Cement Technology Institute. Also, as a part of the new
cement import policy, the federal government cancelled all existing un-utilised
cement import quota between 2002 and 2008, and stated that an annual review
of local production would be carried out going forward, to determine the need for
cement imports.
Figure 21: Cement import terminal operators and import quota (Jul.-Dec. 2010)
Capacity Import
Company Location („tonnes) Quota2
Eastern Bulkcem P/Harcourt 600,000 225,000
Ibeto P/Harcourt 1,500,000 245,000
BUA Floating terminal, Lagos 1,051,000 225,000
Flour Mill Apapa Port, Lagos 2,000,000 600,000
Dangote Cement P/Harcourt, Onne 3,000,000 895,000
Apapa, Tincan & Aliko
3,000,000
terminals, Lagos
Lafarge: Atlas P/Harcourt 2,000,000 160,000
Sources: Media, Industry sources
Local manufacturing capacity and utilisation rates: Besides the expected Apart from new plants, ramping
rise in volume from the new cement plants which would be commissioned next up of utilisation by older plants
year, existing plants will continue to ramp up capacity. Based on our estimates, would also increase supply
average capacity utilisation in the industry as at Q3‟10 in 2010 was about 62%,
even though Obajana Plant‟s capacity utilisation was c.90%.
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23. Nigeria I Building Materials I Equities
According to the Nigerian Bureau of Statistics, Nigeria‟s average utilisation rate
for the cement manufacturing sector stood at 53.39% between 2002 and 2007.
Owing to the gradual ramp up of the Obajana plant and Gboko (former Benue
Cement Company), which were commissioned in 2007 and 2008, capacity
utilisation dropped to 47% in 2007, but steadily rose to 59% in 2009, using
available data from industry sources. Based on our estimate, average capacity
utilisation in the cement industry stood at 66% as at Q3‟10. However, we project
that average industry capacity utilisation would dip slightly to 65% in 2011, but
rise again in 2012 when most of the new plants would have ramped up
capacities.
Figure 22: Actual and forecasts of production volume („000 tonnes) and
capacity utilisation rates (%) from local manufacturing
25000 90.0%
82.1% 82%
20000
64.7%
58.8% 60.0%
15000 54.5%
10000
30.0%
5000
0 0.0%
2008 2009 2010E 2011E 2012E
Production Volume Utilisation Rate
Sources: Annual reports, Vetiva Research Estimates
Pricing Dynamics: Likelihood of crashing?
Notwithstanding the significant increase in cement capacity anticipated next
year, we do not see major cuts in cement prices in the mid to long term. To
stimulate sales in 2011 in view of the inventory build-up witnessed by producers We believe cement prices would
this year, a slight cut in prices next year is likely. In our view, once producers be kept relatively stable by
volume adjustments despite
clear up built-up inventory, the alternative would be to reduce capacity utilisation
foreshadows of changes in supply
to minimize production rather than embark on aggressive price cuts to stimulate
and demand
sales. We however believe that it would be more profitable for cement producers
to maintain higher capacity utilisation given the huge operational gearing of the
industry. By Q4‟11 we believe demand would increasingly become stronger, as
the newly elected government settles in, and continue the pursuance of the
medium term National Development Plan on infrastructure development.
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24. Nigeria I Building Materials I Equities
Despite our expectation of a resumption of strong demand at this period, we do
The excessive cost of cement
not see producers hiking prices; we believe volume play would be a core production in Nigeria is expected
strategy, as new plants gradually reach higher utilisation rates to remain to fall with improvements in
competitively profitable. We reiterate that cement prices would at best, power and political stability in the
remain constant. The following are factors that underpin our view that Niger Delta
cement prices are not likely to crash in the medium term:
Huge cost of production: With an industry average of $102 per tonne, the cost
of producing cement in Nigeria is one of the highest globally.
Figure 23: Comparison of production cost (USD per tonne) of cement
120.0
103
90.0
60.0 54 55
45
40
32.2 32 33
26.2 24
30.0 23
15
0.0
Egypt
Oman
Jordan
S/Arabia
China
UAE
Iran
Nigeria
Ave.MENA
India
Algeria
Ave. Europe
Sources: CEMNET, Vetiva Research
Excluding Dangote Cement (which has the least cost of production per tonne of
$58) from the industry would even raise industry cost of production further to
$117 per tonne (based on FY‟09 figures). Whilst we expect some reduction in Average cost of production per
production costs for most Nigerian cement producers with the increasing tonne for Nigerian cement
producers is $103, quite higher
popularity of using coal as an additional fuel alternative, and the relative stability
relative to most emerging
in the Niger-Delta region, the expected decline in production cost would not be
economies
significant enough to warrant a crash in cement prices. A producer like Dangote
Cement has a significantly lower cost of production relative to others because it
predominantly uses gas, which is the cheapest fuel source locally, in its 5 million
tonnes, Obajana Cement Plant. However, due to the usage of Low Pour Fuel Oil
(LPFO) at its Gboko plant, Dangote Cement‟s production cost of $58 per tonne,
despite being the lowest in the Nigerian cement industry, is quite higher than
what is obtainable in other emerging economies in Africa and Asia like Egypt
($33), India ($32) and China ($26). The comatose state of electric power in
Nigeria is another contributing factor to the high production costs of Nigerian
cement producers, as more cement plants virtually run on generating plants
which mostly run on diesel, LPFO or gas in some cases.
Nigerian Cement Sector: Unbundling Potentials I January 2011 I 23