Cement makers in Nigeria should brace up for intense completion following the recent price cut by the largest producer, Dangote Cement.
“We expect the other cement producers such as WAPCO, UNICEM and AshakaCem in the Lafarge Africa Group and Cement Company of Northern Nigeria, to cut cement prices,” said Tajudeen Ibrahim, team head, Chapel Denham.
“The sales volumes of the cement industry may however not rise on the back of the price cut, as the relationship between price and consumption is weak,” said Ibrahim.
In a related development, Nigerian conglomerate BUA Group has signed $600m worth of contracts with China’s Sinoma International Engineering to double capacity at its flagship cement plant as it seeks to expand market share in Africa’s biggest economy.
BUA group, with interests in cement, pasta, steel and real estate, said it expected to double capacity at its Obu cement plant, which currently produces 3.5-million tonnes.
“BUA has less than 10% of market share now, after expansion we should go to about 20%,” he said.
The drags in infrastructure developments due to government’s weakening fiscal strength and pressured consumer wallets will slow the demand for building materials, industry watchers say.
Analysts expect another round of devaluation of the naira, which may force firms to increase the price of cement to protect profit margins.
The Central Bank of Nigeria (CBN) has devalued the naira twice since November last year, to protect the currency from continued fall, caused by a 50% drop in the price of oil.
The latest earnings update showed the four major players in the industry are in a growth spurt, despite the economic doldrums.
The cumulative revenues of the four dominant cement makers (Dangote, Lafarge, Ashaka and Cement Company of Northern Nigeria), as reported in their (H1) 2015 results, rose by 13.02%, to N378.40 billion, from N334.79 billion last year.
The cumulative net profit of these firms increased by 24% to N156.94 billion in June 2015 as against N126.17 billion last year, as alternative cheap sources of energy cut costs and bolster the bottom line.
Dangote Cement has announced its intention to increase its cement production capacity in Nigeria by c.20% to 35.25 mtpa from 29.25 mtpa currently.
