Nigeria: managing the surplus

Earlier this week United Cement Company of Nigeria Ltd (Unicem) became the latest domestic producer to announce a new round of investment as it aims to double capacity by 2016. But with the country's recent drive to increase volumes resulting in the present-day overcapacity situation, particularly in the southwest, how will the market deal with the situation and what measures are producers taking to manage the surplus?
 
The last two years have seen Nigeria come of age, at once becoming self-sufficient in cement production and the largest producer in sub-Saharan Africa. In 2010, effective capacity was estimated at 8.7Mta, rising to 13.9Mta in 2011 and then to a massive 26.8Mta last year. Cement consumption reached 19.4Mt last year, while production nearly caught up at 18Mt for the full year. In 2013, the focus is expected to be the continued ramping up of recent new capacity. Lafarge WAPCO's expanded 2.5Mta Lakatabu plant is expect to record 80 per cent capacity utilisation by the end of this year, while Dangote's 6Mta integrated Ibese works and 5.25Mta Obajana line should reach a combined capacity utilisation rate of 80 per cent (2012: 68 per cent).
 
With other plants and expansion projects in hand or planned, capacity could increase to 28.4Mta by the end of 2013, 32.4Mta in 2014 and 37.9Mta in 2015. The country's leading producer Dangote Cement is leading the charge and last year took its existing capacity to 10Mta through a series of debottlenecking and expansion projects while it also commissioned three new lines with a total capacity of 9Mta. Three additional cement lines are under construction, with a total installed capacity of 9Mta of cement. Other projects include BUA's new 2.9Mta works, which is scheduled for completion towards the end of this year and the recently-announced project by Unicem.

Untapped domestic potential?

Looking at the long-term picture, Nigeria is a growing economy and with its low cement consumption per capita base, it has significant growth opportunities given its housing and infrastructure needs. There exists a considerable unfulfilled demand due to exceptionally high prices, lack of funds for construction, and until 2012, an overall shortage of cement. Consumption has been rising steadily but per capita in 2012 is estimated at 114kg, well below that of neighbouring West African countries without oil revenue. Cement consumption could increase by 7-10 per cent annually for some years to bring demand to over 30Mt in 2017, providing there is consistent economic growth, and a move towards wider wealth distribution and an improved flow of income from the federal government to the state governments.

Trading places

Imports have fallen to much lower levels since 2010 (7.32Mt), as the domestic production base has grown and related curbs put in place by the government. In spite of this, the Ibeto Group, has been able to maintain its import license, winning a court case allowing it to import 1.5Mta until 2017 through Port Harcourt. As such, the continuation of imports, especially into the southeastern region, was cited as the reason for the temporary closure of Dangote's Gboko cement works last December. The plant resumed operations last week due to increasing demand since the beginning of January, according to the company.
 
With cement supply currently exceeding demand, Nigeria is on the cusp of becoming a net exporter. Dangote Cement is readying itself to make the switch from being the world's second-largest importer of cement to a major exporter to African countries. Speaking earlier this week at the Cemtech Middle East & Africa 2013 event in Marrakech, Morocco, Mr DVG Edwin, group executive director of Dangote Cement, said he foresees the company growing into the "biggest trading company for cement and clinker in West and Central Africa, with more than 5Mta by 2015." The company plans to convert the Lagos terminal to handle exports and is planning import terminals in neighbouring West African countries, but will have to compete against more established players. Moreover, capacity increases in destination countries may result in challenging export market conditions and Nigerian producers, and will have to compete with a the lower prices offered by other suppliers from North Africa, Europe and Asia.