Nigeria’s current cement demand has been met with 51Mt/annum in production capacity, held by Dangote (32Mt), Lafarge (11Mt) and BUA (8Mt).
Altogether the plants operate at about 54 percent utilistion rate. BUA has the highest utilisation of 62 percent, ahead of Lafarge (50%) and Dangote Cement (49%).
However, despite having 46% of spare plant capacity, the cement players have not put the brakes on increasing cement capacity, as they continue the construction of new cement plants.
The Nigeria cement market has evolved over the past decade, from being a net importer of cement to now, a growing net exporter. The increasing spare capacity from the cement plants are to be channelled towards meeting the growing export market. Dangote and BUA are at the front of this export strategy.
In 2019, BUA added 4.5Mt of new plant capacity in Okpella and Kalambaina. In 2020, Dangote increased plant capacity by 3Mt with Obajana line 5.
And it does not stop there. In 2021, BUA and Dangote Cement plan to increase production capacity by 3Mt in Kalambaina and 6Mt in Okpella (greenfield), respectively.
Dangote’s new plant site in Okpella, Edo, comes after the court restrained Dangote from interfering in the disputed Obu-Okpella mines which belong to BUA.
Lastly, BUA announced plans to add another 9Mt in Adamawa, Edo and Sokoto states by end of 2022 (but more likely from 2023). Lafarge Africa is the only player yet to announce any plans to add capacity.
Upon completion of the new plants, BUA will overtake Lafarge to have the second-largest cement plant capacity in Nigeria with 20Mt, by 2023.
“In our view, a more important factor than just adding new production plants, is where these new plants are located. We think BUA is more strategic in its location choices, going by its announcements, as it seems to target untapped markets where there are fewer cement plants and places its new plants farthest from existing production,” Tellimer Research said in a report on the sector released on Wednesday.
BUA commissioned the new 4.5Mt plants in Sokoto (North) and Edo States in 2018, after the 0.5Mt Sokoto plant operated at almost 100 percent capacity.
This increased BUA’s market share by 7ppts to 19 percent in 2019, from 11 percent in 2017.
On the other hand, the impact of Dangote’s addition of 3Mt with the Obajana line 5 was almost unnoticed in 2020, as the market share was unchanged at 60%, according to Tellimer.
“While Dangote has an impressively wide distribution network that brings cement closer to these ‘untapped’ markets, BUA’s plant location in these markets makes the pricing more favourable as lower distribution costs are incurred. BUA also has the least revenue per ton compared to Dangote and Lafarge. And while BUA’s pricing could be keeping them from improving gross margin (46%), which is lower than Dangote’s 58% but higher than Lafarge’s 29%, the favourable pricing along with the high cement quality (based on distributors’ feedback) is likely to favour BUA’s market share capturing,” Tellimer Research said.