Nigeria cement makers volumes decline in H1'23

Cement makers in Nigeria have faced a challenging first half of the year, with weak volumes impacting their performance. The industry has been hampered by energy constraints, a nationwide cash shortage, and weak capital expenditure. Analysts at Vetiva have expressed caution regarding the outlook for strong cement demand from the public sector in the second half of the year. Abigail Alabi, Industrial Goods Analyst for Sub-Saharan Africa at Vetiva, discussed the major challenges faced by cement makers in Nigeria. She highlighted that the cash shortage and election uncertainties in the first quarter had a significant impact on producers like Dangote Cement and Lafarge, leading to a decline in volumes for both companies. To navigate the high input costs, which are primarily driven by energy costs, companies such as Dangote Cement and Lafarge have shifted to alternative fuels like biomass and a multi-fuel system combining gas and coal for production and distribution. Additionally, they have transitioned from diesel trucks to compressed natural gas for distribution, aiming to improve profitability margins. Looking ahead, Alabi mentioned that the expansion plans for companies like Dangote Cement include ventures into underserved African countries to meet the demand for cement. With the growing population in Africa and low cement consumption rates, there is a significant opportunity for Nigerian cement players to expand their reach and tap into a larger market. Discussing other industrial players, Alabi highlighted Julius Berger's challenges with cash crunch and election uncertainties in the first quarter. However, she noted that the real estate sector's sustained demand and potential federal government capital projects could drive growth for Julius Berger in the second half of the year. On the foreign exchange front, Alabi pointed out that the unified exchange rates and improved availability of the dollar could positively impact companies sourcing FX for importation of building materials. This development is expected to help mitigate FX issues for companies like Julius Berger. Zooming out to the broader Sub-Saharan African region, Alabi discussed the outlook for cement makers in countries like Kenya, Angola, Ghana, and South Africa. She highlighted how political climates, infrastructure investments, and energy challenges were shaping the cement industry in these nations. In terms of stock performance, Lafarge was identified as a fundamentally strong stock with a focus on cost efficiency and capacity optimization strategies. Alabi expressed optimism about Lafarge's ability to navigate challenges and improve bottom-line growth, positioning it as a "buy" recommendation. In conclusion, Alabi forecasted a bullish trend for the industrial goods sector, driven by government policies, such as the removal of subsidies and exchange rate unification, which are expected to attract investment into the equities market. The overall outlook for industrials, including cement makers and other players, appears positive with opportunities for growth and profitability.