Vetiva: Rising energy, production cost may lead to cement price increases

The cement industry in Sub-Saharan Africa is facing a mix of challenges and opportunities as highlighted in a recent report by Vetiva. Rising energy costs and production inputs could lead to price increases in the sector, even as competition remains intense. Abigail Alabi, Industrial Goods Analyst for Sub-Saharan Africa at Vetiva, joined CNBC Africa to discuss the report and shed light on the outlook for the industry. Last year, the cement sector faced several headwinds, including currency redesign, increased rainfall affecting demand, and a transition to a new administration causing a slowdown. However, the outlook for this year seems more promising with the new government's focus on infrastructure development. The creation of an infrastructure fund signals a commitment to driving volumes for cement producers and impacting their financial performance. Across Africa, Pan-African volumes performed well last year, driven by infrastructure development in countries like Ghana, Senegal, Ethiopia, and Cameroon. This trend is expected to continue in the coming year, benefiting companies like Dangote Cement. In Nigeria, the 2024 budget allocation for infrastructure development shows a slight increase, but challenges such as required expenditure for wages and the country's increasing debt profile could hinder full implementation. Despite these constraints, the government is expected to make efforts to boost infrastructure development. Companies like Dangote Cement and Lafarge have been proactive in cost control measures, such as adopting alternative fuels like natural gas. Pricing remains a key factor for cement players operating in a high-cost environment, with the need to either increase prices or stabilize them to protect margins. Boas Cement's expansion plans, including commissioning new plants, are set to increase production capacity and volumes, offsetting any declining prices. However, concerns remain about the long-term sustainability of price reductions given the industry's cost environment. With Nigeria's Minister of Works hinting at a shift towards concrete roads from asphalt, the sector could see increased volumes if this transition materializes. While concrete roads offer durability and a longer lifespan, the high initial investment poses budget challenges. The potential switch to concrete roads could boost cement producers' volumes if implemented. In terms of exports, Nigerian cement companies like Dangote Cement and Boas Cement have been exporting to neighboring countries, with plans to expand into new markets. Despite challenges like border closures due to conflicts, companies are looking for alternatives to drive exports and gain foreign exchange. Overall, the cement sector in Sub-Saharan Africa is poised for growth driven by infrastructure development, cost control measures, and export opportunities, despite challenges posed by rising energy costs and production inputs.