Government spending to drive cement demand in H2’24’

The cement sector in Nigeria is expected to experience a significant uptick in revenue in the second half of 2024, driven by government-led infrastructure projects and improved public sector demand. Analysts at Cardinal Stone Securities have a positive outlook on the sector, despite facing severe cost pressures such as energy price increases. Adebayo Adebanjo, a Senior Analyst at Cardinal Stone Securities, discussed the factors contributing to this optimistic view. Adebayo highlighted that the strong rebound expected in 2024 follows disruptions seen in the previous year, including cash crunches and supply chain constraints. With these challenges absent this year, a robust increase in cement volumes is anticipated. The Nigerian government's focus on infrastructure development is a key driver, with a significant portion of the budget allocated to capital expenditure. This commitment to infrastructure projects is reinforced by funds earmarked for interventions in states, further boosting infrastructure spending. Additionally, cement prices are expected to rise, with industry players like Dangote Cement already announcing price hikes, adding to revenue expectations. Apart from public sector demand, companies are exploring other avenues for growth. Export activities are on the rise, particularly by major players like Dangote Cement and BUA Cement, targeting markets beyond Nigeria. Dangote Cement's operations in various African countries necessitate exports from its Nigerian market to meet demand in regions operating at full capacity. Private sector demand also remains strong, evident in the widespread construction activities across the nation, emphasizing the inelastic nature of cement demand in Nigeria. While the outlook is positive, Adebayo also highlighted potential upside risks, such as the transition to alternative fuels to alleviate energy cost pressures in the long term. Companies like WAPCO are investing in green initiatives like CNG-powered trucks to reduce reliance on diesel, which could enhance margins over time. However, the immediate impact on margins is expected to be modest as the shift to alternative fuels will take time to materialize. Energy cost pressures are likely to persist in the short to medium term, affecting margins until green initiatives become fully operational. In conclusion, while near-term margin pressures are anticipated due to macroeconomic challenges and rising energy costs, the cement sector's revenue outlook remains positive for the second half of 2024. The government's infrastructure agenda, coupled with export opportunities and resilient private sector demand, are poised to drive growth in the sector. As companies navigate cost pressures and invest in green solutions, the long-term prospects for the cement industry in Nigeria appear favorable.