Following the removal of movement restrictions in Q3 2020 and the resumption of economic activities, the impact of such reopening was evident in the financial performance of the three major players in the cement industry (Dangote Cement, Lafarge and BUA Cement). Specifically, Dangote Cement recorded a 13% y/y increase in sales volume (for its Nigerian operations), while Lafarge and BUA Cement reported growth of 6% y/y and 13% y/y, respectively. The growth across the board reflects the full reopening of the economy as many residential and commercial projects began operations fully.
Recall that the restrictive measures put in place in the second quarter of 2020 dealt a huge blow to the revenues of two (save for BUA Cement) major cement players. Notably, the CBN Manufacturing PMI showed that demand for new orders in the cement subsector slowed to 63.6 points at the end of Q2 2020 from 70 points in Q1 2020.
However, demand for real estate investments which improved amid favourable weather conditions and a low interest rate environment led to increased demand for cement. The rise reflected in the real estate sector evidenced by the posted recovery of 2.81% y/y as of Q4 2020.
Furthermore, there was an increased level of government spending on capital projects as the sum of N1.74tn was spent for FY 2020, which is slightly below the budgeted capital spending of N1.96tn and translates to a performance ratio of 89% compared with N1.21tn (41% of the budgeted sum of N2.93tn) achieved in 2019.
Looking ahead, we expect moderate growth in the cement sector to be supported by the government's capital spending. However, the pressured household income amid the fast declining purchasing power leaves the possibility of a muted demand for housing projects. Furthermore, we anticipate more price discounts from the market players to drive volume growth. That said, we believe for the sector's potentials to be fully attained, demand would need to be boosted by improved consumer spending.