Cement sector GDP’s growth falls on rising cost

The real gross domestic growth of the cement sector in Nigeria fell to 2.30 percent in the third quarter of 2024 from 4.20 percent in the same period of 2023 due to rising costs.

According to Nigeria’s gross domestic product (GDP) report, on a quarter-on-quarter basis, the sector growth was higher in Q3, increasing from 1.74 percent in Q2 2024.

“This deceleration in annual growth was mirrored in related sectors like real estate and construction,” analysts at CSL Stockbrokers said in a report.

The report disclosed that real estate growth declined to 0.68 percent in Q3 2024, down from 1.90 percent in Q3 2023, while construction growth decreased to 2.91 percent from 3.89 percent over the same period in 2023.

“These trends underscore broader industry challenges, influenced by economic pressures, rising costs, and other macroeconomic factors,” the analysts said.

In the nine months of 2024, Nigeria’s listed cement makers reported N2.5 trillion in revenue largely fueled by increased local market sales, a 69.1 percent growth from N1.5 trillion reported in the same period of 2023.

Despite strong revenue growth in Nigeria’s cement sector, bolstered by increased government capital expenditure (CAPEX) and heightened private-sector activity, the industry continues to grapple with the adverse effects of a challenging macroeconomic environment.

However, rising costs and the persistent depreciation of the Naira have placed significant strain on profitability.

The analysts said that in Q3 2024, key players—BUA Cement, Dangote Cement, and Lafarge Africa reported substantial foreign exchange losses totaling approximately N300.97 billion, a significant 122.32 percent increase.

“These foreign exchange losses have materially impacted the profitability of some major players in the industry,” it said.

While the Nigerian cement sector continues to benefit from increased government and private-sector investments, the industry remains under pressure due to escalating costs, foreign exchange volatility, and broader macroeconomic challenges.

Read also: Cement makers’ cash flows decline on headwinds

CSL analysts suggest that sustained revenue growth and strategic financial management will be crucial for the sector to navigate these headwinds effectively. Additionally, policy measures to stabilise the Naira and reduce operational costs could play a pivotal role in supporting the industry’s recovery and long-term growth.

Similarly, Cardinalstone research in a report said that the Nigerian cement sector will report a revenue boost in the second half (H2) of 2024, driven by a surge in public sector demand and government-backed infrastructure projects.

They said that an elevated pricing environment will boost their top lines, noting however that severe cost pressures, higher energy prices, haulage costs, FX losses, and a higher effective tax rate in 2024 are likely to pressure margins.

“The outlook for the cement industry is largely positive on the back of the Federal Government’s capital expenditure drive, which includes a N10 trillion allocation in the 2024 budget and an additional N6.2 trillion supplementary budget,” the analysts said.