Despite Dangote Cement Impressive financial performance, industry analysts are raising concerns about the company’s future pricing power.
ABIODUN JIMOH therefore write that with
Nigeria’s cement production capacity at 40 million metric tons (MT) but actual utilization at just 16 million MT, one would expect lower prices. Yet, cement remains expensive, leading to speculation that oligopolistic market control and high debt obligations may be keeping prices artificially elevated.
Adding to the uncertainty is the entry of China’s Huaxin Cement, which recently acquired Lafarge Africa (WAPCO). If Huaxin expands WAPCO’s production and adopts a low-margin strategy, it could disrupt Dangote Cement’s pricing model.
While Nigeria’s housing deficit ensures strong demand, growing competition and potential government intervention may force Dangote Cement to adjust its strategy in the coming years
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Dangote Cement continues to dominate Nigeria’s cement industry, posting record-breaking revenues and maintaining its stronghold in the market. However, analysts are beginning to question whether this impressive performance is sustainable, as competition intensifies and pricing pressures mount.
The latest financial reports show that Dangote Cement recorded N3.5 trillion in revenue, surpassing even MTN Nigeria’s N3.3 trillion, making it Nigeria’s highest revenue-generating listed company. Yet, despite these numbers, industry experts warn that cement pricing in Nigeria remains stubbornly high, even in the face of increasing production capacity.
In a recent discussion on the “Drinks and Mics” podcast, leading analysts—Ugo Obi-Chukwu (Nairametrics CEO), Samson Esemuede (Zrosk Capital), Tunji Andrews (Awabah CEO), and Arnold Dublin Green (Cordros Capital)—offered insights into the factors shaping Nigeria’s cement industry. While they acknowledged Dangote Cement’s financial strength, they raised red flags about the company’s future pricing power and market stability.
Why Are Cement Prices Still High?
Nigeria’s cement industry boasts an installed capacity of 40 million metric tons (MT) annually, yet actual consumption stands at just 16 million MT. This discrepancy raises a fundamental question: why are prices still high despite an apparent oversupply?
Analysts argue that traditional economic principles—where excess supply leads to lower prices—don’t necessarily apply to Nigeria’s cement sector.
2 Is It an Oligopoly?
One possible explanation is the market structure. The Nigerian cement industry is largely controlled by a few dominant players—Dangote Cement, BUA Cement, and Lafarge Africa (WAPCO). Samson Esemuede suggested that oligopolistic control enables these companies to maintain high prices despite growing production capacity.
“We’re looking at an industry where the major players can dictate pricing,” he explained. “Even with excess capacity, they may not have the incentive to drive prices down.”
3 The Role of Ownership Structure and Debt Servicing
Ugo Obi-Chukwu provided a counterpoint, arguing that pricing isn’t just about market control but also about financial realities. He noted that both Dangote Cement and BUA Cement are heavily leveraged, meaning they must prioritize debt repayment and profitability over price reductions
“When you’re carrying significant debt and expanding into other industries, lowering prices isn’t always a viable option,” Ugo stated.
This raises another concern: if cement producers must maintain high prices to stay profitable, what happens when new competition enters the market?
Threat of New Entrants
A major development in the industry is the acquisition of Lafarge Africa (WAPCO) by China’s Huaxin Cement. Analysts believe this move could fundamentally shift Nigeria’s cement pricing structure, as Huaxin has the resources and operational model to undercut existing competitors.
Samson Esemuede pointed out that if Huaxin increases WAPCO’s capacity from 5 million to 10 million MT, it could operate at significantly lower margins, forcing Dangote and BUA to rethink their pricing strategies.
“The Chinese are aggressive when it comes to expansion. If Huaxin decides to operate at EBITDA margins as low as 15%, they simply won’t care about existing pricing models,” he warned.
.2 The Potential Impact of Clinker Production at Lekki Port
One of Huaxin’s strategic advantages could be its ability to produce clinker at the Lekki Free Trade Zone, significantly reducing transportation costs. Samson explained that cement is a highly regional product—it does not travel well due to high logistics costs
“This is why Dangote dominates in certain regions, and BUA dominates in others,” he said. “But if Huaxin starts producing clinker at Lekki and distributing from there, it could fundamentally shift regional dynamics.”
This would pose a direct challenge to Dangote Cement’s pricing model, as it would introduce a more cost-efficient competitor into key markets.
– Can Demand Keep Up?
Despite pricing concerns, analysts agree on one thing: Nigeria’s housing deficit remains a major driver of cement demand. Estimates suggest that Nigeria needs at least 20 million new housing units to address the growing population’s needs.
“No matter what happens with pricing, demand for cement isn’t going away,” Samson remarked. “Infrastructure projects and real estate development will keep the industry strong.”
Government Policies and Infrastructure Spending
Government-backed infrastructure projects, such as roads, bridges, and housing initiatives, will continue to sustain the cement industry. However, the challenge remains: can these projects support high cement prices in the long run?
There are already indications that the government may seek alternative sources of cement or implement policies to reduce costs, especially if public outcry over high building costs grows.
Dangote Cement’s Strategic Positioning
Despite potential threats, Dangote Cement is not without options. Analysts suggest that the company could:
Expand production capacity further to stay ahead of competitors.
Invest in alternative energy sources to lower production costs and maintain margins.
Strengthen export operations to tap into regional markets where pricing pressures are less severe.
Leverage government relationships to maintain dominance in large-scale projects.
4.2 Will Dangote Cement Cut Prices?
One of the biggest questions is whether Dangote Cement will be forced to lower its prices in response to increased competition.
While some analysts believe a gradual price reduction is inevitable, others argue that Dangote’s sheer market power will allow it to maintain premium pricing—at least in the short term.
“Dangote is too big to be easily disrupted,” Tunji Andrews noted. “But they’ll have to adapt if Huaxin plays aggressively.”
Conclusion
While Dangote Cement remains the dominant force in Nigeria’s cement industry, pricing pressures are building.
Dangote Cement has achieved record-breaking revenue but faces increasing scrutiny over high cement prices.
Despite excess production capacity, prices remain high, largely due to market control, debt obligations, and regional logistics constraints.
China’s Huaxin Cement could change the game by increasing WAPCO’s capacity and leveraging cost-efficient clinker production at Lekki Port.
Nigeria’s housing deficit ensures strong long-term demand, but government policy and competition could force pricing adjustments.
Dangote Cement has strategic options, but it must navigate an evolving industry landscape carefully
The coming years will determine whether Dangote Cement can maintain its pricing power or if increased competition will finally force a market shift. One thing is certain—Nigeria’s cement industry is entering a new phase, and all eyes are on its biggest player
