The year 2020 saw the Cement sub-sector ward off formidable challenges. As a sector dependent on the easy movement of goods, the lockdown measures led to lower demand amid cancelled and delayed construction projects.
This decline in demand was apparent in Q2 GDP numbers, as the Construction sector and the Cement sector GDPs declined by -31.8%y/y and -5.5%y/y, respectively. Expectedly, H1-2020 financial performance of players in the sector also reflected this.
However, the essential nature of cement led to pent up demand from Q2-2020, resulting in a strong subsector recovery in Q3-2020 amid the partial reopening of the economy.
Cement players across our coverage recorded volume growth in 9M-20 while the cement sector recorded real GDP growth of 12.0% y/y. This was driven by a strong rebound in private sector demand due to the easing of movement restrictions and a short rainy season.
Beyond the uptick in volumes, players also doubled down on deleveraging and cost efficiency through energy diversification.
Overall, we expect the sector’s performance in 2021 to build in 2020, driven by increased public sector demand (FG 2021 budget indicates a record CAPEX estimate of N3.9tn). Although the concerns remain the rather optimistic assumptions and projections.
Also, the expected improvement in pan-African exports buoyed by the AfCFTA and broad-based vaccinations will support improvement in the sectors’ output. All these suggest headroom for medium to long-term volume growth.
The above notwithstanding, coronavirus-related restrictions and the unpredictable weather are key downside risk factors which may hurt demand for cement and may weaken profitability.