Pouring it on: Domestic cement suppliers should benefit from infrastructure growth

As government infrastructure initiatives and strong real estate growth spur expansion in the construction industry, cement producers in Ghana have felt the effects of high demand keenly. Although undersupply was an issue in 2012, a number of new facilities under construction set to begin production in 2014 should keep the industry’s three major players on a steady upwards trajectory. However, high shipping costs, clinker demands and an expected influx of cement imports from Nigeria could put pressure on the bottom lines of local firms.

MAIN PLAYERS: The cement industry in Ghana is dominated by three main local players – Ghacem, a joint venture between the Ghanaian government and Norway’s Norcem AS, which is now 93.1% owned by the HeidelbergCement Group; Diamond Cement, a subsidiary of Western Diamond Cement Group SA (WACEM) operating in the Volta Region; and Savannah Diamond Cement, another subsidiary of WACEM active in the Northern Region. With a 54% market share, Ghacem is the country’s largest cement producer. Diamond follows with 33%, and Savannah with 13%. Dangote, a Nigerian cement giant, operates a cement terminal in Tema Port, with a bagging capacity of 1.5m tonnes per year, and has plans to increase its cement exports to Ghana and the rest of the region over the next several years. The cement industry experienced strong results in 2012, growing by 8% overall – less than the 22% seen in 2011, but also strong given that it was recovering from a lightning strike that shut down Diamond Cement’s Aflao factory, an event that caused supply to drop and prices to jump by up to 85% in some areas. Ghana produced 5m tonnes of cement in 2012, compared to 4.6m in 2011, according to Morten Gade, managing director of Ghacem. Ghacem sites in Tema and Takoradi operated beyond maximum capacity to produce 1.4m tonnes and 1.3m tonnes of cement, respectively. “We grew with the market. We reached capacity in 2012; actually we exceeded it in the sense that the rated capacity in Tema and Takoradi is 2.4m tonnes per year, and we managed to squeeze out 2.7m tonnes. But that was really the maximum,” Gade told OBG.

NEW MILLS: Helping Ghacem boost production is its new mill in Tema. The company invested $23.3m to commission the mill, which began operations in November of 2012 with a maximum annual capacity of 1m tonnes. Ghacem also announced in March 2013 that it plans to invest $30m building a new mill at its Takoradi site in the Western Region, increasing capacity by 800,000 tonnes per year starting in November 2014. All told, new mills and existing operations should put Ghacem’s capacity at 4.4m tonnes annually by 2015. However, the finished mills will not be operating at maximum capacity immediately, as the company plans to slowly grow its market share in an increasingly competitive environment.

Ghacem faces strong competition from Diamond Cement, which is moving forward with its own expansion plans in a bid to capture more of the market. In May 2013 Stanbic Bank Ghana announced it had closed a $20m loan deal with Diamond Cement to build a plant with a capacity of 1m tonnes per year in Egyam Bokro, near Takoradi. Production is scheduled to start in 2014. Speaking after the announcement, WACEM’s chairman Manubhai Jethabhai Patel said the company is keen to play a larger role in Ghana’s cement growth. “This facility will go a long way to making cement easily accessible,” he said.

DEMAND DRIVERS: Growth in cement demand has recently been driven by infrastructure projects, stemming from a number of government initiatives aimed at upgrading and rehabilitating highways, including the massive Eastern Corridor roads project (see Transport chapter). However, as real estate is booming in Accra, Takoradi and Kumasi, a host of new property projects are shifting the market’s focus.

“The Greater Accra area and Kumasi are expanding. The private sector is building hotels, private properties and houses, there are new hotel chains in Accra, and hotels on the way near the airport,” said Gade. New construction projects across the country, coupled with increased capacity at Diamond and Ghacem, should see annual cement production in Ghana rise to 6.6m tonnes in 2014. However, high shipping costs and clinker import demands, coupled with intense competition from outside players, is putting pressure on local producers.

CLINKER: Clinker supply has been one challenge facing the cement industry – Ghana has so far been unable to produce limestone of sufficient quality to support clinker production within the country.

Savannah has been working on developing a clinker facility capable of producing 300,000 tonnes per year since 2011; however, those plans have yet to come to fruition. As it stands, cement companies must import clinker. Ghacem’s parent company HeidelbergCement is in the midst of constructing a $254m clinker facility in neighbouring Togo, which is expected to produce 5000 tonnes per day, or 1.5m tonnes per year, by 2014. When the ScanMines-Togo facility is operational in 2014, a large portion of the 2m tonnes of clinker Ghacem requires per year are expected to be supplied by the Togo factory, reducing the company’s reliance on Asian and European imports. “Clinker demand has risen, because when our volumes go up, our consumption goes up accordingly. When the ScanMines-Togo facility is operational, part of the clinker in Togo will be shipped to Ghana and we will grind it here,” Gade told OBG.

PRICES & IMPORTS: Ghana had previously suffered from high cement prices compared to neighbouring Nigeria. A tonne of cement in Ghana currently sells for $140, up from $133 in 2012, whereas Nigeria offered prices as low as $100 per tonne in 2012. However, a halt in the cedi’s depreciation has stabilised cement costs in Ghana, with no price increases since May 2012. Despite oversupply in Nigeria, which is now producing 28m tonnes per year to meet a demand of only 18m tonnes, prices have jumped to anywhere from $180 to $200 per tonne in Nigeria, as Ghana’s biggest neighbour moves to significantly expand its exports to Ghana.

In March 2013 Dangote sent a fleet of 50 silo trucks into Ghana, exporting 5000 tonnes of cement in an effort to boost growth in non-oil industries and relieve overcapacity in the Nigerian market. Dangote plans to eventually export 5000 tonnes per week, with the long-term target of exporting 5000 tonnes per day – up to 1.8m tonnes per year – to Ghana. Although a sizeable amount of this will be shipped on to neighbouring landlocked countries, Ghana can expect an increase of bagged cement to hit its markets in the coming years.

EXPORT POTENTIAL: Though Ghana suffered cement shortages in 2012 due to the lightning strike and high demand, industry players insist there is sufficient cement in the market to meet local needs. However, the opportunities for export within the region are constrained due to competition from larger markets. In Nigeria, subsidies allow for cheap exports of cement, while the country is also mulling a ban on cement imports, and has not issued new import permits to outside producers in two years.

Shipping costs remain a challenge too, with congestion at Takoradi and Tema ports taking a toll on industry operations. Bulk and container ships can wait as long as seven days for an available berth at Tema Port, and Ghacem estimates its demurrage charges will only rise from current levels of around $3m annually, as port upgrade works shut down container ship berths and increase waiting times in the short term.

Nonetheless, the outlook for the industry is positive, as several ambitious infrastructure projects and ongoing real estate development continue to impact all sectors of Ghana’s economy. Government support in keeping foreign competition equitable will help protect the market, but political stability and a fast-growing construction sector should ultimately ensure continuous profits for local producers.