Nigeria, Kenya new cement rules threaten Lafarge profit margins

June 3, 2014


Nigeria introduced new rules for the production and use of cement to lower the risk of building collapse, threatening local profit margins at the country’s biggest international producer Lafarge SA.

The Standards Organisation of Nigeria told manufacturers of the building material that only 52.5 grade cement may be used to build bridges and 42.5 grade for columns, slabs and molding of blocks, Lagos-based Dangote Cement Plc said in an e-mailed statement yesterday. The 32.5 grade will be limited to plastering, it said. Joseph Odumodu, chief executive officer of SON, didn’t immediately answer calls or reply to text messages seeking comment.

“Lafarge produces more of the 32.5 grade and will need to incur additional cost for the higher grades, resulting in lower margin,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., said by phone today. Dangote, Africa’s largest producer of the building material, controls capacity and volume for the 42.5 grade cement, he said.

Lafarge, the world’s second-largest cement producer with operations in 64 nations, is adding capacity in countries such as Nigeria that need new infrastructure to support a fast- growing economy. The West African nation is the most populous in Africa with about 170 million people.

“The 32.5 grade of cement has never been proven by any empirical evidence to be the cause of building collapse in Nigeria,” Paris-based Lafarge said in an e-mailed statement. There are several impending court actions challenging SON’s claim, the company said.

Lafarge is also battling regulators in Kenya, where it has been accused of flouting domestic competition rules. Its Nigeria unit increased first-quarter profit by 33 percent to 8.1 billion naira ($49.9 million), it said in an April 28 filing to the Nigerian Stock Exchange.

The new rules are in line with international standards and will help to improve safety in the building and construction industry, according to Dangote, controlled by Africa’s richest man Aliko Dangote.

Dangote shares fell 2.3 percent to 229.50 naira as of 11.30 a.m. in Lagos, paring gains for the year to 4.8 percent. Lafarge traded 0.6 percent lower at 63.26 euros in Paris.


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