Business

Cement: Curtailing rise in ex-factory price

With the price of cement now N4,000 in the open market, there are indications that inflation has a role to play in the increase on the ex-factory prices as producers deny having hand in the increment. TAIWO HASSAN reports

Indeed, these are not best of times for the Nigerian economy as everything has remained challenging for both investors and consumers alike. Inflation has hit the economy with Nigerians groaning over cost of items/goods without immediate solution in sight as wages remain constant and prices of goods rising. In all of this, one of the key sectors feeling the turbulence has been the country’s building, construction and real estate sector with the price of cement going beyond the reach of the common man.

Cement manufacturers’ comments

On the part of cement producers like Dangote Group, BUA Group, Lafarge and others operating in Nigeria, inflation has also pushed up cost of production and other raw materials. Despite this burden, these popular cement manufacturers maintained that they did not increase their ex-factory prices but rather improving cement production to make Nigeria attain self-sufficiency. However, this position over price difference has raised the question of who the culprit is in the huge price differential.

In its reaction, the management of Dangote Cement Plc maintained that the price of a bag of cement from its factories and plants across Nigeria (as at April 12, 2021) was N2,450 in Obajana and Gboko, and N2,510 in Ibese inclusive of Value Added Tax (VAT). According to Dangote Cement, the clarification came in view of recent insinuations that the company sells cement in Nigeria at significantly higher prices relative to other countries, particularly Ghana and Zambia. Dangote’s Group Executive Director, Strategy, Portfolio Development & Capital Projects, Devakumar Edwin, revealed that while a bag of cement sells for an equivalent of $5.1, including VAT in Nigeria, it sells for $7.2 in Ghana and $5.95 in Zambia ex-factory, inclusive of all taxes.

He said that although the company had direct control over its ex-factory prices, it cannot control the ultimate price of cement when it gets to the market. Edwin advised that it was important to distinguish Dangote’s exfactory prices from prices at which retailers sell cement in the market.

Edwin further explained that while Dangote Cement has 60 per cent share of the market, other companies had the remaining 40 per cent. According to him, Dangote Cement has no control over neither the prices charged by other cement manufacturers nor the prices charged by retailers in the markets. While speaking on the reason for cement price increase, he said: “Demand for cement has risen globally as a fallout of the COVID crisis. Nigeria is no exception as a combination of monetary policy changes and low returns from the capital market has resulted in a significant increase in construction activity.

“To ensure that we meet local demand, we had to suspend exports from our recently commissioned export terminals, thereby foregoing dollar earnings. We also had to reactivate our 4.5 million ton capacity Gboko Plant which was closed four years ago and run it at a higher cost all in a bid to guarantee that we meet demand and keep the price of cement within control in the country.” Speaking further, Edwin said Dangote Cement Plc had not increased the price of cement in the past 16 months despite the continuous rise in the cost of proof production and surging in demand for cement.

Most of the distributors and marketers of cement products are taking advantage of the increase in demand and artificial scarcity in the market to hike retail price. He said Dangote Cement had consistently maintained the same ex-factory price for its products, adding that in other sectors of the economy such as medicare, fast moving consumables, many manufacturers had been constrained to hike prices commensurate with the prevailing inflation rate. Speaking in a similar vein, the management of BUA Cement Plc also debunked the rumour that it was involved in the increase in ex-factory prices of cement in the country at the moment. Indeed, BUA Cement Plc reinstated that it had not and does not intend to increase its price of cement now or in the near future, barring any material, unforeseen circumstances.

The management explained that it had been inundated with calls seeking clarification as to whether it was part of a purported price increase of N300 per bag as ex-factory price for cement. “BUA Cement wishes to inform the public, its distributors, and stakeholders that it has not and does not intend to increase its price of cement now or in the near future, barring any material, unforeseen circumstances. “Whilst we are aware that demand for cement is high with current supply levels not sufficient to meet this increased demand, we do not believe the solution lies in an increase in ex-factory prices proof cement – especially not at this period.

It is our strong conviction that any increase in prices of major commodities at a time like this is not right – whilst Nigerians are still trying to recover from the economic consequences brought about by covid-19, especially for a product for which all raw materials are locally sourced,” the management said, adding “BUA Cement is very much aware of the fact that there is a huge difference in the ex-factory prices of Cement and the retail market prices of cement, which is mostly because of retailers taking advantage of increased cement demand to make maximum profits. Thus, any increase in ex-factory prices will be inadvertently passed down to the consumers.”

Why cement price is high in Nigeria

The Chairman of BUA Cement, Abdul Samad Rabiu, said the reasons for the hike in the price of cement in Nigeria currently could be traced to lack of production supply fueled by infrastructure deficits and cement plants shutdown. Rabiu denounced the news that Nigeria was now self-sufficient in cement production and eyeing cement export outside the shores of the country, saying that in numbers of production, the country is under 30 million tonnes in cement production with her population growth of 200 million people, which makes it about 130 kilogrammes per head when most countries in Africa are doing between 170 kilogrammes to 200 kilogrammes per head when talking of actual current cement production. According to the BUA chairman, the challenges of production supply, infrastructure deficits and shutdown of cement plants are the real reasons why the prices of cement are high in the country. Explaining further, the renowned industrialist stated that once any plants in the country where cement production is taking place is shut down for any challenge, it will automatically have impact in terms of price going up astronomically.

Last line

Based on the above, there is no doubt that the inflated cement prices will definitely give room for more housing deficit, rise in the price of purchase, rents, accommodation and leases in the country as inflation continues.

 

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