Cement market stability

By David Ogah and Temiloluwa Adeoye   |   26 June 2016   |   1:14 am
Cement

Cement

Consumers’ Low Purchasing Power,
Surplus Production Responsible

In the 70s, there were at least five functional cement plants in the country. The companies, which were largely run by state governments, were located at Nkalagu in Ebonyi State, Ewekoro in Ogun State, Kalabaina, Calabar and Ukpilla in Edo State. At that time, the combined 1.1million metric tones output of these plants satisfied the national demand and at an affordable price. But as the country’s population grew, coupled with increased urbanisation, the output became inadequate. The ensuing scarcity made importation inevitable, as the product is an essential building material.

Between 1960 and 2004, Nigeria was still importing the essential commodity. Then, it was difficult to predict the price, as only a few business men were allowed to import the product, until government initiated its backward integration policy in 2002, making it mandatory for importers to begin plans for local production.

Dangote Cement, which was the major importer, was the first to key into the backward integration policy in 2004, with its aggressive investment in the sector, which birthed the cement factories at Obajana in Kogi, Gboko in Benue and Ibeshe in Ogun State. The company recently commenced the construction of another factory at Ukpella in Edo State. Today, the company is ahead of other cement manufacturers, Lafarge and BUA.

This massive investment by Dangote Cement and a few others may have been responsible for the relative price stability and availability in the last two years, despite the spiraling inflation.

Executive Director, Dangote Group, Mr. Knut Ulvmoen, attributed stability in cement price to the availability of the commodity due to increased local production, championed by his organisation.

According to him, this development stated in 2000, when the Dangote Group established cement factories in the South East and South Western, therebymaking the essential product available all year round.

He said the country could have been spending a whooping $2.5b on cement importation, if the countrywas still import dependent, especially as yearly consumption has risen from 8.4m tonnes in 2004 to 22m tones in 2015.

He attributed the product availability to increased local manufacturing companies’ capacity, adding that of the required 8.4m tonnes in 2004, only 2.3m tonnes was produced locally.

“It is the availability of cement that has kept the price stable,” he said.“If there is a shortage, the price will go up. In Nigeria, if cement is scarce, the price will go up and the masses will suffer. So, Dangote ensured that cement is available all over the country. There was always scarcity before Dangote became a playerin the sector in 2000,when we established in the east and western parts of the country. In 2004, the total consumption level of cement was 8.4tonnes, but only 2.3m tonnes was locally manufactured.

“With the increased demand, it would have been a disaster,if Dangote had not come in. In 2015, consumption rose to 22m tonnes and there was almost no importation. So, today’s pricereflects that of 2008, despite inflation and unsteady exchange rate. We have stopped the importation of cement for local manufacturing and the product has shown the method Nigeria should adopt in all other sectors to shield pricesfrom fluctuating exchange rate.”

Aside local production of cement that orchestrated availability, he also attributed the stability in price and suppliesto absence of foreign content and manufacturers’ independenceof the exchange rate. He said stability in supplies and pricing could not have been sustained, if cement production had dollar component.

He said, “Local production, which is independent of exchange rate, makes availability possible. If Nigeria were to import up to the level of consumption today, we would have been spending $2.5b yearly. The dollar is not even available. The banks should now support investors in local manufacturing, especially those wanting to bring in equipment for manufacturing, whoshould be supported for the benefit of everybody. We have just started and we will continue the hard work to produce more cement in the country.”

He advocated the use of cement for road construction and de-emphasise the use of imported asphalt to conserve foreign exchange for the country.

“We should also use cement for infrastructure building. We need to see more concrete roads being built, using locally produced cement rather than asphalt and imported bitumen. Currently, we have three factories with a total capacity of about 29.2m tonnes annually and we are building another two plants with a total capacity of 12m tonnes. If we start using cement for road, we will build more.”
Knut explained that his company invested substantially in logistic and transportation,paving way for availability of cement in even remote parts of the country.

“Nigeria needs to support companies that want to add capacity in transportation. If logistics and transportation are not sufficient, the product will not get to the market and if that happens, the price will go up. We have invested massively in transport to support and supply the product to every part of the country.”
Aliu Toluwanimi, a cement seller in Oshodi, confirmed that prices of cement have been stable in the last one year, though he complained of low sales.

“Everything has become expensive, but the price of cement has not changed,” he explained.“I sell at N1, 600, but despitestabilityin price, the market remains dull. Many of my customers have suspended works on their building projects, and so are not buying. Apparently, this is because of the rising price of other building materials.Cement is not like food items that people buy daily, so its patronage is very low now. I am just praying for things to get better.”

Seun Adepoju sells Lafarge Cement at Mangoro area of Agege in Lagos. She explained that the price has remained at N1, 800 for over one year, although the increase has not been more than between N50 and N100, depending on the brand within the period.

“The price has remained so for a while now, which is a good thing. But when there are so many bags of cement and a few buyers, then it becomes an issue, as there is a limit to which one can adjust prices. And when there are competitors with lesser prices, nobody will want to buy, especially when these competitors are close by,” she said.

In Bariga, Ebenezer Osas sells Dangote cement for N1, 600, but he is still unhappy over poor sales. Said he: “The companies have not increased cement price, so ordinarily we are supposed to be happy, as we don’t have a situation, where profit margin is affected like in other products. But this year’s salesare worse than last year’s and except things pick up; one might have to go into other businesses. As we have many unsold bags of cement, we have also reduced our order.”

Elephant and BUA cement are sold for between N1, 750 and N1, 850 depending on the location.

Kunle Awobodu, former chairman, Nigeria Institute of Building (NIOB), however, attributed the stability in the price to recession in the building sector, as well as and glut in the commodity market.

“Cement price has remained the same because the construction industry is in a recession, which other sectors are also experiencing. However, there are different reasons for the stable price of cement. In a country, where you have very low purchasing power, many will be thinking about survival. Those having projects will suspend them, and this has caused glut in the market, because supply is more than demand. The volatility of the naira has slowed down investment, just as demand has dropped, which means consumption will also drop. However, the product is still very expensive in Nigeria compared to other countries.

“Despite forex challenges, our cement is overpriced. The two major inputs: power and fuel are expensive. That is a problem because most of the manufacturers rely on gas, which is erratic due to vandalism. Another problem is transportation. Until we begin to transport by rail, road transportation remains critical.Also, there is a competition between the two major cement manufacturing companies: Lafarge and Dangote Cement.”

Laide Afolabi, President, Association of Town Planning Consultants of Nigeria (ATOPCON), said cement price stabilityis as a result of local content in the production.

He said, “When it comes to cement manufacturing in Nigeria, most of the major input are locally sourced.For a long time, the sector has not relied on foreign raw materials, which is a good trend. And with the likes of Dangote establishing in different geopolitical zones, it makes it easier to access cement, unlike other sectors that rely on imported materials for production.”


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