The combined impact of Naira depreciation and high inflation pressure has triggered a 121 per cent rise in the production cost of cement, dimming Nigerians’ hope for lower cement prices.
Another factor militating against the lower price of the product is the rising trend in smuggling to neighbouring countries where the price is higher than the price in Nigeria.
In neighbouring countries like Chad and Cameroon, the price ranges from $120 to $150 per 50kg bag of cement. At an exchange rate of N1,600 per dollar, this translates to a price of N240,000 to N270,200 per 50kg bag of cement, which is far higher than the local price of N8,000.
Confirming this development, Kabiru Rabiu, Group Executive Director, BUA Cement, said: “ One of the pressures that we see is that there is a lot of illegal smuggling of export of cement to Cameroon and Chad. What happens is that if you take cement just across the border to some of these markets, it is selling at $150 to $270. That is why we realize that a lot of our cement is actually not only going to the North East but to Maiduguri in particular because there are a lot of distributors taking this cement across borders because it offers a lot of margins.”
Analysis of the financial performance of the top three leading cement manufacturers revealed a decline in profitability due to the rising cost of production.
The companies are Dangote Cement Plc, Lafarge Africa, and BUA Cement Plc.
Specifically, the combined revenue of the three top cement manufacturers grew by 84.5% to N1.116 trillion in Q1’24 from N604.9 billion in the corresponding period Q1’23.
The rise in revenue was however overshadowed by a 121% spike in combined production cost to N586.6 billion in Q1’ 24 from N264.9 billion in Q1’23.
As a result, the combined Profit Before Tax, PBT fell by 4.1% to N 196.4 billion from N 204.8 billion.
Meanwhile, the end users (block moulders & builders) are complaining over the high cost of cement, saying that at about an average price of N8,000 per bag, it is still on the high side given the decline in purchasing power of the people.
The National Association of Block Moulders of Nigeria (NABMON) has urged the Federal Government to reduce import duties on cement manufacturing components to attract more foreign investment in the sector.
The National President, NABMON, Mr Adesegun Banjoko, gave the advice, saying “the price of one bag of cement in Nigeria, currently in the region of N8,000 and N9,000 was still considered too expensive.”
Another builder in Lagos, Sikiru Ajala Enterprise, said: “The average cement price for Dangote Cement is N9,000, Lafarge N8,500 and BUA N8,000 is still very costly. This is the major reason why most of us builders are not building as many houses as possible. When you go to the banks for a loan they ask for 30 to 35 percent interest. How can we cope with this?”
Speaking on condition of anonymity, a top official of Lafarge Africa Plc, makers of Elephant Cement stated that the operating environment has not been favourable to the cement industry as input costs continue to soar daily. The source noted that the cost for the importation of the machine and its parts for maintenance have been rising due to exchange rate volatility.
The source emphasised that the rise in inflation is also a concern to the industry, urging the government to quickly address the problem.
Another factor for the rise in the price of cement is the rising cost of energy. “The machines that are used in the cement industry consume gas and electricity supply is erratic and cannot be relied upon,” the source added.
Concerning the threat by the government to lift the importation of cement, Lafarge source said: “It is not the best option; the government should tackle the causes for inflation and provide the necessary infrastructure for production.”
Commenting on the cost of inputs used by the cement manufacturers, Kabiru Rabiu, Group Executive Director, BUA Cement, said: “If you look at production costs the mining cost is probably not more than 30% and that is the only local thing, but for instance, the energy cost is about 40 to 50% and is index to dollars.
“The price of gas that used to operate the cement plant went up a little bit, but it was not even the price that was the problem, it is more about the exchange rate, even though we pay in naira for the energy for the gas. What happened was that this gas was indexed to the US dollar.
For example, last year we paid gas at N418 and then it jumped up to N750 and today the last invoice was priced at N1500 “Also we all import our gypsum, yes in Sokoto, we use local gypsum, but we do import our gypsum which is also priced in US dollar and you clear it using the dollar as a benchmark and then you transport it to your site. The bag in which we put cement also is in dollars because we import polypropylene as well; as the exchange rate of dollars continues to rise, this price will continue to go up.
So it is a perception that has been created that 90% of cement is local. The reality is even though you could say so, but the reality is that everything is indexed to dollars.
The more the naira gets weaker the higher you see some of these input costs in our operation and unfortunately somebody has to bear the price.”
Dangote Cement to key into CNG by 2025
Meanwhile, as part of measures to tackle the rising cost of transportation, Dangote Cement has assured that it will key into the Federal Government’s agenda, to run all cement trucks on Compressed Natural Gas, CNG.
The Chairman Dangote Group, Alhaji Aliko Dangote, also disclosed the company’s ongoing efforts at ramping up production with the ongoing construction of a new plant of 6 million metric tonnes per annum at Itori, in Ewekoro Local Government Area of Ogun State, to spur the supply of cement which would have some positive effect on price in the long run.