Cement manufacturers in Nigeria are giving reasons for the recent increase in the price of the commodity which is the base material for building and construction.
In order to meet up with rising production costs occasioned by a devalued naira and shortage of gas supply to cement plants, the manufacturers raised cement prices by N600 per bag in factories, including additional N100 cost for haulage.
This has increased retail prices from N1,600 to N2, 300 depending on location. In some areas, prices have shot up to N2,350 or higher. Dangote Cement Plc, Lafarge Africa Plc; Cement Company of Northern Nigeria Plc; Ashakacem Plc and Cross-River-based United Cement Company, are the major cement makers in Nigeria.
Dangote Cement plc in a statement at the Nigerian Stock Exchange (NSE) signed by Carl Franklin, its head of investor relations, noted that Africa’s leading cement producer had previously indicated it would increase the price of cement to offset increased production cost caused by devaluation and other cost factors.
The company told shareholders at the NSE, that “the present situation has regrettably forced us to increase the ex-factory price of cement by N600, bringing the price back to levels only marginally above what they were before we announced a price decrease in September last year.
“Disruption to the gas supply, our preferred fuel in Nigeria, has deteriorated in the present quarter. Alternative fuels such as LPFO, and to much lesser extent, coal, are up to three times higher in cost and the need to use them instead of gas has led to a substantial cost increase.
“In addition, the naira has experienced a significant devaluation against the US dollar over the past few weeks, both of these external factors have combined to increase our costs substantially in our largest market,” it further said.
Also, Lafarge Africa plc in its position on the recent price adjustment said, “this price adjustment comes as a result of the general increase of our input costs, energy cost, distribution and other imported spare parts costs over the past few weeks. Retail price in some markets have already moved up by same.”
“This adjustment will help generate decent return in order to maintain continued value creation to our customers,” a source close to Lafarge Africa management added.
Nigeria’s manufacturers have faced gas scarcity, prompting them to resort to the use of other sources of energy like the Low-Pour Fuel Oil (LPFO). Gas remains a cheaper source of energy than LPFO. Dangote has switched over to coal to power its operations, while Ashaka is building a coal-fired plant in Gombe.
Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN), told BusinessDay that natural gas is scarce and is hurting production and operations of manufacturers.
Dangote currently has 29.3 million metric tons (MT) capacity, but will hit 41.3 million MT when the Okpella and Itori plants come into full operations. Lafarge Africa has about 8.5 million MT capacity, but is gearing up for 12.5 million after the completion of Unicem’s second line in Cross River State.
Amid the recent price increase, while many builders see the recent cement price increase expedite construction activities because of the anticipation of further increase, the increased cement price would be a setback for most low income earners who had planned budgets to achieving their home ownership dreams.
Low income housing developers are already lamenting the hike in the price of this product, contending that, apart from the impact on their bottom-lines by increase in cost of production, the development will lower housing demand from home seekers whose buying power has already been weakened by the challenges in the economy.
“This increase is going to push the cost of construction by about 10 percent. Don’t forget that we already have challenges with the rise in other building inputs such as re-enforcement (iron rods) and finishing materials which are imported”, says Debo Adejare, MD/CEO, Realty Point Limited.
Adejare foresees not just increase in the number of Nigerian home seekers not being able to own or even rent homes because of increase in house prices and rents, but also job losses in the building industry by building professionals and artisans and even developers who might not be able to cope.
Olumide Osunsina, CEO, Megamound Investment Limited, agrees, stressing that the job losses would be such that they would affect many families who are directly or indirectly linked to housing development.
“As developers, we have not increased the prices of our houses by even 5 percent because we consider purchasing ability of our customers, but there is a limit to how far we can go. This development is the reason we see less construction activity going on and when this happens, expectedly, there will be less employment opportunities in this industry”, he said.
Prospective home owners are not left out in the perceived setback that comes with this price hike. Etim Okwong, who is developing a three-bedroom bungalow in Oron, says the price increase has disorganised his homeownership plan and budget.
“Up till Thursday last week, I still bought a bag of Unicem cement at N1,500. But by Monday this week, when I went to buy again, I was told by the dealer that the price is now N2,500. I initially took it as a joke, but I noticed that the dealer maintained a straight face. I couldn’t believe my ears. I went to Uyo, the state capital, only to be told the same story. Now I can’t go on with the development. I have to wait with the hope that the price will come down,” said Okwong.
In Umuahia, the commercial city of Abia State, the Dangote brand which is quite popular among developers is now sold for between N2,200 and N2,400, depending on who is selling.
Michael Ejike, who is building a four-bedroom flat along Aba-Ikot Ekpene road, said the price increase was shocking. “I couldn’t have imagined that I will wake up in the morning to see the price of cement which has been stable over the last one year, jump to N2,200 from N1,600 which I bought the last time. What’s happening in this country; can somebody please offer explanations?” Ejike fumed.
Analysts note that this hike in cement price is not unconnected with the present economic hardship in the country which has impacted negatively on the financials of some companies.
In the half-year period ended June 30, 2016, Dangote Cement Plc, however, reported revenue rise from N242.23 billion in H1’15 to N292.19 billion, representing an increase of 21 percent.On the other hand, Lafarge Africa plc, a member of LafargeHolcim, had in the half-year to June 30, 2016 reported revenue decline of 29.45percent to N107.364billion from H1’15 highs of N152.178billion, while Ashaka Cement Plc, another cement producer, recorded half-year revenue decline from N10.74 billion in H1 period of 2015 to N7.66 billion in the review period of 2016; showing a decline of 28.7 percent.
Chuka Uroko, Joshua Bassey, Iheanyi Nwachukwu & Odinaka Anudu
