Like most other strategic sectors of the Nigerian economy, the cement industry is very, very opaque such that nobody, except those in the business of manufacturing and marketing of the product, know what is happening in there.
The current scarcity leading to high price of the product in the market is, to say the least, quite inexplicable and incomprehensible to even the most discerning minds outside the product production circle. And the price hike, analyst believe, will negatively affect people’s desire and ability to own their own homes, and probably slow the pace of infrastructure development in the country.
Dashed hopes
In spite of all the promises made by cement manufacturers on price reduction after the Federal Government backward integration policy, product prices have continued to fluctuate in some parts of the country.
In December 2013, a 50 kilogram bag of cement sold for between N1,648 and N1,800. This was the situation till early part of 2014. Today, just four months after, the price has gone up by about 40 percent to between N2,200 and N2,500, depending on the location, the brand and the market.
In Nigeria, it is always difficult to believe or agree with much of the things we hear, more so when what people say, in some instances, are at variance with what they mean or the reality on ground.
A couple of years ago, precisely in 2012, our correspondent had the privilege of speaking with one of the cement manufacturers in Lagos and was told that “this year is the year when, for the first time in the history of this country, we believe that we are in a position to meet the demand for cement; we are up to a point of meeting the need for either export or the new need for road construction”.
Our source continued: “You are aware that local manufacturing capacity has been expanding very rapidly in the last two to three years with the construction of new cement plants by Dangote in Ibeshe which gives 6 million tons; Lafarge in Lakatabu produces 2.2 million tons while Line 3 of Dangote plant in Obajana also adds to the existing volume. These are new incremental capacity on what is already on ground”.
According to the source, the total installed cement production capacity in Nigeria as at then was about 28 million tons, pointing out that the previous year (2011) total cement consumption was about 17 million tons which, he added, goes up every year by about 5 to 10 percent.
“If you do your arithmetic, no matter how massive the expansion is in demand, you will agree with me that, all going well, we have the capacity now to meet local demand and have excess on top of it. So, from these figures, you can say that yes, we can have cement available even for road construction”, he declared.
In the light of the foregoing, it becomes difficult to understand why cement price continues to rise almost on quarterly basis. It could be taken for granted that an industry which has the above numbers, in terms of demand and supply, shouldn’t have any qualms with commodity pricing.
Defending the high price of this commodity despite increased supply, Joseph Makojuola, the president of Cement Manufacturers Association of Nigeria (CMAN), told journalists in Abuja that price reduction was not going to happen now “because this is a transition period; we are growing capacity but we are not producing the quantity that is envisaged now. What we are going to experience is similar to what happened to the telecommunication network”.
Explaining this, he said: “Initially, when the GSM network started coming in, the lines were very expensive, but gradually, with more lines and competition, prices started coming down. The same thing is going to happen with cement. I am very confident about this. In a year’s time, we will have cause to sit down like this to talk about much lower cement price than what they are today and this is the direction that it is going to go”
Manufacturers speak
The manufacturers of cement in the country include Dangote Cement, Lafarge WAPCO, United Cement Company of Nigeria, Ashaka Cement and Northern Cement Company of Nigeria. Dangote Cement (DangCem) remains the largest cement maker in the country, controlling over 60 percent of the market, while Lafarge is the second largest manufacturer in the country. Together, these manufacturers reached 28 million metric tons production levels by 2013, shoving aside South Africa as the largest cement maker in the Sub-Saharan Africa (SSA).
However, these may not have resulted in lower prices, say analysts. But these manufacturers have at one time or the other responded to the growing clamour for further reduction in prices.
During the previous price hike in March, a manufacturer attributed the situation to turn around maintenance that was happening across the industry.
“You know that during turn around maintenance, our production levels are often low. If you were producing 300, you could only produce just 20 or 30. The situation led to scarcity, leading to high prices,’’ said a reliable source at UniCem, in a chat with BDSUNDAY.
Another cement maker, who wished to remain anonymous, attributed the rising prices to high input costs, demand supply-dynamics as well as fluctuations in the exchange rate.
“Recent delivered price increase is meant to recover some of the transport subsidies to various locations across the country,’’ the source said.
“Retail prices are being driven by demand-supply dynamics some of which are specific to locations. We are working hard to address supply balance through our structured distribution system. It is not our usual practice to increase prices incessantly but this particular action was necessitated by the continued pressure on cost. It is worth mentioning that our prices have been stable in the last three years. In fact, prices reduced by over 4percent between 2011 and 2013,’’ the source added.
The source further said that there had been no change to ex-works trade prices as they had not gone up in the last four years, in spite of increasing input costs and foreign currency movements that adversely impacted the cost of imported inputs.
But a reliable source said one of the manufacturers, that used to power its plants with gas, is feeling the pinch of gas shortages in the country. According to this source, the cement maker is now using Low Pour Fuel Oil (LPFO), which is currently more expensive. To make up for the marginal cost, the cement maker had to increase prices.
Another manufacturer attributed it to middle-men who still want to convince buyers that the hike is from manufacturers.
A source said demand is higher in Lagos than in any other part of the country, adding that some unscrupulous middle-men take advantage of the situation to create artificial scarcity to raise prices.
BDSUNDAY was also told that a major manufacturer is experiencing hiccups in its machinery, leading to slower production and scarcity.
Retailers and distributors react
A retailer at Ikeja area of Lagos, who identified himself as Samuel, blamed the increase on the distributors who create artificial scarcity to make huge profits.
“These people give us cement at high prices. When you ask them, they say it is no longer easy to get them. They say costs have increased, but I do not think so. They only pack them in their warehouses and create scarcity.
A distributor, who preferred to remain anonymous, said the question BDSUNDAY asked him regarding the high prices, should be directed to manufacturers, adding that they incur higher costs in transportation and miscellaneous.
A cement dealer in Lagos, who did not want to be mentioned, told BDSUNDAY that the occasional scarcity and price hike were not because the manufacturers were inflating prices but because it is costly to transport cement to the market. “There are no good roads and no rail lines. Poor road network also affect other commodities including farm produce. So, the price of cement is high because of poor road network”, he stressed.
Analysts’ view
Industry analysts have expressed surprise that all these are happening in a country with huge deposit of lime stone which is the major raw material for cement manufacturing.
According to them, Nigeria is one of the most endowed countries in terms of limestone deposits, explaining that this is one of the minerals that abound in commercial quantity in the six geopolitical zones of the country.
“There is no other mineral like that. If you look at the deployment of cement plants in Nigeria today, you see that every geopolitical zone has one or two viable cement plants. We have Ibeshe and Ewekoro in Ogun State in South West; we have Obajana in Kogi, North Central; we have Sokoto Cement in Sokoto State which is North West; we have Ashaka Cement in Gombe which is North East; we have Benue Cement in Benue State which is North Central etc. If you go to any of these locations, most of them have reserves for over 50 years’ production which is a plus for Nigeria”, they said.
Emmanuel Obire, a structural engineer and estate developer in Lagos, explained to BDSUNDAY in a telephone interview that the present scarcity has been caused by a cut in the conveyor belt of the plant belonging to one of the big manufacturers. Upon this, he added, another big manufacturer says it is undergoing routine plant maintenance.
Obire, who is the developer of the nearly 1,000-unit Teju Royal Garden, said he was at a loss why the big producers have problems at the same time, alleging that the whole thing was a ploy to create artificial scarcity in order to hike prices.
“The Federal Government has banned the importation of this product into the country and the manufacturers are surreptitiously creating a monopoly ring aimed to rip end users off; they should allow importers to bring in this commodity because we don’t have the capacity yet to meet local demand”, he advised.
During the hike in the early part of the year, Kunle Awobudu, president, Building Collapse Prevention Guild (BCPG), set up by the Standards Organisation of Nigeria (SON) had been quoted to have attributed the situation to high construction across the country, particularly in the dry season. He had attributed the phenomenon to the scarcity common during dry season.
World Bank estimates housing shortage in Nigeria at 17 million. There is growing demand for housing and infrastructure to cater for the 170million Nigerian population. As a result of this, analysts are quite in consonance that demand-supply dynamics remains the major reason for this. According to them, demand exceeds supply in most cases, so the prices must rise.
But Ikechukwu Ibeabuchi, a market analyst, said, given the rising infrastructural and housing needs, price hike could not have been unusual. According to him, the demand had exceeded supply, as few licensed importers had not been able to bridge the gap.
“Housing needs are rising. Construction is done in all parts of the country. But there are still few manufacturers, meaning that demand will always be higher than supply,’’ he said
Another analyst wondered why manufacturers, some of whom use gas to fire their production, cannot reduce cement prices, given that they incur low energy costs.
Nigerians were alerted
A few weeks ago, a coalition of civil society and professional bodies, had raised the alarm that some stakeholders were hoarding the product to cause artificial scarcity and ultimately, push up its price.
Tunde Ojo, the coalition’s spokesperson, said that the step was aimed at blackmailing the Federal Government and the Standards Organisation of Nigeria (SON), into slowing down on their resolve to standardise the product.
He said: “It is very unfortunate that this is happening in this part of the world. The activities of these unpatriotic groups have resulted in the hike of price of the product in various parts of the country and if not quickly cautioned or checked, this will lead to an abnormal price increase for cement.”
Ojo urged the Federal Government to move fast and checkmate those elements he said “do not care about the ordinary Nigerians but their profits”.
“The price disruptive action of these undesirable elements is even creating more problems because the timing of their activities is coinciding with the peak of the construction season, considering the fact that the rains will come in full force in two months from now,” he said.
Recent cement quality war to blame
Some analysts have also attributed the current price hike to the recent cement quality war existing in the industry. In January this year, a coalition of civil society groups had come up to allege that some cement manufacturers were producing low quality product.
In the cement industry, there are 32.5, 42.5 and 52.5 grades of cement. Each of these grades has variants. The argument of the group is, therefore, that 32.5 grade was low quality and something should be done to prompt manufacturers to move up to 42.5 grade.
The issue generated so much tension in the industry that SON and the minister of trade and investment intervened. There was also intervention from the Council for the Regulation of Engineering in Nigeria (COREN).
During the crisis, Victor O. Oyenuga, immediate past president, Nigerian Institution of Structural Engineers, had said that rather than cement, factors responsible for such collapses include improper soil test, faulty design, conversion of residential buildings to offices, shoddy construction practices, non-engagement of professionals in the building process and mixture, among others. According to him, using a bag of cement in a situation where two bags are needed is a serious building malpractice also responsible for this.
Kunle Awobodu, president, Building Collapse Prevention Guild (BCPG) set up by SON in 2011, identified faulty and copied design, lack of comprehensive subsoil investigation, non-adherence to approved designed, use of substandard materials, professional incompetence, cognitive dissonance, pilfering and ignorance, among others, as causes of building collapse.
SON ended the war when it summoned all the players in March and set up a technical committee to look into the complaints from various quarters.
Analysts say that this must have contributed to high cement prices as manufacturers are currently spending more on public enlightenment and media campaigns, and adverts.
“You can see the situation has led to increase in adverts in newspaper, which are built into the production costs. There are also innovations as Dangote has introduced 3X as well as Big Boss. Others too have changed their bags to ensure that each grade is boldly written on the bag. Lafarge and UniCem are also training artisans, block makers, among others. So you see, we need to look at this area as a possible cause,’’ said Ebuka Ezeh, market analyst and economist.
Implications for aspiring home owners
Analysts believe that the soaring cement price is capable of jeopardising the dream of many Nigerians from having their own homes.
An analyst told BDSUNDAY that many Nigerians who may have been tired of the escalating rent in urban centres, especially Lagos, would be unable to either embark on a building project or, those who are already having such a project may not successfully complete it at a record time.
“Before now, it was said that cement is the cheapest material needed for building. Usually, the major problem in a building project is the roofing. But with the situation now where cement price is rising steadily, it means that many people will not be able to build their own house, or even those who may have started could be frustrated midway. It will also affect other construction works such as roads, bridges etc. A country that has a housing deficit of over 17 million should not be talking about unaffordable cement,” the commentator said.
Chuka Uroko, Odinaka Anudu and Zebulon Agomuo
