Cement price In Nigeria defies laws of demand and supply

The plan by the Federal Government to increase tariff on imported bulk cement invokes the intrigues that have continued to trail the pricing of cement in the country.

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In what could be described as one of the economic wonders of Nigeria, when there is glut, the price of cement either remains as it is or it goes up. Besides, the politics of pricing of the essential commodity seems to be proving a peculiar economic point in Nigeria: that whether you manufacture locally or you import, the prices can still be uniformly high.

It also does not matter what kind of intervention the Federal Government makes – or claims to make, the prices out there remain the way they want to be. This is apart from the fact that high-level politicking between companies producing the commodity and those importing it has not translated into succour for buyers. Indeed, many also have cause to suspect the FG whenever it announces a major policy on the issue. You hardly know on whose side it stands.

That is why the plan to increase the tariff on imported bulk cement, as announced on Monday by the Minister of Trade and Investment, Dr. Olusegun Aganga, may only further bring to fore the intrigues associated with cement regime and pricing in the country.

During a breakfast dialogue organised by the Nigerian Economic Summit Group,  Aganga had said the FG was considering the imposition of a new tariff on imported bulk cement, following the influx of the commodity “which is said to have caused a glut in the market and is threatening local cement manufacturing.”

He said there was no basis for importing cement clinkers when Nigeria has a manufacturing capacity of about 28.6million metric tonnes of the product.

Between Ghana and Nigeria

Despite the ‘glut’, Nigerians have continued to buy cement at prices which observers consider exorbitant. Currently, a bag of 50kg of cement costs between   N1,650 and N1,800. But in neighbouring Republic of Benin and Ghana, a bag of 50kg of cement sells for 4500CFA (N1,500) and  GH¢15.295 (N1,150) respectively.

Sometime last year, the price shot through the roof when a bag was sold for N2,500 in Nigeria.

When it felt that the persistent increase in the price of the commodity was unbecoming, the FG had intervened by introducing some measures aimed at checking the trend. Ironically, the first major challenge was how to tackle the problem posed by a recurring shortfall in supply.

The Olusegun Obasanjo administration introduced the Backward Integration Policy in 2002. Under the policy, local manufacturers of cement, with ample evidence of investment in manufacturing facilities,  were given import licences , which enabled them to import the commodity, relative to their manufacturing capacity.

At the time of drafting the policy, the national demand for cement by far exceeded supply. Also, it was presumed that it would take a long time before local productive capacity could meet demand.

According to available records, the national/local productive capacity in 2002 stood at .2.2 million metric tonnes, while demand peaked at 11.5 million metric tonnes.

However, that story has changed, because two major local manufacturers, Lafarge Wapco Cement Company Plc and Dangote Cement Plc,  have since inaugurated new cement plants and even acquired old ones to boost their local production capacities.

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Increased productivity

In February 2012, Dangote Cement Plc’s plant at Ibese, Ogun State was officially opened by President Goodluck Jonathan  and by this singular investment, Nigeria’s total installed cement production capacity increased to 22.5 million metric tonnes per annum.

The Ibese plant, with an installed capacity of six million metric tonnes of cement per annum, shot Dangote Cement’s productive capacity to 14 million MT per annum.

Early in December 2011, the President inaugurated a new plant code-named Lakatabu, for Lafarge.  It has an installed capacity of 2.5 million MT.

In 2002, industry sources had put the total productive capacity in the cement industry at close to 4 million MT.

However, between 2004 and January 2012, the cement productive capacity in Nigeria had risen by 18.5 million MT.

Dangote’s  Obajana Plant, which was opened in 2008, has a productive capacity of five million  MT. Its subsidiary, Benue Cement Company Plc, has the capacity to produce three million MT.

A subsidiary of Lafarge, Ashaka Cement, has the capacity to produce one million MT; while another subsidiary, Unicem, is now enabled to produce one million MT.

The major plants within the group are Ewekoro I (1.2 million metric tonnes); Shagamu Cement Plant (800,000 MT) and Ewekoro ll or Lakatabu (2.5 million MT).

Apart from that, troubled cement companies, including Sokoto Cement Company, with a productive capacity of 500,000 MT,  and Ava Cement factory in Edo State, with productive capacity of 300,000 MT, are being revitalised.

According to statistics available from local manufacturers, the various expansion projects are estimated to have cost $7.7bn (N1.23tn) in seven years.

Despite these huge investments, and the fact that local raw materials are mostly being used in production, the average Nigerian is yet to benefit from the development. The price of cement has continued to be on the high side.

According to a survey carried out by our correspondent across major cities in the South-West, South-East and the Federal Capital Territory, there is no place in the open market where a bag of cement is sold less than N1,650. In some places, it is sold between N1,700 and N1,850.

In spite of the fact that a licensed importer, Ibeto Cement Limited, is authorised to import cement into the country till 2017, the unit price of the commodity has remained the same.  There is a snag to this: some experts say the landing cost of a bag of cement, from wherever it might have been imported, is not more than between N400 and N550. Yet, by the time it gets to the market, it has gone as high as N1,800 or more, at times.

The questions to be asked, therefore, include: What is the manufacturing cost of a bag of cement? How come that, with the landing cost at about N400, the price of imported cement jumps so high without anyone controlling it? Why is the price of locally manufactured one also as high as it is now? And the glut! Why is the price still so high when and if there is a glut?

Intrigue and power play

Further investigation shows that the situation is compounded by horse-trading, intrigue and intense power play among local manufacturers and importers of cement. This has led to accusations and counter-accusations — and a court case on an occasion.

Importers of cement under the aegis of the Forum of New Entrants into Cement Production believe that Nigerians are over-exploited on cement pricing. But the local manufacturers hold a different view.

The latter prefers to discuss the glut in the market, rather than the issue of pricing.

Sometime in June, 2012, Ibeto Cement had to  seek a legal option to retain its import licence when the FG tried to stop it. The latter’s action was said to be based on advice allegedly offered by local manufacturers.

Reacting to this trend, the chairman of New Entrants into Cement Production, Mr. David Iweta, says there is a need for the local manufacturers to review their prices downwards, since there are many variables that work in their favour, which the importers of the commodity do not enjoy.

Iweta sees no reason why a bag of 50kg bag of cement should be sold above N800, since local manufacturers are using lime stones, which are sourced locally, as raw materials.

Besides, he notes that labour is available and cheap. He says, “I believe it is exploitation for Nigerians to pay above N800 for a 50kg bag of cement as retail price. Let them reduce it to N700 and see how the commodity will disappear from the market.”

Also, Iweta does not see wisdom in selling imported and locally produced cement at the same price. According to him, an importer pays $100 on cost and freight  per metric tonne of cement.

He says the locally produced cement should be cheaper than the imported variety because the latter attracts duty and 35 per cent levy, which is another $35 per tonne.

“The local manufacturers do not pay these levies. So, their prices should be cheaper. Imported cement sells within the same price range as the locally-produced ones. This should not be,” Iweta stresses.

Also, a civil engineer, Harris Benedict, describes cement pricing in Nigeria as a ‘mystery’.

“How come the manufacturers sell almost at the same price? How come, despite the inter-play, the imported and locally produced cement could not force down prices of the commodity?” he asks.

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No comment

While the local manufacturers have always spoken out about the challenges facing them, those that our correspondent contacted on the questions raised here did not respond to questionnaires sent to them. Several attempts made to speak with officials of Dangote Cement and Lafarge Wapco did not yield positive results as at the time of filing this report.

When contacted, the Group Head, Communications, Dangote Group, Tony Chiejina,  said our correspondent should forward a questionnaire to one of his subordinates, Mr. Sunday Esan.  On Tuesday, Esan told our correspondent he had forwarded the questionnaire to the appropriate person that would attend to them. But up till the time of filing this report, there was no response from them.

Also, the Head of Communications, Lafarge Wapco Cement Plc, Mrs. Tope Oguntokun, directed that our correspondent relate with one Sunday Awofodu.

A questionnaire was sent to both his official and private email addresses as required, but there was no response from him too.

Some of the reasons usually given by the manufacturers include unstable power supply and multiple taxation, among others, which they believe do not exist in countries like China or Mexico, where the importers get their supply from.

Conflicting prices

Investigations show that the prices of cement from Dangote and Lafarge are almost uniform in some areas, while they vary in others. It is difficult getting the accurate price at which the major distributors obtain their supplies from the factories. While some say it is N1,300 per bag, others say it is N1,400.

However, details from newspaper advertisements recently placed by the management of Dangote Cement reveal the ex-factory prices of the commodity across the country, viz Obajana Plant is N1,330 in the South-West; South-South and South-East – N1,430; North-Central, South-West and North-East — N1,530 and Federal Capital Territory — N1,425.

All prices are exclusive of value-added tax, while minimum purchase of 225 metric tonnes (4,500 bags) is required.

However, the major distributors of the commodity seem to be having a field day too. They sell to retailers between N1,580 and  N1,600 per bag.

A cement retailer in Meiran, Lagos, Mr. Dapo Isayinka, notes that though the business is lucrative, he would have been better off as a major distributor.

Isayinka states that distributors make more profits than retailers. He says, “I sell each bag for N1, 700, because I got my supply at the rate of N1,660. That is a profit margin of N40 on each bag.”

When asked if he foresees the price of cement crashing in future or soon, he replies tersely: “I don’t think so.”

Another retailer in Sango-Ota, Ogun State, Mrs. Adijat Bisiriyu, agrees that the business is lucrative.  “But the business has been dull for now because it seems that people don’t have enough money to spend.”

Isayinka says sales thrive during festive periods because it is the time of the year many people want to finish building their houses and move in.

But both Isayinka and Bisiriyu express the opinion that manufacturers of cement ought to reduce their prices, so that more people can buy and build their houses.

“You know at the beginning of the year, many people have paid their rents and children’s school fees. So, there is no extra cash to play around with. By April, the market will begin to pick up,” Isayinka says.

Yet a bricklayer, Enoh Daniel, seems indifferent to the rising cost of cement. “I only work with the cement that my customer gives me. I have no business with the price of the product,” he says.

Open rivalry

In December 2012, a face-off between Dangote Group and Ibeto Cement Company, the sole importer of bulk cement in the country, drew media attention.

The two companies were poised to square up to each other over an alleged glut in the supply of cement, which the former claimed had been caused by the latter.

The Dangote Group, through its Group Head, Communications, Tony Chiejina, seemed to have triggered the conflict when he blamed the glut on the continued importation of subsidised cement into the country.

But Dr. Ben Aghazu, Executive Director (Strategy and Public Affairs), Ibeto Cement Company, disagreed with the Dangote Group and accused it of laying the foundation for government to ban the importation of cement into the country.

In a statement made available to the media, Chiejina had announced the suspension of production at its Gboko Plant in Benue State.

He said the production figure for the first 11 months of 2012 showed increased local production with supply now surpassing demand.

Chiejina said it was disheartening to note that despite the glut in the local cement market, cement importation, though reduced, had continued, thus calling to question the rigorous implementation of the backward integration policy, introduced to encourage local production.

He had added, “With the dumping of subsidised imported cement in the South Eastern market, there is no way our Gboko Cement plant can survive. In fact, employees have been put on forced leave pending when the situation improves.

“Inventory of finished products is beginning to build up at our plants. Don’t forget that projects from our investments of about N280bn in additional capacity are already on stream, with lines 3 and 4 at Ibese and line 4 at Obajana, coming on stream early this year.”

Chiejina also averred that other manufacturers were experiencing the same problem of low sales and high inventory and called for urgent solutions to the development.

He advised that government should vigorously implement the provisions of the cement backward integration policy that were needed to protect local manufacturers from dumping.

Also, last year, feelers from Lafarge Wapco Cement pointed in the same direction.

The company had said it faced an imminent production shutdown as a result of increase in unsold stock.

During a facility tour of the company’s production plant, journalists were shown huge piles of clinkers and fully produced cement (bagged and bulk cement).

Then, the company had told journalists that production had been cut down by 50 per cent as a result of the glut in the local cement market.

Lafarge Wapco’s Plant Manager, Mr. Lanre Opakunle, an engineer, had described the situation in the local cement industry as pathetic.

He said a reduction in the volume of production had been costing the company 1,280 tonnes of cement per hour or the equivalent of 25,600 bags of cement. He blamed this on the importation of cement in the economy.

Source: THE PUNCH