Key Factors Behind Price Increase
- Production Costs: The cost of producing cement in Nigeria has surged by 121% due to various factors, including the depreciation of the naira and high inflation rates. These increases have significantly affected the profitability of cement manufacturers, even as their revenues have grown.
- Smuggling: The illegal export of cement to neighboring countries like Chad and Cameroon, where prices are much higher (ranging from $120 to $150 per 50kg bag), is contributing to the rising cost of cement within Nigeria. The exchange rate exacerbates this, as the price in these countries translates to about ₦240,000 to ₦270,200 per bag, compared to the local price of ₦8,000 to ₦9,000.
- Energy and Import Costs: A significant portion of the cement industry’s costs comes from energy consumption, which is indexed to the dollar, and the importation of critical components like gypsum and polypropylene bags. The volatility in exchange rates has further driven up these costs.
Impact on the Industry and End Users
- Profitability: Despite an 84.5% increase in combined revenue for the top three cement manufacturers (Dangote Cement, Lafarge Africa, and BUA Cement), profitability has declined by 4.1% due to the steep rise in production costs.
- Consumer Strain: End users, particularly block molders and builders, are feeling the pinch. The high price of cement, which now averages ₦8,000 to ₦9,000 per bag, coupled with a decline in purchasing power, has made construction more challenging.
- Calls for Government Intervention: Industry stakeholders, including the National Association of Block Moulders of Nigeria (NABMON), are urging the government to reduce import duties on cement manufacturing components to attract more foreign investment and help stabilize prices.
Outlook and Future Measures
- Compressed Natural Gas (CNG): In response to rising transportation costs, Dangote Cement plans to convert its fleet to run on Compressed Natural Gas (CNG) by 2025, in alignment with government initiatives.
- Expansion Plans: Dangote Cement is also constructing a new plant in Ogun State, expected to produce 6 million metric tonnes annually. This expansion may help boost supply and potentially stabilize or reduce prices in the long term.
The ongoing economic pressures, smuggling activities, and exchange rate fluctuations indicate that the hope for lower cement prices in Nigeria remains uncertain, with both manufacturers and consumers bearing the brunt of these challenges.
