Rising input costs, demand-supply dynamics drive up cement prices

Rising cost of inputs as well as demand-supply dynamics have pushed up the price of 50kg bag of cement to between N1900 and N2200, from between N1600 and N1700, BusinessDay’s Real Sector Watch has exclusively gathered.

 Following the backward integration policy and other favourable industry initiatives of the Federal Government of Nigeria, cement prices fell, while production capacity rose. As of 2013, industry capacity reached 28 million tons, making the country the largest manufacturer in sub-Saharan Africa (SSA), while prices remained less than N1700.

But last week, prices reached N2200, though there was a marginal decline to N1900, at the time of filing this report.

Credible industry sources have attributed the rising prices to high input costs, demand-supply dynamics as well as fluctuations in exchange rate.

“Recent price increase is meant to recover some of the transport subsidies to various locations across the country,’’ said a senior member of one of the major manufacturers in the country, who pleaded anonymity.

“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 4 percent between 2011 and 2013,’’ another source said.

 The source said further 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.

Earlier, Kunle Awobudu, secretary, Nigerian Institute of Building (NIOB), had been quoted to have attributed the situation to high construction across the country, particularly in the dry season. He was said to have attributed the phenomenon to cement scarcity common during dry seasons.

Financial Derivatives Company had,  in its March 2012 economic report, said about 80 per cent of Nigerians lived in rented apartments, compared to 19 per cent in South Africa and 22 per cent in Ghana. This crisis was further confirmed by Gimba Ya’u Kumo, managing director, Federal Mortgage Bank of Nigeria, who said it would require N56 trillion to reverse the nation’s housing deficit of between 16 and18 million housing units.

 Ikechukwu Ibeabuchi, a market analyst, said, given the rising infrastructure and housing needs, cement price hike could not have been unusual. According to him, the demand has exceeded supply, as few licensed importers have not been able to bridge the gap.

“Housing needs are rising. The Third Mainland Bridge was built with Lafarge Cement, showing you what cement does in the area of infrastructure. As long as housing deficit continues and people keep mounting pressure on cement, demand –supply dynamics will push up prices,’’ he said.

 One source told BusinessDay that some dealers were deliberately creating artificial scarcity, while another said one of the manufacturers had a problem with its loading bay owing to break-down of machinery.

Another source attributed the trend to low-capacity utilisation, which is the extent to which an enterprise or a nation actually uses its installed productive capacity. But two of the manufacturers dismissed this claim.

“Our volume (supply to the market) has not reduced as all our plants are producing optimally,’’ one of them said, while the other said that various investments in the industry and ability to export the commodity were indications that capacity utilisation was a non-issue.

ODINAKA ANUDU