February 21, 2024/CSL Research
Following a meeting with leading cement manufacturers – Dangote, BUA and Lafarge on Monday in Abuja, the Minister of Works, Dave Umahi, revealed that a consensus had been reached to reduce the retail price of a 50kg bag of cement to a range between N7,000 and N8,000, depending on the location nationwide. Umahi noted that the positive effects of this cement price reduction would be noticeable within the next 30 days. However, cement manufacturers have emphasised that the reduction in price is premised on the government’s commitment to address various challenges affecting the industry, including gas shortages, import duties, smuggling issues, and infrastructural concerns such as road network. The Group Executive Director of BUA, Kabiru Rabiu, on his part, shared the company’s intentions to alleviate the escalating prices by supplying 6 million tonnes of cement to the market. The price of a 50kg bag of cement has surged to c.N13,000 in several retail stores in Abuja and Enugu.
The year 2023 was fraught with several challenges for players in the cement sector. In Q1 2023, the country faced a cash shortage because ofthe Naira redesign program, which greatly distorted commerce. This, combined with the uncertainty surrounding the general elections, caused a pause in essential corporate and government construction projects, slowing down activities in the industry. In subsequent quarters, the country’s elevated inflationary environment, high energy costs, and most notably the devaluation of the Naira in June 2023 impacted the bottom lines of cement manufacturers. Despite the several problems faced by the sector, output growth was sustained, reflected in its 4.20% y/y growth in Q3 2023.
For the cement players, price increases drove revenue growth, as the year was characterized by low demand due to constrained private consumer purchasing power and low government expenditure. As of 9M 2023, Dangote Cement, BUA Cement, and Lafarge Africa reported price hikes of 17.5%, 21.0%, and 23.0% respectively. However, while BUA Cement’s sales volume increased by 6.5% y/y, Dangote Cement and Lafarge Africa saw sales volume declines of 2.3% and 8.9% y/y respectively. Despite the price increases, cement players’ bottom lines were significantly impacted by the devaluation of the Naira in June 2023. In 9M 2023, the three major players in the industry BUA Cement, Dangote Cement, and Lafarge saw significant increases in their foreign exchange losses totalling about N135.38bn, up 441% y/y.
A few of the assumptions underlying our outlook for the cement sector in 2024 appear to have changed. We had anticipated that price and volume increases would drive topline growth in 2024. We expected prices to continue to reflect the country’s macroeconomic reality but adherence to this subtle price control strategy may restrain cement manufacturers from adjusting prices in line with market dynamics. We however predicted that volumes would increase in 2024, based on the premise that certain impediments that slowed growth in 2023 will begin to ease in 2024. We forecasted minimal FX losses in 2024, as we did not expect as steep a currency devaluation as seen in 2023 (49% June – December 2023) in 2024. Current realities however point to a steeper devaluation in 2024 as the country has seen a 41.52% devaluation since the start of the year.
