Dangote’s price cut to spur competition in cement industry

Competition will be stiffer among manufacturers of cement in Nigeria after Dangote Group, the nation’s largest producer, slashed the price of the essential commodity.

Dangote Cement, which is also Africa’s largest producer of the building material, cut prices in its home market of Nigeria in an attempt to boost cement consumption.

The price cuts to its 3X cement brand by N6 000 ($30.23) per metric tonne, translating to N300 reduction per 50kg bag, allows Dangote to still achieve strong returns, Onne van der Weijde, chief executive officer of Dangote cement, said in a Lagos.

Meanwhile, a survey across the country revealed that distributors and retailers are beginning to implement the new price regime, resulting in gradual decline in the price.

Sebastian Iwemgiwe, a retailer in Benin City, Edo state, noted that the essential building, which was sold at N1,850 per 50kg bag, has, since last week, come down to N1,650 per bag and is likely to decline further.

The claim of price reduction was corroborated by other retailers, such as Opeloyeru Eniola in Ojodu area of Lagos state, who said: “Although I am still selling my old stock, I am aware that the price for the next supply has been reduced.”

While observers are of the opinion that the ongoing African operation expansion must have given Dangote cement a leeway to reduce domestic price of the product, the cement giant is also reportedly hoping the lower prices will help increase export sales to neighboring nations where it has no presence yet.

Reacting to reports of price reduction by Dangote, Tajudeen Ibrahim, team head, Chapel Denham, said: “We expect the other cement producers such as WAPCO, UNICEM and AshakaCem in the Lafarge Africa Group and Cement Company of Northern Nigeria, to cut cement prices, being price-takers in the industry.

“The sales volumes of the cement industry may however not rise on the back of the price cut, as the relationship between price and consumption is weak.”

Ibrahim said the drag in infrastructure development due to government’s weakening fiscal strength and pressured consumer wallets will slow down the demand for building materials.

Gross domestic product expanded 2.35 per cent on an annual basis, compared with 3.96 percent a quarter earlier, according to data from the National Bureau of Statistics, (NBS).

“Competition has no choice but to bring down the price because Dangote is the market leader,” said Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management.

The latest earnings update showed the four major players in the industry are in a growth spurt, despite the economic doldrums bedeviling consumer goods firms.

The cumulative revenues of the four dominant cement makers (Dangote, Lafarge, Ashaka and Cement Company of Northern Nigeria), as reported in their (H1) 2015 results, rose by 13.02 percent to N378.40 billion, from N334.79 billion last year.

The cumulative net profit of these firms increased by 24 percent to N156.94 billion in June 2015 as against N126.17 billion last year, as alternative cheap source of energy continues to cut costs and bolster bottom line. Industry players expect the rapid urbanisation to increase the demand for building materials.

Dangote Cement has announced its intention to increase its cement production capacity in Nigeria by 20 per cent to 35.25mn tonnes per annum from 29.25mn tonnes per annum currently. The new fully-integrated plant, which will be completed within the next 30 months, will be located in Itori, Ogun state, close to Lafarge Africa’s cement plant at Ewekoro. The plant will have two lines each of 3.0mn tonnes capacity.

Dangote Cement, controlled by Africa’s richest man, Aliko Dangote, is seeking to grow sales and protect market share in Nigeria, while rapidly expanding elsewhere in sub-Saharan Africa. The company has grappled with fuel shortages in its home market this year that have hurt demand.

Nigeria, Africa’s biggest crude producer, has been hobbled by a halving of oil prices in the past year and the toll of an Islamist insurgency in the country’s north.

“We hope that reducing the cost of cement will help to stimulate building work across Nigeria at a time when the economy is in need of a boost,” Van der Weijde said:

“We believe our cost-saving initiatives and new pricing strategy will help to support the naira by reducing unnecessary imports and by enabling us to generate valuable foreign exchange earnings.”

About 42 per cent of Dangote’s cement sales by volume were sold outside of Nigeria in July, the company said in the statement, compared with 22 percent in the first six months of the year, and just eight percent in 2014.