Amid Scarcity, Cement Producers Post Bumper Profits

Indications emerged last week that the unabated shortage of cement products and its correspondent exorbitant price are raising the profitability of local manufacturers, which are alleged to have conspired to frustrate calls for higher importation as a way of bridging the gap between demand and supply.

Industry watchers said although some of the local producers have invested heavily in their domestic factories to boost production, little results have been achieved in terms of a rise in volume of cement produced locally to meet demand.

Currently, a unit price of cement hovers between N2,200 and N2,400,  in Lagos and Ogun states, a development that has raised serious concerns at a period the federal government has restated its commitment to investing in massive infrastructure development.

Analysis of the operating results of major local cement manufacturers showed that while the price of cement remains exorbitant owing to its scarcity, companies like Ashaka Cement, Dangote Cement and Cement Company of Northern Nigeria posted to super-normal profits in the financial year ending 2010.

Ashaka Cement posted a turnover of N19.15 billion, while its profit after tax hit N3 billion.

According to a report by Renaissance Capital, the performance was exceptional, acknowledging that the profit after tax in particular beat their projection for 2010. Rencap had forecast a PAT of N2.76 billion for the reviewing period. The company is paying 30 kobo per share as dividend.

Dangote Cement, which made its results public recently, is another beneficiary of the current situation in the cement market. The company’s profit before tax rose by 58.9 per cent to N101.33 billion from the corresponding year’s N63.8 billion, while PAT rose by 73.7 per cent to N106.6 billion from N61.4 billion in 2009.

As for Cement of Northern Nigeria, its turnover was N11.18 billion while its PAT was put at N1.2 billion, by far exceeding Rencap’s projection of N865 million.

The company was said to  have grown its profit through its fourth quarter performance which was attributed to the completion of repair work at the klin.

Industry watchers, who were not surprised at the rising fortunes of local cement producers, said  a situation whereby the supply is not meeting rising demand for the commodity was bound to push the profit levels of local producers.

They pointed at the misleading position of Cement Manufacturers Association of Nigeria to discourage cement importation. They wondered why the federal government allowed itself to be deceived in spite of the complaints of other members of the industry that there is insufficient local capacity to meet demand.

Amidst the complaint of cement consumers over the skyrocketing price of the commodity, chairman of the CMAN, Mr.  Joseph Makoju, attributed the increase in price to the high cost of haulage.

According to him, the high cost of procuring diesel for the heavy duty vehicles that transport cement from the factory to the various depots spread across the country was a major factor in the costing of the commodity.

Makoju reportedly pointed out that the high cost of diesel has combined with poor quality roads to play a major role in the high price of the commodity, even though the ex-factory price of most cement manufacturers has always remained the same.

Industry operators, however, disagreed with his position, warning that the current situation is capable of worsening the situation in the building sector.

Managing Director/Chief Executive Officer of Wichtech Industries Ltd, Chidozie Nwankwo said that the high cost of cement was hampering construction especially as it concerns private property developers.

Lamenting the development, he said that with the current price of the commodity, some developers who want to make returns on their investment might be constrained to build sub-standard and inferior houses to the detriment of the masses.

Chairman, Lagos State Chapter of the Nigerian Institute of Architects, Abombola Ajayi, said government should as a matter of urgency tackle the problem of cement scarcity.

The price trend of the product follows a usual historical cycle annually, which when it eventually settles, leaves consumers usually worse off as it never really reverts to the original pre-price hike level.

The sustained price increase of the past few weeks is about the highest in the history of the market.

As at February this year, the price of a 50kg bag of cement had risen to about N1, 800 in Lagos and N2, 100 in Abuja and by last week, the price has risen to N2, 400 in some parts of Lagos and Ogun.

The federal government has in the past made so many policy pronouncements in the seeming interest of the poor, but turned around to implement policies that were actually hurting consumers.

Critics of government’s handling of the situation said the government itself aided the process that stifled competition, which could have been a self-regulating mechanism for the seasonal price trend.

Instead, the government through its policies has helped to foster an oligopolistic market, and in fact, one which favours the major players in the industry.

Source : Thisday