Evolving trend in the cement industry in Nigeria is fast assuming an intriguing dimension among the various stakeholders, as politics penetrates issues of demand, supply and pricing. LAYI ADELOYE reports
Intrigue is fast taking over in the production, supply and pricing of cement, arguably the second most politicised commodity of high economic value in Nigeria.
In politics, intrigue is a norm, and cement production, supply and pricing of the commodity have had its fair share of it in recent time. But the recent outcry by local manufacturers of cement, alerting the nation to the imminent shut down of plants by two of the major producers, Dangote Cement Plc and Lafarge Wapco Cement Company Plc, on account of glut in the market, created a new dimension to the usual trend in the industry.
Initially, one of the major issue was shortfall in supply, which prompted the introduction of the Backward Integration Policy in 2002. Under the policy, local manufacturers of cement, with ample evidence of investment in manufacturing facilities are to be given an import licence that would enable the firm to import, relative to its manufacturing capacity. The reason behind this was that at the time of drafting the policy, national demand was far beyond supply, and it was expected that it would take some time for local capacity to meet demand. National/ local productive capacity in 2002 was .2.2 million metric tonnes, while demand stood at 11.5 million metric tonnes.
Another issue was pricing, which was naturally high, ranging between N1, 700 and N2, 500, even till October 2011. However, with massive build up in local manufacturing capacity, which started with opening of Dangote Cement Plc's five million-metric-tonne plant in 2007, and was followed by the opening of Lafarge Wapco Cement Plc's 2.5 million-metric-tonne Lakatabu Plant and Dangote Cement's Ibese Plant between December 2011 and February 2012, respectively, national productive capacity surged to 22.5 million metric tonnes, according to Cement Manufacturers Association of Nigeria's data.
But in-between the progression on the Backward Integration Policy and the surge in productive capacity, there had been controversial issues. One of these was the agitation by the Forum of New Entrants into Cement Production, made up mainly of importers of the commodity. The group, led by Ibeto Cement Limited, and with Mr. David Iweta as its spokesperson, said there was the need to crash the the high prices of cement. The group, which described the local manufacturers that were licensed to import cement to augment local production to meet national demand, said only a regime of liberalised importation would save the country of high cement price.
However, through a consent judgment entered by the Federal High Court to settle the dispute between the Federal Government and Ibeto Cement Company in Suits Number FHC/ABJ/CS/400/2006 and FHC/ABJ/CS/496/2010, Ibeto Cement Company Limited became the only authorized importer of bulk cement in the country in June 2012. This followed years of bitter acrimony between the manufacturers and importers.
Analysts believe that the intrigues that culminated in the judgment and the subsequent lack of price reduction in the price of cement, even six months after the firm had unfettered access to importation of cement remains a mystery in the industry.
Peter Olumo, a building expert, said, "The mystery of cement pricing is one that only the government and the key players can explain. For instance, the importers got us all online, saying that monopoly in cement sales was the reason for the high prices. Six months after Ibeto got the import licence, and has been importing, the price has remained as it was. Who is deceiving who?
Indeed, there is a paradox in the cement industry. The paradox lies in several interplaying developments in the sector. For instance, in a sector, where productive capacity and local demand had just been matched, as announced by local manufacturers, why should importation of cement be a desirable option for the government?
Other issues include the relative dormant movement in pricing over a long period; issue of competitive survival ambience on the part of players in the sector; the fate of the Backward Integration Policy that produced the surge in capacity and the impact of the latest developments on the polity and the people, among other factors. All these are issues of concern to industry and financial experts, and other stakeholders in the economy, as gathered in the process of this analysis.
It was in the midst of the industry vagueness that Dangote Cement Plc, in a statement by Group Head, Corporate Communication, Dangote Group, Anthony Chiejina, t wo weeks ago, announced the suspension of production of cement at its four million metric tonnes per annum Gboko Plant, as a result of glut in the cement market.
The glut, the company said, was caused by the high volume of imported cement, which comes in cheaper than locally produced ones.
He said that the production figure for the first 11 months of the year showed increased local production level with supply now surpassing demand. He said it was, therefore, disheartening to note that despite the glut in the local cement market, some cement importation, though reduced, has continued, thus calling to question the rigorous implementation of the backward integration policy, introduced to encourage local production.
"With the dumping of subsidized imported cement in the South Eastern market, there is no way our Gboko Cement plant can survive. In fact, employees have been put on forced leave pending when the situation improves."
"Inventory of finished products is beginning to build up at our plants. Don't forget that projects from our investments of about N280bn in additional capacity are already on stream, with lines 3 and 4 at Ibese and line 4 at Obajana, coming on stream early this year.
According to Chiejina, other manufacturers are also experiencing the same problem of low sale and high inventory and called for urgent solutions to the development.
Besides, he advised that government should vigorously implement the provisions of the cement backward integration policy that are needed to protect local manufacturers from dumping.
Rather it said, "The market has been dull due to the particularly severe raining season. But we see this as a temporary issue, and the signs are already showing of an improvement.
A CMAN top official, who preferred to remain anonymous, described the fear of glut and the impact it would create on local operating firms was real.
He said, "We are talking about local manufacturing firms, where infrastructure is funded and sustained by the producers. Power is another challenge, among several challenges faced. All these are not there when you import. China, where they import from, does not have these challenges. The future is grave, especially for the billions of dollars investments made by local cement manufacturing firms.
The group, in a statement signed by its Executive Director of Strategy and Public Affairs, Dr. Ben Aghazu affirmed that through a consent judgment entered by the Federal High Court to settle the dispute between the Federal Government and Ibeto Cement Company in Suits Number FHC/ABJ/CS/400/2006 and FHC/ABJ/CS/496/2010, Ibeto Cement Company Limited had become the only authorized importer of bulk cement in the country.
Explaining how the consent judgment came about, Aghazu said the Federal Government had issued a guarantee to Ibeto Cement Company Limited that the company"s proposed cement bagging plant in Bundu Ama, near Port Harcourt, shall operate for a minimum period of 10 years from commissioning so as to meet the strict funding requirements of the lending institutions, although these were later cancelled until the latest restoration.
"With this judgment making Ibeto Group the sole importer of cement into the country for the specified period, the company argued that 1.5 million tonnes, which is less than five percent of the annual cement supply to the Nigerian market cannot create a glut."
Aghazu decried moves to get the Federal Government to, in effect, invalidate the essence of the court order that authorize Ibeto Cement to import this small amount of cement until September 30, 2017, by raising the duty and other taxes on imported cement so as to make the imported cement more expensive than Dangote cement.
"We do not believe that the Federal Government should be misled into doing this because doing so will go against the spirit of the out-of-court settlement agreement between the Federal Government and Ibeto Cement, especially since Ibeto Cement as stated, is currently the sole importer of cement."
Amidst the altercations, Lafarge Wapco Cement, which appeared to take a reticent position initially, came out with a bang. Lafarge's position became pivotal and important in view of the fact that as an international company, it is not given to frivolous statements or comments.
Penultimate Friday, Lafarge Wapco Cement Company Plc, like the Gboko Plant of Dangote Cement Plc, said it faced an imminent production shut down as a result of mounting unsold stock, unless something positive happened in the industry that could lift the commodity's sales profile in the next two months.
This followed a facility tour of the company's production plant, where huge piles of clinkers and fully produced cement (bagged and bulk cement) were shown to journalists, but with no buyers in sight.
At present, the company said production had been cut down by 50 per cent as a result of the glut in the local cement market. The loading park of the company, which usually has 10 trucks at intervals of between 45 minutes and one hour, according to the company, was empty for the three and a half hours that journalists were on the site, with workers loitering around for lack of loading to do
Lafarge Wapco's Plant Manager, Mr. Lanre Opakunle, an engineer, said the situation in the local cement market was pathetic.
Pointing at heaps of clinkers (the final cement product except for the non addition of the binding agent in cement production), Opakunle said apart from the huge unsold cement stock in its storage, the volume of unused clinkers in its storage facilities for the day was put at 220,000 metric tonnes, from which 300,000 bags of cement could be produced.
In terms of production cut down, he said reduced production had been causing the company 1280 tonnes of cement per hour or 25,600 bags of cement in terms of production volume. All these he attributed to importation of cement in the economy.
Opakunle said, "In all, the current lull in the cement market has reduced the productive capacity of the company by 50 per cent. Our two plants, between six and seven trucks are normally on a loading queue, and if there is demand pressure, we run 10 parkers. However, in the last two or three weeks, sales have been extremely low, forcing production cut down by as much as 50 per cent.
"We just hope that things will turn around quickly because it takes only four days production worth of clinkers to fill our storage facilities. I think there is an urgent need for a proactive measure to be taken, especially as regards product importation,"
He said that initially, the management thought it was the normal rainy season market slur. However, he said it recently became clear that the situation had taken a threatening dimension when huge stock of unsold products began to pile up, even after the rainy season had receded.
"For instance, since morning (as at 2pm on Friday), we have done (parked) just 180 tonnes (six trucks), whereas we should normally have done (loaded) 1,400 tonnes. A truck has 600 bags. You can calculate how many bags of cement we are having idling away without the market to push them into," he said.
The Executive Secretary of Cement Manufacturers Association of Nigeria, Mr. James Salako, recently said Nigeria had productive capacity of 22 million metric tonnes, following the inauguration of Dangote's Ibese Plant and Lafarge Wapco's additional 2.5 million-metric-tonne plant.
In the immediate term, no respite seems to be in sight, as cement price remains the same, while local manufacturers are under pressure of imminent collapse.
Reacting o the development, a renowned financial expert, Bismarck Rewane, who is the Chief Executive of Financial Derivatives, expressed worry that government had yet to stop importation of cement despite the increased local production. He expressed concern over the situation in the cement industry and urged for concerted efforts to save the local manufacturers.
An industry operator, who is retired top management official of Lafarge Wapco, said, "The situation is grave for the sector's future. If a policy of government cannot be sustained to a profitable level, then a scare is being caused, and investors may be wary of coming into this economy. Economically, the sector's failure could be dreadedful."
