Glut in Cement Market: The Intrigues, The Fallacies

06 Jan 2013

Views: 2,854

Font Size: a / A

060113F1.Dangote-cement.jpg - 060113F1.Dangote-cement.jpg

Dangote cement

There have been claims and counter-claims over the true state of the nation’s cement industry in recent times as key operators in the industry engage in a media war to drive home their points. Festus Akanbi dwells on the politics of cement production in Nigeria

For almost a month now, a war of sort seems to have broken out in the cement sub-sector of the construction industry with importers and local manufacturers squaring up against each other and justifying their respective positions. The situation is tense as many workers, especially in Dangote’s Gboko Plant, lost their means of livelihood following the temporary shutdown of the plant as a result of the glut in the market, reportedly occasioned by the massive importation of the product to the region.

The cry from the Dangote Group was loud and as if it was not resounding enough, Lafarge Cement WAPCO Nigeria last week also cried itself hoarse, noting that it might also be forced to shut down its plant if the importation of the product into the country continues unabated, at a time local cement manufacturers claim they can adequately meet local demand.

Is There Actually Glut in Cement Market?
The Ibeto Group alleged an underhand dealing on the part of local manufacturers, saying there was no way the volume of cement, which being imported by it, could have induced any form of surplus as being alleged. According to Ibeto Group, a glut is an economic phenomenon that results when a market is excessively supplied with a particular product and the first evidence of such a situation is the drastic reduction in the price of the product and that this has not been the case in the present situation with cement in Nigeria, which price is still high than in most countries of the world.

Chairman of Cement Manufacturers Association of Nigeria (CMAN), Joseph Makoju, decried the glut situation, saying the 18.5 million tons of cement production target reached by local producers was at risk, unless the Federal Government imposed high tariff on imported cement.

He said: “The 18.5 million tons is representing just 65 percent of the present total installed capacity of the industry. Between 2002 and May 2012, a total of $6 billion was made in new investment by local manufacturers, while the on-going expansion and new plants are estimated to cost another $3.5 billion. Due to continuous rapid growth, the nation no longer requires cement imports, as local demand is being effectively met and even surpassed.”

Makoju said Nigerians were not feeling the impact of the reduction in cement price as expected because of high cost of haulage and energy, adding that “energy cost accounts for over 35 percent of production cost and the price of low pour fuel oil (LPFO) has jumped up from N25 per litre in 2009 to N107.76 per litre as at November 2012, an increase of 331 percent”. He advised the Federal Government to impose the maximum tariffs and levies on imported cement to discourage imports.

Incentives for Local Manufacturers
Makoju said this is one major way the government can encourage and protect local producers and save the country millions of naira in foreign exchange that would have been used to create jobs in other countries.

The CMAN boss argued further:  “Of course the glut in the cement industry has assumed global dimension, this is why China, where most of our import comes from, exports the product at highly subsidised cost to keep their factory running. Production in countries such as China is comparatively lower than in Nigeria. All cement plants in China use coal, which is very cheap when compared to Nigeria where Low Pour Fuel Oil (LPFO) is used.

Excess Products
Manager of Larfarge Ewekoro Plant II, Lanre Opakunle, disclosed that at the moment, the various Lafarge factories had excess cement and clicker inventory of about 300,000 metric tonnes, which cannot be absorbed by the Nigerian market because it is already over supplied. Opakunle advised the federal government to do all within its power to ensure that local investors who have committed huge funds into actual cement manufacturing do not run into crisis. He warned that using imported products to replace locally made ones portends various socio-economic problems including declining capacity utilisation, increased unemployment and paucity in foreign investment.

As for the Ewekoro II, which Opakunle operates, he said the plant has since begun to run on skeletal schedule to prevent the total shutdown of any part of the plant.

“We do not have space in our strategic storage facility for more than 20,000 tonnes of clinker, which is only the output of four days production and if things still do not change in the market, the factory may be forced to either scale down its production or shut down its production lines.

“All you need to do is to look at our 80,000 tonnes per hour cement parking facility from where trailers load cement and take to the market, you can see that the 10 units each of 80,000 tonnes per hour parkers are totally deserted.  It is about 2.00 pm now and only 180 tonnes of cement have been loaded off, normally by this time not less than 1,400 tonnes would have been loaded off,” he said.

Opakunle also showed journalists bulk cement haulage trucks that had since been laden with cement in anticipation that prospective buyers would come to place their order but are still in the Lafarge plant’s trailer park because the buyers are just not coming along to ask for cement.

Speaking in the same vein, Makoju who also doubles as Special Adviser to the President of Dangote Group, Aliko Dangote, while conducting journalists round Gboko Plant in Benue State, said local investors are unhappy because they want protection for the huge investments they have made in the sector. He said: “Instead of grinding and selling, we are now stocking and this has forced members to shut some of their production units because revenue is no longer coming in. Importation of cement has been to the detriment of local economy. In fact, cement importation has been very attractive because it comes with paltry duty of 20 per cent and levy of 15 per cent and clinker at 10 per cent, a development that makes the landing cost of imported cement to be very cheap with a bag going as low as $35 per ton.

“Local manufacturers are faced with many challenges, such as bad roads, haulage, energy cost. Energy cost alone accounts for over 35 per cent of production cost compared with less than 10 per cent in China”. The cement manufacturers are particularly pained, according to Makoju, because the development is happening at too early a stage in the investment circle when the investors are yet to recoup significant parts of their investment. This, he said, had the potential to cripple the industry with damaging multiplier effects on the economy in terms of number of job loss and the decline in all other economic activities that are dependent on the cement industry.

Interestingly, only recently, Minister of Trade and Investment Olusegun Aganga flagged off a two-day workshop on enhancing the productivity of Nigeria’s industries, an event organised by the ministry in Lagos. He spoke of an industrial revolution that will strategically position and empower the nation’s manufacturing sector as the key driver of economic growth through job creation and increased contribution to Gross Domestic Product

Speaking on the development, a renowned financial expert, Mr. Bismark Rewane, who is the Chief Executive of Financial Derivatives, expressed worry that government was yet to stop importation of cement despite increased local production.

Threat to Backward Integration Policy
He described the development as being at variance with the backward integration policy in the cement sub-sector, which is meant to encourage local production, generate employment and stimulate the economy. 

He expressed concern over the situation in cement industry and called for concerted efforts to save the local manufacturers.  Looking at the two sides of the argument by both importers and local manufacturers, government should do more to discourage the importation, both legally and illegally, of cement into the country in order to encourage the local manufacturers.

Aside the employment potentials and setting the country on the lane to industrialisation of the country, the enormous foreign exchange saved by producing cement locally cannot be discountenanced. From whichever perspective one views the present situation, the ball seems to be in the government’s court to either achieve full industrialisation of the economy or leave the economy at the mercy of importers. Whatever it would take, the government should remove the obstacle at present to the local production of cement and save the sub sector from collapse, as is the case with the textile industry.

Tags: Business, Nigeria, Featured, Cement Market

Comments: 0


Add your comment

Please leave your comment below. Your name will appear next to your comment. We'll also keep you updated by email whenever someone else comments on this page. Your comment will appear on this page once it has been approved by a moderator.