By Lekan Adejuwon
Nigeria’s second largest cement producer, BUA Cement, has fired the opening shot in the latest episode of industrial hostilities between the three biggest players in the calcine limestone and clay mixing industry.
The Chairman of BUA Group, Abdul Samad Rabiu, had on Saturday, September 16, 2023, announced plans to reduce the price of cement in Nigeria from the current price of N5,500 to N3,500.
According to Rabiu, the price crash is part of his company’s contribution to supporting the efforts of tFederal Government to stabilise the prices of essential commodities.
“Let me thank his excellency Mr. President for graciously receiving me today. I came to intimate his excellency on the affairs of our cement business.
“We have two new lines of 3 million tons each that we will be commissioning by the end of the year.
“So, I explained to him that we want to support the efforts of the government in bringing down the cost of cement.
“By the time these lines are commissioned, BUA Cement will be producing about 17 million tons per annum and with that, we intend to bring down the cost of cement from its current level of N5,000 or N5,500 per bag to maybe N3,000 to N3,500 per bag”, he said.
The BUA chairman, however, clarified that the price reduction should not be expected until after the completion of two new plants of 3 million tons operating capacity his company is building at the end of the year.
However, just 14 days after his earlier announcement, Rabiu made a surprising volte-face when he announced that the planned price reduction of cement to N3,500 originally billed for December has been moved forward to October 2.
“We refer to our previous pronouncements regarding our intent to reduce cement prices upon the completion of our new lines at the end of the year.
“As per the commitment made to reduce prices and following a periodic review of our operations for efficiency, the management of BUA Cement Plc wishes to announce and inform our esteemed customers, stakeholders, and the public that effective October 2, 2023, we have decided to bring the price reduction forward.
“As a result, BUA Cement would now be sold at an ex-factory price of N3,500 per bag so that Nigerians can begin to enjoy the benefits of the price reduction before the completion of our plants.
“Upon completion of the ongoing construction of our new plants, which would increase our production volumes to 17million metric tonnes per annum, BUA Cement intends to review these prices further in line with our earlier pronouncements by the first quarter of 2024”, the company stated in a statement on October 1,
Expectedly, the announcement produced a massive shockwave, which ripped through the cement industry, with retailers of the product scampering for safety as a result of market distortion caused by the price adjustment.
Rather than it leading to the crash in the prices of cements as promised, the announcement produced an initial jump in prices of the commodity across the country.
It was reliably gathered from market sources that owing to the sudden announcement, the demand for BUA cements soared.
“Unfortunately, the downward review of the price of BUA cement was not backed by any noticeable increment in supply. By the close of trading on October 2nd, most sellers, especially those in the South West, ran out of stock due to the deluge of demands, which they couldn’t meet.
“The ripple effects soon spread to the entire construction sector, with the price of other brands like Elephant and and Dangote cements going up.
According to BH findings, a 50k bag of cement, which was selling for between N5,300 and N5,500 before the announcement, sold for N5,600 on average in the region (and a premium of N6,200) on Friday, October 6.
While the price distortion in the industry is ongoing, sources in both Dangote and Lafarge Cement companies informed our correspondent that their management’s are busy considering appropriate measures to counter BUA’s unilateral price reduction, which they described as anti-competition.
“BUA has started a major cement war, which it cannot win. Definitely, our firm is going to respond to our competitor’s unilateral decision to effect a major price adjustment.
“We could have allowed this to slip, but BUA had come out to say that it will embark on further price adjustment in December when it’s newly built plants start operations.
“Already, the one week old price adjustment has disrupted the cement market. If we don’t act very soon, we will be at a major disadvantage in the already saturated cement production market”, a top executive in Lafarge, who did not want his identity disclosed confided in our correspondent.
When further prodded on the exact steps his company is planning to take to counter BUA’s strategic move, the source declined to speak further,
“Just wait, it will soon be in the open at the right time”.
Reports have also been trending that Dangote Cement is planning to reduce the price of its cement to N2,500 to counter BUA’s price slash.
However, the spokesperson of Dangote Group, Tony Chiejine, described the claim as false.
“The report is fake and not from us”, Chiejine said.
The top three players in the cement production industry, Dangote, BUA and Lafarge, are not new to turf wars.
In 2017, a fierce battle for the control of a mining site in Obu, Okpella, in Edo State by both the Dangote Group and BUA Group, broke into the open.
The feud became public knowledge when BUA Group accused Dangote of sending armed men to disrupt operations at its cement factory in Okpella.
The mining site is rich in natural sedimentary rock-based mineral resources, which include limestone, calcium, and granite, feldspar, talc, clay, marble and others.
However, Dangote Industries responded by accusing BUA Group of illegally mining on the site, which it claimed belonged to it.
According to Dangote Industries, it acquired the mining licence from AICO in 2014 and received all necessary approvals from both the Edo State Government and the Federal Ministry of Solid Mineral Resources.
Worried by the bloody skirmishes that greeted the quest for control of the mining site, the Edo government waded in by shutting it down.
The dispute is presently in court and yet to be decided.
Reacting to BUA Group’s decision to reduce the price of cement by about 30%, the President, Nigeria Consumer Protection Network (NCPN), Kunle Olubiyo, said the ensuing price war in the cement sub sector is a welcome development.
“It is also good for the public, the off-takers and end users customers of the products”, he said.
In his own submission, President of the Association of Forensic Accounting Researchers, Prof. Godwin Oyedokun, said BUA’s action may lead to a price war and force other producers to follow suit.
“When one producer slashes its product prices, it may affect other producers in different ways depending on various factors, such as the competition level, market size, product differentiation, and the availability of substitutes.
“In some cases, price slashing may lead to a price war and force other producers to reduce their prices to remain competitive, decreasing profit margins.
“Ultimately, the effect of price slashing will depend on many factors and the specific circumstances of the market.
“I know competitors will respond to this. I pray it brings a positive multiplier effect on the economy”.
However, a Global Power and Energy analyst, Bode Fadipe, disagree with Olubiyo and Oyedokun, insisting that the reduction of cement price by BUA is cosmetic.
“The recent reduction in cement price is cosmetic and transient unless a corresponding review of other parameters is required in the building industry.
“What BUA has done is a sustainability strategy. I won’t be surprised to see a return to the old price because the macro and micro-economic indicators are major suspects.
“Dangote and BUA are not just relations; they are businessmen. That Dangote has kept mum does not mean he won’t respond. Businessmen are very strategic people. They do everything to protect their business interest”, he argued.
Meanwhile, cement marketers have refused to adhere to the recent price reduction of the product announced by BUA.
Findings showed that the price of BUA branded cement had largely remained the same in the South West, especially in Abeokuta, Osogbo, Ibadan and other states’ capital.
For instance, while cement traders in Lagos have continued to sell the BUA brand for between N5,100 and N5,400, the brand goes for an average of N5,400 in Ibadan, the Oyo State capital.
In the same vein, the BUA cement brand sells for N5,450 in Osogbo, N5,500 in Akure and N5,500 in Ado-Ekiti on the average, contrary to the expectations of many buyers that they will get the product at the rate recently announced by the BUA management.
Reacting to the development, some cement traders described the announcement of price reduction by BUA as mere media propaganda.
According to the traders, the announcement has failed to have effect on the price of the product, maintaining that it will take more than words of mouth to effect a price crash.
A major cement distributor in Agege, Lagos, Alhaja Shakira Folarin, said BUA only played to the gallery when it announced the price slash.
According to Folarin, there is a wide gulf between the ex-depot price of cement and the actual market price.
“Let’s even agree that BUA gives out a bag of cement at the rate of N3,500. But does that mean that the real market price will also be N3,500 as those ignorant of how the cement and commodities market works would like to believe?
“For those, who don’t know, BUA has two cement plants, one in Kalambaina, Sokoto State and the other in Okpella, in Edo State.
“The nearest of the plants to Lagos is Okpella in Edo State. While BUA is responsible for getting the products to its depots in Lagos and the South West states for major distributors to pick up, distributors are responsible for the cost of moving the cements from BUA depots to their warehouses.
“The least you can get a flatbed trailer capable of conveying maximum 12 tons (240 bags) of cement at a go is N400,000. If you divide N400,000 by 240 bags of cement, that gives you N1,667.
“Add N1,667 to BUA’s new price of N3,500, you will get N5,157 per bag. Already, the amount is above the N5,000 mark, despite the fact that we have not added other costs like carriers/loaders fee, warehousing costs and traders’ margins.
“We pay a loader N100 for every bag of cement he offloads. That is another N24,000 on a trailer load of cement.
“You can now see why the price of a bag of cement will continue to hover around N5,500 for now despite the price reduction by BUA.
“For Nigerians to see a remarkable crash in the price of cement, manufacturers must further bring down the ex-factory price of the product, or there is a major crash in transportation cost”, Folarin explained.
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