CEM REPORT, REAL ESTATE | Despite a surprise price slash from BUA Cement in October, Nigerians hoping for cheaper building materials in 2024 may be left disappointed. A new report by Cardinal Stone, predicts a sustained surge in cement prices throughout 2024.
The report titled “Nigeria Cement Rebounding from a Tumultuous Year,” paints a complex picture of the industry’s future, highlighting both promising growth prospects and persistent cost pressures.
Stormy Seas for Cement Industry in 2023
The report acknowledges the challenges faced by the sector in 2023. Naira redesign hiccups, currency devaluation, and heavy rains all contributed to a tumultuous year. However, it also identifies reasons for optimism in 2024. Increased infrastructure spending (with the 2024 budget allocating a whopping N1.32 trillion), the establishment of the Infrastructure Support Fund, and the active implementation of the AfCFTA are projected to boost demand for cement.
Price Hike on the Horizon
But amidst this growth potential, the report warns of a persistent price hike. Cement producers, aiming to offset operational costs, will likely keep prices elevated. The ongoing battle with inflation and volatile foreign exchange rates further fuels this upward trajectory.
While BUA’s October price reduction raised hopes for a broader price drop, the report remains sceptical. It suggests that unless other players follow suit, the average price will remain high in both the final quarter of 2023 and throughout 2024.
Cement Cost Pressures and Increased Infrastructure Spending
However, the report also offers some optimism. The increased infrastructure budget for 2024, coupled with initiatives like the Infrastructure Support Fund and active implementation of the African Continental Free Trade Area (AfCTA), are expected to boost demand for cement. Additionally, increased production capacity should help alleviate supply constraints.
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While the demand outlook is positive, the report warns that cement prices are unlikely to see significant drops. Producers are grappling with rising operational costs due to high inflation and volatile foreign exchange markets. This pressure to protect margins could keep prices high, barring a potential price war triggered by BUA’s price reduction.
“Barring a potential price war between players in response to BUACEMENT’s ex-factory price slash, we maintain that average cement prices would remain elevated in Q4’23E and FY’24E as players aim to protect their margins from rising operating costs occasioned by still-high inflationary pressures and strong volatility in the foreign exchange”
A Chink of Light
The report offers a glimmer of hope in the form of natural gas adoption. Increasing the use of this fuel for production kilns and distribution vehicles is expected to significantly decrease operational costs. This, coupled with projected global natural gas price declines, could provide some relief for both producers and distributors.
“We expect to see some of the current distribution cost pressure ease as players increase the adoption of the relatively cheaper natural gas to AGO, especially for distribution”
BUA’s Price Promise and Market Reality
In September 2023, BUA Group chairman Abdulsamad Rabiu vowed to slash cement prices from N5,000 per bag to N3,500 starting in October. However, market reality painted a different picture. Retailers continued charging between N5,300 and N5,500, citing old stock and logistics difficulties.
The Road Ahead
The Nigerian cement industry stands at a crossroads. While the booming infrastructure sector promises exciting opportunities, persistent cost pressures and a cautious market response to BUA’s price cut paint a picture of continued high prices for consumers. The adoption of natural gas offers a glimmer of hope, but only time will tell if it’s enough to soften the blow of rising cement prices in 2024.