Naira Depreciation and Inflation Drive Cement Costs Up 121%

Nigerians’ hopes for a reduction in cement prices have been dealt a significant blow as the combined effects of Naira depreciation and rising inflation have led to a staggering 121% increase in production costs.

Cement manufacturers, including industry giants Dangote Cement Plc, Lafarge Africa, and BUA Cement Plc, are grappling with increased expenses, which have also contributed to a 4.1% decline in their profits. Despite a surge in revenue by 84.5%, reaching N1.116 trillion in Q1 2024 from N604.9 billion in Q1 2023, the spike in production costs to N586.6 billion from N264.9 billion has outpaced earnings, pushing profit before tax down to N196.4 billion.

Manufacturers attribute the rising costs to several factors, including the depreciation of the Naira, escalating inflation, and the rising trend of cement smuggling to neighboring countries such as Chad and Cameroon, where prices range from $120 to $150 per 50kg bag. This translates to N240,000 to N270,200 at the current exchange rate, far higher than Nigeria’s local price of approximately N8,000 per bag.

Kabiru Rabiu, Group Executive Director of BUA Cement, expressed concern over the illegal smuggling of cement to these neighboring markets, where it commands significantly higher prices. He highlighted that distributors, drawn by the higher margins, are increasingly transporting cement across borders, particularly from Maiduguri.

End-users, including block molders and builders, continue to feel the impact of high cement prices, with the National Association of Block Molders of Nigeria (NABMON) urging the Federal Government to reduce import duties on cement manufacturing components to attract more foreign investment. NABMON President, Mr. Adesegun Banjoko, emphasized that the current price of N8,000 to N9,000 per bag remains unaffordable for many Nigerians given the declining purchasing power.

A builder in Lagos, Sikiru Ajala, echoed these concerns, citing high cement prices as a major deterrent to construction activities. The situation is further exacerbated by high-interest rates on loans, with banks demanding 30% to 35% interest, making it increasingly difficult for builders to finance projects.

Industry insiders, including a senior official from Lafarge Africa Plc, have attributed the rising costs to a challenging operating environment marked by escalating input costs, exchange rate volatility, and energy expenses. The official noted that the cost of importing machinery and maintenance parts has surged due to the weakening Naira, while inflation continues to pressure the industry.

The rising cost of energy is another significant factor, with machines in the cement industry heavily reliant on gas and electricity, both of which have become increasingly expensive and unreliable.

Despite these challenges, Dangote Cement has announced plans to transition its cement trucks to Compressed Natural Gas (CNG) by 2025 as part of efforts to reduce transportation costs. Additionally, the company is constructing a new plant with a 6 million metric tonne capacity in Itori, Ogun State, which is expected to help stabilize supply and potentially ease prices in the long term.

Manufacturers continue to urge the government to address the root causes of inflation and provide the necessary infrastructure to support the industry, warning that without such measures, the cost of cement is likely to remain high.