Afrigather Past the necessity to spur growth within the constructing supplies and infrastructure sectors which BUA Cement cited as the explanation for lowering the ex-factory worth of its product, those that watch and analyse the cement market intently say t my kmmmmhere are different causes for the corporate’s motion.
The market watchers who took a essential take a look at this slim product market which is combating unfavourable financial circumstances, particularly on the macro degree, observe that every one has not been nicely for cement producers, notably within the areas of gross sales.
FBNQuest Capital Analysis, in a latest assertion obtained by Businessday, highlighted among the implications of BUA Cement worth discount, declaring that decrease cement costs would supply a lift for cement quantity gross sales which have slowed in latest quarters.
In response to the analysis, in Q2 2023, trade unit volumes contracted by c.-0.4 % y/y to 7.5mmt, declaring nonetheless that worth reductions by BUA Cement alone are inadequate to adequately affect trade pricing given the dominance of Dangote Cement (Dangcem) which dominate the market with about 59 % share as towards BUA’s 22 %.
Learn additionally: BUA Cement cuts cement price to N3,500/bag
“If a pricing conflict finally happens, we count on a contraction in Earnings Earlier than Curiosity, Taxes, Depreciation, and Amortization (EBITDA) margin and decrease profitability for all three producers on condition that vitality prices will stay elevated over the following two quarters,” Uwadiae Osadiaye, a researcher at FBNQuest Capital, posited.
“In our view, the worth discount by BUA Cement is critical to extend its native penetration due to the (short-term) lack of market alternatives in Niger and Burkina Faso. We observe that BUA Cement’s Sokoto crops’ proximity to neighbouring nations helped distribution throughout the border,” she added.
He famous, nonetheless, that Nigeria’s northern border is now closed following the navy coup in Niger and the ensuing diplomatic disputes between each nations, hoping that easing of tensions between Niger and Nigeria might see a return to a extra export-orientated strategy.
Putting in context BUA’s introduced N3,500 ex-factory worth for its product, Osadiaye recalled that ex-factory costs for BUA Cement for Q1 and Q2 2023 had been NGN3,700 and NGN4,000 per bag, respectively, which means that the implied discount is round -5 % and -8 % from Q1 and Q2.
Learn additionally: Video: BUA Cement half year Financial result
He recalled additional that in H1 ’23, common cement retail costs had been up 12 % year-to-date (ytd) on common, and all cement producers said that worth will increase had been to offset greater manufacturing and working prices.
“On a per tonne foundation, manufacturing prices and vitality prices had been up 24 % y/y to NGN33,658 and 6 % y/y to NGN13,622 on common, respectively. The devaluation of the naira in Q2 was a major value driver in the course of the interval. If Dangote Cement (Dangcem) and Lafarge Africa (Lafarge) additionally scale back costs to defend market positions, our estimated adjusted earnings per share (EPS) will each be decrease by round -4 % for 2023,” Osadiaye stated.
Although he welcomed BUA’s announcement, he famous that the worth discount could possibly be offset by numerous elements equivalent to elevated distribution (haulage) prices, which he stated, confirmed no indicators of easing.
It is because diesel costs have been up considerably over the previous three months, retailing at round NGN1,000/litre following greater import prices and the now suspended VAT on diesel. Increased transport prices will considerably offset any advantages from decrease manufacturing unit costs.
This view was shared by a cement seller who launched himself merely as Thomas. He additionally famous that the worth discount would solely profit sellers and varied patrons who lived near BUA manufacturing unit websites within the North, arguing that these in Lagos would quite go for Dangote cement whose manufacturing unit is in Ibeshe, Ogun State.
Learn additionally: Market heads further south by 0.03% as BUA Cement tops laggards
“We don’t count on a moderation in the price of transport fuels within the brief time period given bullish crude oil costs and Russia’s self-imposed diesel export ban. In latest months, diesel imports from Russia into West Africa have steadily elevated as a result of its discounted pricing.
In response to the S&P World Commodity Insights, Russian diesel accounted for c.40 % of the sub-regions complete imports in August 2023 vs a negligible contribution within the prior 12 months,” Osadiaye stated.
He recalled that in Q2 ’23, BUA Cement’s quantity gross sales of 1.685mmt works out to a market share of c.22 % in Nigeria which compares with 59 % for Dangcem, noting that BUA Cement is dominant in sure areas of the nation, nonetheless, given its complete combination volumes and believed that there’s a restrict to the agency’s affect on pricing.
“As such, we proceed to count on that Dangcem will dictate native pricing. In Q2, BUA Cement reported a plant capability utilisation of c.61.3 % – the very best within the trade. As such, at full capability, the agency can solely introduce a further 1.1mmt to the market quarterly. All else fixed, the agency’s market share might develop by c.10 % to 32 % beneath these circumstances. That is unlikely. We count on that Dangcem will react to antagonistic adjustments in its market share,” Osadiaye stated.
Persevering with, he famous, “Dangcem’s response could possibly be extra acute if Lafarge additionally lowers ex-factory gate costs, forming a super-minority pricing block with BUA Cement. Presently, Lafarge cement gross sales signify a market share of c.19 %. Mixed, each BUA Cement and Lafarge account for 41 % of native cement gross sales and BUA’s further 6mmt by the top of the 12 months would additional enhance the pair’s pricing energy.”
