BUA Cement slams middlemen for inflated prices
At the heart of Nigeria’s construction boom lies a brewing controversy over the soaring cost of cement, and BUA Cement Plc is pointing fingers directly at the middlemen. The company, one of Nigeria’s leading cement producers, has blamed the skyrocketing prices on the greed of dealers who are manipulating the market for their benefit, raising concerns about the affordability of a critical building material in a developing economy.
During its 8th Annual General Meeting in Abuja on Thursday, BUA Cement’s Chairman, Abdul Samad Rabiu, did not mince words. He accused the middlemen of capitalizing on their market position to double the price of cement, despite the company’s efforts to maintain affordability for consumers. “We sold cement to the dealers at a price that would allow them to sell at N3,500 per bag, but their desire for excessive profits led them to sell at N7,000 and above,” Rabiu lamented. This statement highlights a significant markup by intermediaries, which he attributes to greed, leading to inflated costs for end-users.
Rabiu’s remarks underscore a troubling disconnect between manufacturer pricing and the final retail cost of cement. According to BUA Cement, their target price for a 50kg bag is N3,500. However, due to the actions of unscrupulous dealers, consumers are forced to pay double that amount, straining budgets and potentially slowing down construction projects across the country.
Further adding to the chairman’s assertions, Yusuf Binji, the Managing Director of BUA Cement, explained the inherent complexities in controlling retail prices due to their business model. “Our model involves selling to distributors, who then sell to retailers before the cement reaches the end users. This multi-layered distribution chain makes it difficult for a private company like ours to enforce pricing,” Binji said. His comments reveal the challenges that even large corporations face in ensuring fair pricing in a market driven by multiple layers of distribution and sales.
Given these challenges, BUA Cement is advocating for more robust government intervention to regulate the final prices at which cement is sold to consumers. “We need the government to step in and regulate this market to protect consumers,” Binji urged. He emphasized that while BUA Cement has seen relative price stability since early 2024, thanks to efforts coordinated with the Ministry of Trade and Industry, there is a need for a more sustainable solution to prevent price gouging by middlemen.
Despite the difficulties posed by the existing market structure, BUA Cement has remained proactive in its strategy to stabilize prices and increase supply. In the second quarter of 2024, the company commissioned two new production lines, adding an impressive six million metric tons per annum to its existing capacity. This expansion is part of BUA’s broader strategy to alleviate supply pressure, particularly during peak construction seasons when demand typically outstrips supply, driving up prices.
The recent expansion of BUA Cement’s production capacity is expected to have a significant impact on the market dynamics of the cement industry in Nigeria. With these new production lines, the company hopes to address the supply shortages that often lead to price spikes. “We believe that with the moderation in the exchange rate and our increased capacity, the outlook for 2024 is very positive,” Binji stated. This expansion reflects BUA’s commitment not only to increasing its market share but also to stabilizing the market for the benefit of consumers.
Binji also hinted at potential price reductions if the Nigerian Naira appreciates, suggesting that the company could pass on cost savings to consumers. Such a move would be a welcome relief in a market where prices have been volatile and often unpredictable due to external economic pressures and market manipulations by intermediaries.
Beyond increasing production capacity, BUA Cement is also investing heavily in energy infrastructure to ensure operational efficiency and reduce reliance on external energy sources. The company is constructing a mini Liquefied Natural Gas (LNG) plant in Ajaokuta to supply its Sokoto plant and potentially other locations. This facility, with a capacity of 700 tons per day, represents a significant investment aimed at converting LNG into gas to power its production units more efficiently.
By securing its energy needs through this new infrastructure, BUA Cement aims to lower production costs and enhance its competitiveness in the market. This strategic move could also help shield the company from the volatility of external energy markets, providing a more stable foundation for its operations and enabling more consistent pricing for its products.
Despite the challenging macroeconomic environment, BUA Cement recorded robust financial results for the year 2023. The company reported a 27.4 percent increase in net revenue, rising to N460 billion from N361 billion in 2022. This growth was driven by higher cement volumes dispatched and improved capacity utilization, which climbed to 61.2 percent from 59.8 percent in the previous year.
However, the company faced setbacks in profitability, with profit after tax declining by 31.2 percent to N70 billion from N101 billion in 2022. This decline was primarily due to foreign exchange losses resulting from the devaluation and continued depreciation of the Naira, highlighting the ongoing challenges that Nigerian businesses face in a fluctuating economic environment.
In response to these financial results, BUA Cement’s Board of Directors recommended a dividend of N2 per share for the year ended December 31, 2023. This decision underscores the company’s commitment to delivering value to its shareholders despite the economic challenges encountered during the year.
As BUA Cement continues to navigate the complexities of the Nigerian cement market, the company is calling for fairness and greater collaboration among all stakeholders to ensure a more equitable market. The company’s leadership is clear in its stance that middlemen should not exploit their position to the detriment of consumers and the industry at large.
The company’s ongoing investments in capacity expansion and energy infrastructure, coupled with its advocacy for regulatory intervention, reflect a strategic approach aimed at stabilizing the market and ensuring that cement remains affordable for all Nigerians.
As the Nigerian construction industry grows and the demand for building materials continues to rise, the actions of companies like BUA Cement and the policies of the government will play a crucial role in shaping the future of the sector. With a focus on transparency, efficiency, and fairness, BUA Cement is positioning itself as a leader in the industry, committed to meeting the needs of a growing market while advocating for practices that protect consumers and promote sustainable growth.
The recent statements from BUA Cement’s leadership highlight the need for greater transparency and regulatory oversight in the cement market to protect consumers from price gouging and ensure fair play. As the company continues to expand its production capacity and invest in energy infrastructure, it is also calling on the government and other stakeholders to work together to create a more stable and predictable market environment.
By addressing these challenges head-on and advocating for reforms, BUA Cement is not only seeking to enhance its own market position but also to contribute to the development of a more equitable and sustainable construction industry in Nigeria. With continued investment, strategic planning, and a commitment to fairness, the company aims to help build a brighter future for the Nigerian economy and its people.
