In an African Events Magazine Editorial last month, we questioned - Why is cost of cement still rising as Dangote Cement makes N121.8 billion in six months? Less than a month later, it is now being reported by Bloomberg that "Dangote Cement, Africa’s largest producer of the building material, has cut prices in its home market of Nigeria in an attempt to boost cement consumption and compete with imports." The question now is whether the price cut will be reflected practically in the open market or will it run into similar implementation problems that prevented the consumer from benefiting from such price cut in the past?
The price cuts to its 3X cement brand by $30.23 (6,000 naira) per metric ton will still allow Dangote to achieve strong returns, said chief executive Onne van der Weijde in a statement on Thursday.
The Lagos-based company is also hoping the lower prices will help increase export sales to neighboring nations, he said.
Dangote Cement is seeking to grow sales and protect market share in Nigeria, while rapidly expanding elsewhere in sub-Saharan Africa. The company has grappled with fuel shortages in its home market this year that have hurt demand, and in December it raised prices to protect profit margins amid a devaluing local currency.
Nigeria, Africa’s biggest crude producer, has been hobbled by a halving of oil prices in the past year and the toll of an Islamist insurgency in the country’s north.
“We hope that reducing the cost of cement will help to stimulate building work across Nigeria at a time when the economy is in need of a boost,” Van der Weijde said.
“We believe our cost-saving initiatives and new pricing strategy will help to support the naira by reducing unnecessary imports and by enabling us to generate valuable foreign exchange earnings.”
About 42 percent of Dangote’s cement sales by volume were sold outside of Nigeria in July, the company said in the statement, compared with 22 percent in the first six months of the year, and just 8 percent in 2014.
Before the price increase in December, Dangote had reduced the cost of cement in November, causing a more than 20 percent slump in the market. Paris-based Lafarge SA is Dangote’s largest competitor in Nigeria.
“Competition has no choice but to bring down the price because Dangote is the market leader,” said Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management. “The last time they reduced the price it was not sustained because they had logistics problems with their distribution.”
Dangote Cement shares have fallen 13 percent this year to 174 naira, compared to the 14 percent drop of the Nigerian Stock Exchange All-Share Index.
Report From Bloomberg