Nigerian cement manufacturers are gearing up for a potential pricing war after BUA Cement announced a significant reduction in its ex-factory prices. This move has prompted emergency board meetings among other cement makers who are now deliberating whether to follow suit with price cuts or maintain current prices. Analysts anticipate that a pricing battle could lead to a contraction in Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin and lower profitability for all manufacturers in the industry.
Key Points:
- BUA Cement initiated the pricing battle by reducing its ex-factory price from N5,500 to N3,500, with the aim of boosting development in the country’s building materials and infrastructural sectors.
- The price cut by BUA Cement is seen as a strategic move to increase its local market share, especially in the wake of temporary market losses in Niger and Burkina Faso due to geopolitical trade challenges.
- Analysts speculate that BUA’s price reduction could either be a strategic attempt at cost leadership to out-compete rivals or a niche repair strategy to compensate for potential market volume losses.
- Cement makers are also investing heavily in capacity expansion, leading to a surge in borrowing costs. Dangote Cement, for example, has undertaken significant commercial paper and bond issuances to finance its expansion projects.
- Lafarge Africa has focused on balance sheet deleveraging and debottlenecking existing plants, minimizing the need for significant borrowing to fund capacity-related capital expenditure (CAPEX).
Analysis: The Nigerian cement industry is poised for a potential pricing battle following BUA Cement’s substantial price reduction. This move could lead to intensified competition and a potential contraction in industry-wide profitability. As cement manufacturers grapple with pricing strategies, the industry is also witnessing substantial investments in capacity expansion. This dynamic will likely shape the competitive landscape and pricing dynamics in Nigeria’s cement market over the coming quarters.
