BUA Cement’s Price Reduction and the Hanging Question

The excitement originated by the price reduction announcement by the management of BUA Cement Plc is fast diminishing following the argument in some quarters that the company was economical with market reality.

Is a bag of cement from the stable of BUA Cement Plc already available at N3,500? How accessible is the brand and what’s its spread? Is there any difference between ex-factory price and the real market price?

Above are some of the questions that have since trailed the official announcement by the management of the BUA Cement Plc over its price reduction to N3,500. Before the announcement and up till the first few days of what looked like an independent anniversary gift, it was an excitement in the market but things appear to be taking a new turn at the moment due to some recent developments hinged on product scarcity and market reality.

BUA Cement, a subsidiary of BUA Group, had recently announced a reduction in the price of their cement from N5000/6000 to N3,500 per bag effective from October 2. In a statement, the company said it was reducing the prices in a bid to spur development in the building materials and infrastructure sectors.

One week after the announcement, many analysts and consumers have described the development in the market as different from the picture the company painted. While some analysts and consumers argue that the product is not available in the larger part of the market, some described the price reduction announcement as a deceptive marketing stunt. But BUA management has since dismissed the criticism and allayed the fear in the market. 

However, an independent survey carried out by this reporter across various markets revealed that the price change is yet to reflect across major markets as the product is still being sold at the old price. 

A cement dealer at U-Turn Bus Stop, Abule-Egba, Lagos, Mr. Abayomi Omideyi, who runs Residal Ventures, said the situation is different from what is being painted on social media and in the public because the N3, 500 announced by BUA excluded logistics. 

“Much as I’m not doubting the promise of price reduction, things are still difficult to situate because the price pronounced by BUA is a factory price.  Those who are selling cement in Okpela or Sokoto axis where BUA have factories may sell at N3,500 but to move it from Okpela for example to Lagos, Abeokuta or Ibadan, it will cost additional N1,400 per unit. When this is added to N3,500, we are getting nothing less than N4,900. As at this morning, Lafarge and BUA are selling same price -N4,900 while Dangote sells N5,050,” Omideyi said 

Also Read: Dangote, Lafarge, BUA Post Highest Profit Margins Among Global Peers

In Ekiti, a building contractor, Musa Alani said nothing has changed in the state, adding that access to BUA products had been naturally low in the state prior to the new development. 

“It was encouraging news when we heard that BUA cement price would come down. We were very excited that the situation would ease our tension and make our job easy. Before now, supply of BUA cement to Ekiti had been very low and we thought the new regime would change the supply pattern but nothing has changed. As of this morning, I haven’t seen any cement seller that offers it at N3,500,” he stated. 

However, a report from Kwara State confirmed that the price of the BUA brand was reduced following the purported price reduction. According to THISDAY Correspondent, even though the product is not in large supply, it’s being sold at between N4000 and N4,500 as at the time of filing this report.

Speaking on the debate generated by the recent development, Ayo Akinyemi, a Civil Engineer faulted the company for not clearing the air about the difference between ex-factory price and the real market price. According to him, the ex-factory price of 3,500 the company announced is meant for self-collection and excludes transport and other logistics costs.  

 “Since the new price regime at BUA is ex-factory price, there is no way the price of cement will go as low as N3,500. Don’t forget, the company has its plants in both Sokoto and Okpella, and for the cement to be transported to a place like Lagos or the east, it will have an additional transport cost of a minimum of N1,300-1,600 per bag. So, in effect, what BUA has done is tactically not fair on Nigerians because it published a rate that it knows is neither sustainable nor achievable, ”Akinyemi said.

Meanwhile, a report by Proshare titled, “Nigeria’s 2023 Cement Battles: Understanding the Place of Price, Power, and Privilege in BUA’s Price Cut,” said; “if BUA Cements recently announced price reduction is anything to go by, then questions need to be raised concerning the possibility of reducing the prices of other consumer goods such as wheat/grain flour and sugar. However, with respect to wheat and sugar, the economics of the business appear widely different. While raw materials for cement production are almost exclusively local, the import cost components for sugar and wheat are high and variable. 

“The volatility of Nigeria’s foreign exchange market, the rise in domestic energy costs, the geopolitical challenges between Ukraine and Russia and the problems with crop production and supply chain disruptions in Brazil create different circumstances from cement.”

It added, “analysts have requested greater clarity on how BUA Cement could reduce the prices of its products in an environment of hyperinflation. For example, did savings come from below-the-line revised expense items or elsewhere?” 

The report stated, “while BUA Cement should be commended for its price reduction initiative, market investigations suggest that three days after its announcement of a price reduction to an ex-depot price of N3,500 per 50kg bag of cement, several wholesalers still advertise the old prices, this may be related to an inventory crawl, where wholesalers sell off old stock bought at higher ex-depot prices.”

“But of equal importance is that in recent times, BUA Cements prices have been higher than competitors, and the reduction in price may simply reflect a correction for recently resolved inefficiency discovered in the old price arrangement.” the report stated.

Just last month also, the Cement Producers Association of Nigeria, had urged the federal government to conclude the backward integration policy on cement production initiated by the late Yar’adua administration, adding that cement availability and affordability cannot be achieved in Nigeria, if the government fails to break “the chain of monopoly and favouritisms.”

Speaking through the National Chairman, Prince David Iweta and National Secretary, Mr Reagan Ufomba, the association warned then that there would be dire consequences if the supply end is not addressed properly, arguing that failure to do so will worsen Nigerians’ hope that the price of cement would come down.

In the midst of the ongoing development, some market watchers, early this week, predicted that Dangote, a leading player in the sector would soon respond with a price slash. Also some online reports have recently reported that Dangote has embarked on sales promotion and has further adjusted its prices. But the company has since responded that no such plan is in place, at least for now. 

In response to the misleading report, the Chief Branding and Communications Officer of the Dangote Group, Anthony Chiejina described the reports as mischievous, malicious, and false.

He added that the Management has formally notified the law enforcement agents to track down, name, and shame the perpetrators, “of this devious and deceptive information.”

Source: This Day