Price war looms as cement manufacturers scramble for market share

0
90
Cement

Price war looms as cement manufacturers scramble for market share

The leading cement manufacturers’ turnovers have been projected to drop off in 2020 due to the current economic situation.

The cement industry is expected to slide by 16%, though analysts stated that this may be worsen if the economic lockdown continues for long.

With the economic condition at play, analysts at Cardinalstone said they expect Dangote Cement, Lafarge Africa and BUA Cement among others to intensify rivalry.

Analysts explained that the industry has enjoyed increase in average price of cement but going forward, price raise could affect operators’ performance.

With the economy in limbo, raising price is not a good option but that does not mean it cannot happen, LSintelligence Associates said in an email.

The coronavirus pandemic has exacerbate weak macroeconomic condition, and this has resulted to a weak purchasing power for household while industries captains are planning to stabilise their businesses.

Cardinalstone partner said its base case expectation is that the Nigerian cement sector would decline by 16% to 18.2MT in 2020.

“To raise market share in a strapped economy, cement manufacturers are expected to adjust price downward”, Consultants at LSintelligence said.

For marginal cement manufacturers, analysts predicted a very tough time ahead as rivalry increased among the leading cement companies.

MarketForces gathered that a number of cement producers have brought extra capacity into the market while border closure stands.

Specifically, Cardinalstone Partners Limited has projected downward review in demand for cement across the industry in 2020.

Federal Government is struggling to beat the pandemic down, while companies are also scrambling to stabilize operation following the economic lockdown.

Analysts said that goods and commodities with partial elastic demand like cement, and are face with lower demand due to the bleak economic outlook.

As a result of declining revenues, the FG has not been able to release sizeable amount funds for capital expenditure.

Some investment banking firms have, as a result of economic lockdown, predicted that capital expenditure for 2020 will be slashed to accommodate this new development.

Cardinalstone and some other industry’s experts thus explained that it will take two or more year for cement industry to recover from the shock.

“The Nigerian cement sector may be set for a difficult year on account of COVID-19”, analysts stated.

Key cement producers will be put under demand pressure, as analysts adjust estimates downward though cement operators are yet to reveal new guidance for 2020.

For Dangote, Cardinalstone said it expects the leading cement producer to report 15% and 10% year on year contractions in cement volumes in Nigeria and across its pan African operations in 2020, apiece.

COVID-19 has set stage for increase rivalry among the Cement warlords, it stated.

“BUA Cement is bring extra capacity, Dangote is expanding base and improving logistics Ashaka cement is raising internal capability and Lafarge is struggling to transform”, Cardinalstone remarked.

Cardinalstone is of the view the Dangote might have been hammered, but the company’s stock still enjoying its BUY rating.

Based on fundamentals, analysts estimated to see DANGCEM vertical move becoming steep due to strong cash flow position.

FSDH kicks out DANGCEM from top picks

The investment firm analysts expect the sector’s full recovery to take at least 2 years, in line with the macro guidance of African finance ministers.

All roads may lead to a plunge in volume in FY’20, analysts stated.

On Lafarge, analysts expect the cement company to slightly underperform the sector with a 17.6% contraction in cement output to about 4.1MT.

This projection was made owing to the intensifying competition from BUA Cement across Lafarge’s support hubs in the Northern and Southern zones of the country.

More concerning for us, however, is whether competitors would respond with price actions to prevent a free fall of output in the current year, analysts noted.

The consensus among industry analysts is that price would reduce the industry’s profitability. But now, with developments in the economy, it is more likely operators would slash cement prices.

Cardinalstone review pointed at the fact that a possible Lafarge reaction to such price actions, amidst growing competition, is likely to adversely affect revenue in FY’20.

On expectation that local cement prices remain flat, Lafarge’s FY’20 revenue is likely to decline by 17.6% to ₦175.5 billion.

Price war looms as cement manufacturers scramble for market share

Leave a Reply