The Price of Cement May Remain High

The price of cement may remain high, as the promise by producers to bridge the supply-demand gap may take a some time to materialise. A study by Vetiva Capital Management, said Dangote Cement s new Obajana lines and upgrade, commissioned in May this year, might add just marginally to total volume in the second quarter of the 2012, given the gas supply constraints faced by the Nigeria Gas Company (NGC). Cement producers have been facing major gas distribution problems since the fourth quarter of 2011, as NGC’s existing infrastructure is not upgraded to cope with increase in demand, according to Vetiva Capital Management Limited. “For Q2 12 performance of Dangote Cement, we do not expect any major accretion to volume on account of this new line, given the necessary ramping up needed to attain high utilisation rate’, Vetiva Capital said. Dangote Cement contributes about 68 perc ent to total market volume, and a recent research predicts that for the first half of the year, Dangote’s capacity utilisation would be 70 percent, Ashaka Cement 98 percent, the Cement Company of Northern Nigeria( CCNN) 96 percent, and WAPCO Lafarge, 74 percent. Industry analysts say should Dangote Cement which contributes 68 percent, increase its capacity utilisation to 98 percent and 96 percent, like Ashaka Cement and CCNN respectively, the yawning gap between supply and demand would be bridged, leading to a crash in price. Vetiva Capital forecasts 4.90 million tonnes for Dangote Cement; Lafarge WAPCO 1.66 million tonnes; Ashaka Cement 0.42 million tonnes and CCNN 0.24 million tonnes. Although cement producers have been working to surmount the gas supply hiccup, by deploying LPFO or coal, there are strong indications that the problem could negatively affect profit margins for producers in the second quarter of the year. Source: uaecement