Notable industrial goods companies in industrial goods sector of the Nigeria Stock Exchange (NGX) saw the cost of purchasing raw materials increased significantly in the first half of the year.
A review of the financial statement of Dangote cement, BUA cement, CAP Plc, Lafarge cement, and Beta Glass reveals that raw materials cost rose to N331.51 billion in the first six months of the year.
This represents an increase of 98.9% when compared to the figure for the same period of last year, which stood N166.65 billion.
Companies in the industrial goods sector range from cement to paint and others that deal in building materials.
For the cement producers, it imports raw materials like gypsum while the paint producers like binders and resins.
- Dangote cement: this company’s cost of raw materials increased by 95% in the first half of the year to N200.78 billion from N102.76 billion in the first half of 2023.
- BUA cement: in the first six months of 2024, the company’s raw material cost rose to N94.89 billion from N39.41 billion in the first half of 2023.
- Lafarge cement: this company saw a marginal increase in raw materials cost from N13.75 billion in the first half of 2023 to N15.03 billion in the period under review.
- Beta Glass: there was a 135% increase in raw material cost for this company in the first half of the year compared to the same period of 2023. In H1, 2024 raw material cost reached N6.12 billion from N2.60 billion in the first six months of 2023.
- Berger Paints: this paint manufacturer’s cost of raw materials increased from N2.06 billion in H1, 2023 to N3.22 billion in the same period of 2024.
- CAP Plc: perhaps the company with the biggest increase in raw material cost in the period under review. Between January and June 2023, the raw material stood at N3.72 billion- this increased to N9.8 billion in H1, 2024 indicating an increase of 163% during the period.
- Notore chemical: surprising, this company’s raw material cost decreased between the first half of 2023 and 2024 by 34.5% from N2.26 billion in H1, 2023 to N1.48 billion in H1, 2024.
- Meyer Plc: This agro-allied and chemical company saw its cost on raw materials increased from N97 million in the first half of 2024 to N197 million in the corresponding period of 2024.
The increase in the cost of raw materials for the companies under review stems from the significant depreciation of the Naira during the period.
Performance of the Naira in H1, 2024
In the first six months of the year, the Naira saw significant volatility and depreciation. It started the year at N907/$ and closed the first half at N1534/$ making it one of the world’s worst performing currencies. This is despite several interventions and policies by the Central Bank of Nigeria (CBN) including raising interest rate to record levels in the first half of the year.
The weakening of the Naira also affected general importation of raw materials by businesses. In the first half of 2024, raw materials imports reached N2.95 trillion from N1.12 trillion in the same period of last year. This marks a rise of 162.5% within a one-year period according to the foreign trade report from the National Bureau of Statistics (NBS).
It is important to note that the exchange rate closed at N765.25/$ on June 30, 2023- when compared to the exchange rate for June 30, 2024- it represents an over 100% depreciation in the Naira.
During Dangote cement’s investor call on the company’s first half result for 2024, its Chief Finance Officer, Dr. Gbenga Fapohunda alluded to the company’s increase in finance cost due to foreign currency loans used in purchasing raw materials like gypsum used in cement production.
He stated, “Basically, this FX loss reported are due to devaluation on our FX based loans which we used for our working capital. So monies we used to buy AGO, spare parts and input materials like gypsum and the likes that is what is driving the FX losses.”
Furthermore, the Group Managing Director of Dangote cement noted that in response to exchange rate volatilities in Nigeria and Zambia, the company will now begin prioritising local input materials sourcing.
Impact on prices
The prices of these products from the industrial goods sector saw a significant increase during the first half of 2024 owing to an increase in raw materials and other costs.
Notable among them was the price of cement which increased from around N5,500 per bag in the in early 2024 to over N11,000 during the quarter. It took the intervention of the federal government through the Ministry of works and trade and investment to reduce prices to around N7000 currently.