Financial Derivatives on why Nigeria should incentivize sugar production

Cement producers in Nigeria, Dangote Cement and BUA Cement, have refuted claims of an increase in their ex-factory price of cement. The Dangote Group has called on the government to follow through on the backward integration policy in the sugar industry, while the BUA Group plans to complete their Lafarge Sugar Refinery by the second quarter of 2022. Mayowa Ige, Research Analyst at Financial Derivatives, shed light on the sustainability of current price levels in the cement industry and the challenges faced by the sugar industry in meeting domestic demand. In the discussion, Ige highlighted the market forces driving cement prices, emphasizing the impact of changes in demand and supply. Following a decline in construction activities during the pandemic, a surge in demand led to an increase in cement prices from 2500 Naira to as high as 4000 Naira. Despite production costs being around 2400 Naira, additional expenses factor into the retail price of cement, making sustainability a key concern. Ige noted the efficiency of companies like Dangote and BUA in absorbing price increases, backed by their strong Q1 results and economies of scale. Looking ahead, the outlook for the cement industry remains positive, with government infrastructure spending expected to drive growth. However, concerns arise from the current price hike impacting ongoing construction projects and financial constraints, potentially limiting construction activities. Shifting focus to the sugar industry, Ige discussed the challenges in domestic production, where only 2% of national demand is met locally. Despite the sugar backward integration policy aimed at reducing imports and boosting local production, compliance has been lacking, leading to a significant supply gap. While the focus has been on building sugar refineries, Ige stressed the importance of prioritizing raw sugar production to feed these facilities. He emphasized the need for both policymakers and operators to adhere to guidelines to achieve desired results. With Boa Group targeting the launch of its Lafayette Sugar Refinery in Q1 2022, expected to produce 1.7 million metric tons, there is potential to bridge the supply gap. However, challenges persist, including land acquisition issues and inadequate infrastructure. Ige called for government incentives to attract more players into the sugar production space and boost local production. As Nigeria strives to enhance self-sufficiency in both the cement and sugar industries, collaborative efforts between the government, companies, and stakeholders are essential to overcoming existing challenges and achieving sustainable growth.