Nestle Nigeria Plc, a unit of the world’s biggest food company, will struggle to maintain profit-margin growth in 2016 as the highest inflation in nearly 11 years and a lack of foreign currency stalls the economy in Africa’s most populous country.
“We haven’t seen the bottom” of the downturn, Chief Executive Officer Dharnesh Gordhon, 51, said in an interview in the commercial capital, Lagos, on Aug. 10. A shortage of dollars has made it difficult to import raw materials, he said.
Nestle Nigeria, about 64 percent owned by Vevey, Switzerland-based Nestle SA, is seeking to use its market-leading position in the country to ride out an economic contraction of 1.8 percent this year, Nigeria’s first recession in three decades.
The country, which vies with Angola as Africa’s biggest oil producer, has seen income plunge after the price of oil, which accounts for about 70 percent of government revenue, fell more than 50 percent over the past two years. Inflation accelerated to an annual rate of 16.5 percent in June.
The profit “margin is under pressure” as the company can’t pass all cost increases onto the consumer, Gordhon said.
While the Central Bank of Nigeria seeks to support the naira with currency controls, companies are finding dollar supply unpredictable, according to Gordhon. His company can go for as long as three weeks without being able to source dollars, he said.
“I wish there was a consistent pattern that you can plan with,” the CEO said.
Nestle Nigeria, which makes Maggi cube seasoning and Milo cocoa, is counting on an expanding middle class in the country and across Africa to increase and sustain demand for its packaged foods, the CEO said. It exports Maggi cubes to other African countries and to Europe, mainly to Nigerians living in those countries. While revenue grew 22 percent to 80.4 billion naira ($247 million) during the six months ending June 30 from the same period a year earlier, costs rose 28 percent, to 47.7 billion naira, Nestle Nigeria’s financial statement shows. Its Swiss parent company reports first-half earnings on Thursday.
“The Nigerian business for us is one of the best in Africa and it continues to grow,” Gordhon said. “We’ve had a compound annual growth of over 10 percent over the last five years. We’ve doubled the business in four years.”
With 92 percent of what the company sells produced locally, Nestle has an advantage over rivals that rely on imports, the CEO said. Rivals include Cadbury Nigeria Plc, Unilever Nigeria Plc and imported brands of packaged food.
“What I see is that there will be few players and this gives us the opportunity to solidify our market position,” Gordhon said. “The market is shrinking in terms of total size of category, but our share is increasing.”
Nigeria’s economic downturn is likely to bottom out by the end of this year, with a turnaround set to begin next year, according to Gordhon. The naira has weakened 38 percent against the dollar since the central bank in June dropped a 16-month peg against the U.S. currency. The naira strengthened 0.9 percent to 321.25 by 6:49 a.m. in Lagos on Wednesday.
“Nigeria is an extremely resilient economy,” he said. “People have gone through worse things in this country. What you need is constancy of economic policy or monetary policy. If you get those things, businesses can adjust. ”
Brent Crude Rises to $69 on IEA Report
Oil prices rose after the release of the International Energy Agency’s (IEA) closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.
Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.
The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.
However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.
Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.
“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.
In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.
“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.
The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.
OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply
The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.
This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.
According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.
The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.
OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.
The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.
On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.
Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.
On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.
This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.
However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.
“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.
The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.
Oil Rises Over Concerns of Fuel Shortages
Oil prices rose on Tuesday, as lingering fears of gasoline shortages due to the outage at the largest U.S. fuel pipeline system after a cyber attack brought futures back from an early drop of more than 1%.
Benchmark gasoline futures prices rose 1 cent to $2.14 a gallon.
On Monday, Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, said it was working to restore much of its operations by the end of the week.
“Right now there’s a generalized anxiety premium being built into prices because of Colonial and it’s keeping a floor under the market,” said John Kilduff, partner at Again Capital LLC in New York.
Fuel supply disruption has driven gasoline prices at the pump to multi-year highs and demand has spiked in some areas served by the pipeline as motorists fill their tanks.
Traders booked at least four tankers to store refined oil products off the U.S. Gulf Coast refining hub after a cyber attack that knocked out the pipeline, shipping data showed on Tuesday.
North Carolina, the U.S. Environmental Protection Agency and Department of Transportation issued waivers allowing fuel distributors and truck drivers to take steps to try to prevent gasoline shortages.
OPEC on Tuesday raised its forecast for demand for its crude by 200,000 bpd and stuck to its prediction of a strong recovery in global oil demand this year as growth in China and the United States counters the coronavirus crisis in India.
Meanwhile, the rapid spread of infections in India has increased calls to lock down the world’s second-most populous country and the third-largest oil importer and consumer.
India’s top state oil refiners have already started reducing runs and crude imports as the new coronavirus cuts fuel consumption, company officials told Reuters on Tuesday.
On the bullish side for crude, analysts are expecting data to show U.S. inventories fell by about 2.3 million barrels in the week to May 7 after a drop of 8 million barrels the previous week, a Reuters poll showed.
Gasoline stocks are expected to have fallen by about 400,000 barrels, analysts estimated ahead of reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday.
News4 weeks ago
COVID-19: Nirsal Microfinance Bank (NMFB) Loan – Covid19.nmfb.com.ng
Billionaire Watch1 week ago
Ethereum Co-Founder Becomes The Youngest Crypto Billionaire As ETH Hits $3K
News4 weeks ago
Covid19.nmfb.com.ng: How to Check Nirsal COVID-19 Loan Status
Crude Oil4 weeks ago
Oil Rises on Drawdown in U.S. Oil Stocks, OPEC Demand Outlook
Cryptocurrency3 weeks ago
Electronics Retailer Newegg now Accepts Dogecoin As Payment
News2 weeks ago
FG Declares Monday, May 3rd Public Holiday To Celebrate Workers Day
Appointments1 week ago
Buhari Suspends Hadiza Bala Usman as MD of NPA, Appoints Koko
Brands2 weeks ago
Netflix Partners Ikorodu Bois on Oscars Film Brand Campaign