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Recession: Local Automakers’ Production Capacity Drops by 97%

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  • Local Automakers’ Production Capacity Drops by 97%

Activities at vehicle assembly plants across the country have nosedived as the automakers continue to experience a decline in the patronage of their products, no thanks to the biting economic recession.

A new report put together by Prof. Okey Iheduru of the Arizona State University showed that the annual capacity utilisation of the auto plants in Nigeria had dropped by 97 per cent, from 500,000 vehicles to just 15,000 vehicles.

The Chief Economist at PricewaterhouseCoopers Limited, Dr. Andrew Navin, who noted that the auto industry was still dominated by used cars imports more than two years after the introduction of a new auto policy, also said local production accounted for only one per cent of the market.

Iheduru and Navin spoke in Lagos at a symposium organised by the Lagos Chamber of Commerce and Industry, which had as its theme: ‘The Nigerian auto policy: Reality checks on the economy and the future’.

Iheduru, who gave the installed capacity for the over 40 existing auto assembly plants in the country as 500,000 cars annually, said the firms could only utilise less than three per cent of that capacity.

Although the don noted that some progress had been made following the implementation of the National Automotive Industry Development Plan in 2014, he stressed that “the substance of the policy has failed.”

“The delay in imposing the second phase of the 35 per cent tariff on imported used vehicles is adversely affecting investment in the auto assembly plants and the growth of the industry,” he stated.

Navin, in his presentation, also said the NAIDP, which was introduced to reduce the nation’s dependence on automobile imports and stimulate investment in local manufacturing, had not been able to do well as continued depreciation in the value of naira and foreign exchange crisis had led to increases in the prices of new vehicles.

“Despite increased activity in the auto industry, vehicle ownership is low (in Nigeria) compared to other African countries,” he said.

According to him, vehicle production figures for the last year showed that South Africa did 615,658 vehicles; Morocco, 288,329; Egypt, 36,000; Algeria, 20,000; and Nigeria, 3,500.

Both speakers urged the government to lead in the patronage of locally-made vehicles as enunciated in Gazette No. 24 of 1994, which compelled all tiers of government to source their vehicles locally.

“Unless the auto financing market develops, new vehicles will continue to be beyond the reach of most Nigerian who will settle for Tokunbos (used vehicles),” Iheduru said.

Navin said for Nigeria to become Africa’s automotive hub, it must address certain gaps in the industry such as improving the chances of owning a car; tighten the borders; protecting the consumers through safety and quality standards; setting up ancillary industries; and developing auxiliary industries.

The President, LCCI, Dr. Nike Akande, in her address at the event, said the sales recorded for new cars were too low for the local assembly plants to thrive and for foreign car manufacturers to be attracted to the Nigerian auto market.

She urged the government “to put plans and strategies in place to boost the demand for new cars in Nigeria through special automobile financing facilities for the middle-income earners to acquire new cars.

“There is also the need to provide the necessary infrastructure to support the steel and plastics sub-sectors, which are expected to produce various parts of vehicles. This will create jobs and tremendous multiplier effects for the economy.”

Other speakers at the forum were the Chief Commercial Officer, Dana Motors, Mr. Sandeep Malhotra; Managing Director, ABC Transport, Mr. Frank Neji; Director, Policy and Planning, NADDC. Dr. Luqman Mamudu; and Comptroller-General, Nigeria Customs Service, Col. Hameed Ali (retd).

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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