Dangote Holds Prices as Global Costs Pressure Fuel Importers

Nigeria’s petrol importers are confronting tighter margins as international product prices and shipping costs rise, strengthening the competitive position of the Dangote Petroleum Refinery in the domestic market.

Although traders had anticipated an increase in Dangote’s coastal sales price, the refinery maintained its existing level, according to the latest refined-products market assessment from S&P Global Commodity Insights.

The decision has widened the economic challenge facing companies attempting to import petrol into Nigeria. An importer must purchase the product internationally, pay for transportation and insurance, manage foreign exchange exposure and still compete against fuel supplied domestically by Dangote.

Recent market movements have made that calculation increasingly difficult.

Petrol prices around Lomé, an important trading and storage location for products destined for West Africa, have moved above Dangote’s sales price. This has largely removed the opportunity for traders to buy from the regional market and resell profitably in Nigeria.

The situation differs in Ghana, where market pricing reportedly offers traders more flexibility. In Nigeria, Dangote’s prices have effectively become a reference point that limits how much importers can charge without losing customers.

Transportation expenses are adding to the pressure as the freight rate for moving a 37,000-tonne clean petroleum cargo from the United Kingdom and continental Europe to West Africa increased to $37.12 per metric tonne, compared with $29.70 at the end of June.

That represents an increase of about 25 per cent within a relatively short period. For a full cargo, the change could add hundreds of thousands of dollars to shipping costs before port charges, financing expenses and domestic distribution costs are considered.

S&P Global data placed the free-on-board West African petrol price at $1,053 per metric tonne, while ship-to-ship petrol in Lomé was assessed at $1,078. Cargoes moving from Northwest Europe to West Africa carried an estimated delivered value of $1,042.25 per metric tonne.

These prices leave limited space for Nigerian importers to compete when the local refinery maintains a lower selling point.

Dangote’s move to quote petroleum products in dollars introduces an additional consideration. Dollar pricing could protect the refinery from the currency mismatch created when crude oil is purchased in foreign currency but refined products are sold in naira.

For marketers, however, it increases exposure to exchange-rate movements. A weaker naira could raise the local-currency cost of supplies even if Dangote leaves its dollar price unchanged.

The pressure is not limited to petrol. Reduced availability of Russian products from the Black Sea has contributed to higher prices for high-sulphur gasoil in West Africa. Ship-to-ship diesel in Lomé was assessed at $1,173.50 per metric tonne, while the West African free-on-board assessment reached $1,233.50.

Nigeria’s deregulated downstream market permits companies to import petroleum products, but having regulatory permission does not guarantee that a shipment will be commercially viable.

Importers will only bring in fuel when the expected retail price covers international purchases, freight, financing and distribution.

Dangote’s scale gives the refinery an important advantage. Domestic production reduces dependence on long-distance product shipments, even though the refinery remains exposed to global crude prices and foreign currency costs.

Consumers could benefit from competition between domestic refining and imports, particularly when alternative suppliers prevent one producer from exercising excessive pricing power.

However, sustained losses can discourage importers and leave the market increasingly dependent on a single major refinery.

That concentration presents a longer-term supply risk. If imports remain unprofitable, any maintenance disruption or production setback at Dangote could have a larger effect on national availability.