The Managing Director of Financial Derivatives Company Limited, Bismarck Rewane has revealed why Dangote Refinery cannot sell below its production cost.
He said the reason is because such an approach would be suicidal.
Rewane stated this on Channels Television’s Business Morning segment of Sunrise Daily breakfast programme on Tuesday.
The economist said, “Dangote Refinery or any refinery for that matter, apart from government-owned refineries are in business to produce at a profit.
“Two, they will produce at a point at a price point where their marginal cost equals their marginal revenue and they will not sell below cost if not if they do that consistently, they will go out of business.
“What Dangote Refinery is assuring the country is quality and quantity but that pricing is not necessarily in the hands of Dangote Refinery but in the hands of the market; the market determines the price including the global crude price, guaranteed margin and the cost of processing. It’s as simple as that. Nobody goes into business to sell below its cost price if not that is suicide.
“I think we should get a rather than be carried away by false expectations. Yes, it’s good to know that the petrol is being lifted, it is a milestone from our own refineries which we had before but now we have the largest single-train refinery in the world. We have it as a result of the initiative of Alhaji Dangote but now it is business time.”
Rewane also said the August inflation figure which showed a decline was not sustainable.
He said, “I think one thing we have to put out there so that everybody knows this: inflation data happened at a period before the petrol price increase and the data was taken at the time of the protests. So, we saw prices of perishable commodities decline, and we did not felt the impact of the increase in petrol prices.
“It is good news but we shouldn’t get too excited because the September data is beginning to point to the fact that more likely than not, we are going to have an increase in the price level so that’s what we’re going to see in September.
“Our forecast and our view is that moderation in inflation is going to be more visible at the end of the year rather than at this time. We had expected it in September but now it’s more likely to happen in December.
“It is short-lived because it happened in between protests and petrol price increase.”
