APCMA highlights cement industry problems

The fiscal year 2010-11 proved to be a nightmare for the cement sector as 80 per cent of the cement manufacturers suffered huge losses on the back of stagnant local consumption. On top of this the government failed to honor its commitment for payment of inland freight subsidy that could have boosted exports. This was stated in a press release issued by All Pakistan Cement Manufacturers Association (APCMA) today.
Cement consumption declined by 8.24 per cent during the fiscal year 2010-11 as compared to the last year which has rung alarm bells for the industry and planners of the country alike.
Cement despatches for FY 2010-11 reveal that capacity utilization of the industry was at its lowest at 76.12 per cent in past eight years with total dispatches declining by 6.68 per cent to 21.97 million tons, down from 23.55 million tons in 2009-10. Low consumption of cement mirrors the low growth of GDP of the economy. A spokesman of the APCMA stated that continuous losses to cement industry are unbearable and might jeopardize the servicing of Rs132 billion in loans the industry owes to the banking sector. Cement industry has been incurring massive losses due to high cost of production, declining exports and decrease in local demand of the commodity but the government ignored all the issues of cement makers and no support was extended to the ailing industry, he highlighted.
According to the data for FY2010-11, the cement industry remained particularly challenged and under pressure in the northern part of the country, while the few plants operating in the south were relatively better off.
The 19 cement units in the northern region have a cumulative production capacity of 36.17 million tons. These units despatched only 17.892 million ton of cement in FY2010-11 which was less than 50 per cent of their potential capacity. In 2009-10 these units despatched 11.22 per cent more cement amounting to 20.154 million tons.
The total installed capacity of the 5 cement plants in the south is 6.381 million tons. These units despatched 4.083 million tons of cement in FY2010-11 which is 20 per cent more than the cement despatches of 3.396 million tons, a year earlier in 2009-10.
This lopsided development in different geographical regions of the country was mainly due to the fact that plants in the south are close to the sea ports which enabled them to export some of their production. This is not feasible for the large number of mills in the north due to high transportation cost. Another point worth noting is that the domestic uptake of cement increased in Sindh (South) which offset the impact of lowered exports last fiscal year. Law and order issues in the north may also have impacted the sales of cement adversely.
The woes of the plants based in the north were compounded by reduction in domestic demand in northern parts of the country and the inability to achieve breakthrough in land exports to India. Overall, exports declined by 11.69 per cent while the total despatches of cement trimmed by 6.68 per cent.
The spokesman from APCMA said that two years ago the government agreed to share transportation cost from mills to sea port. This, he added, boosted exports and provided some relief to the industry but it is regrettable that the promised support was never provided. Even in the current budget, there is no mention of an inland freight subsidy of Rs270 million to the cement makers which has added to the problems of the industry, he stated with dismay.
He recalled that the Economic Coordination Committee (ECC) and Trade Development Authority of Pakistan (TDAP) had approved inland freight subsidy on export of cement by sea.
Accordingly, the government issued a public notice dated March 26, 2010 allowing inland freight subsidy at the rate of 35 per cent on cement exports till June 30, 2010. On this basis, export orders were taken up by the manufacturers but the government failed to honour its pledge.
However, he thanked the Government of Pakistan for reducing the Federal Excise Duty (FED) on cement by Rs200 per ton and bringing down GST from 17 per cent to 16 per cent, which has reduced the worries of cement industry to some extent and consumers, would get much needed relief. It was also heartening to note that the government had provided a road map to exempt cement from levy of excise duty over the next two years which was a much needed reform and hoped it would spur activity in the construction sector.
Lastly, the spokesman hoped that government would encourage the construction of concrete roads and use of cement blocks instead of bricks which is the modern and internationally recognized method of construction.