Despite tremendous potential, the cement manufacturing sector continues to operate at much lower levels than its installed capacity and faces huge losses due to sharp increase in input cost. “It is a serious challenge for the cement industry and a continuous threat for its survival”, an insider said, adding that the sharp increase in input cost has enhanced challenges for the cement sector and also affected country’s exports causing huge losses to national exchequer in terms of foreign exchange earning. The capacity utilization of cement sector has dropped to its lowest level at 69.67 per cent in the first two quarters of the current fiscal year. On the other hand, the cement sector exports had also witnessed declining trend, the data shows. Historically, a sharp increase was seen in the coal, electricity and diesel prices during the last decade. Coal prices increased at a compounded annual rate (CAGR) of 12.2 per cent during this period. The electricity prices increased at CAGR of 9.5 per cent and diesel prices at 19.59 per cent. Despite the sharp increase in input costs, the cement prices could not keep that momentum and increased by only a CAGR of 6.20 per cent (ex-factory) during this period. “It is a huge gap between the growth rate of input cost and cement prices”, industry sources said. This gap is continuously hampering the functioning capacity of this industry, they added. They said that the recent increase in power tariff, petroleum, furnace oil and coal prices will further damage the industry. The prices of furnace oil and coal, two major inputs used in manufacturing of cement, had already increased by 43 and 49 per cent respectively since 2007-08, whereas almost 27 and 8 per cent increase in these respective inputs have been observed in first quarter of FY 2012. This challenge is more severe for the cement manufacturing plants located upcountry as the rate of diesel, the fuel for goods transportation, has increased to Rs 105 per liter from Rs. 40.8 per liter in 2007-08. There is a huge gap between the transportation costs of different plants located in various parts of the country. The cement plants in southern zone have an advantage being located nearer to the sea ports. During the first quarter of current fiscal year, 7 cement manufacturing plants suffered loss before taxation aggregating to Rs. 0.973 billion while 8 cement units, of which 3 are located near Karachi in close proximity to the sea port, earned profit of Rs. 1.001 billion.
