Cement industry experts have termed it a good omen that the local cement consumption is likely to surpass 2.3 million tons in the month of March 2012. However, they rue that the industry is barely surviving on thin margins.
In March 2010 the industry managed local dispatches to the tune of 1.993 million tons in north while 0.317 million tons in south totaling to 2.31 million tons which was a record, while it is likely that the local dispatches will cross 2 million tons in north and 0.5 million tons in south, however the growth comes at a time when industry is perplexed and forced to continue production even on losses as the cost of shutting down the plants is even higher due to loans acquired at higher rates from the banks.
The industry experts added that increase of electricity tariff, under monthly fuel adjustment mechanism has increased the industry cost of production manifold. They are of the view that working of even existing industries has become impossible due to high raise in input cost, as the recent jump in electricity charges would elevate the cost of cement by Rs 20 per bag. They also observed that the unprecedented electricity and gas crisis coupled with the record high discount rate by the central bank have been hitting the industry hard in the country.
He said that energy, which constitutes more than 60 percent cost of production, has taken a quantum jump in a couple of years, making the production cost almost double. The ever-increasing prices of diesel, coal and electricity, are the major factors enhancing cost of production, but not passed on to the consumers by the industry.
“We have not been able to pass on the increase in cost of production to the consumers because of higher capacity and lower demand,” said another industry player adding that in India a cement bag fetches Rs. 150 per bag higher than Pakistan (converted into Pak rupee). Moreover, he added the transportation cost of coal and cement has now become a major input cost as the diesel rates have doubled in last five years from Rs. 52 per liter to Rs. 104 per liter.
“Cement is a capital intensive industry,” said another expert. “Most of the industry has added capacities in past decade when the interest rates were low and now they are servicing those loans at three times higher mark up which naturally adds to the cost,” he added.
“We have right to earn reasonable profit on our investment that is being denied through constant arm twisting from various quarters,” lamented another expert. He said that crossing the monthly sales barrier of 2.31 million tons in the domestic market calls for celebration but the industry feels cheated as during the past ten years the manufacturers have earned on average Rs. 6 per bag while the government pocketed Rs. 76 per bag through its various levies.
The cement sector, he added, has been in the deep financial crunch which is evident from the majority of the cement makers’ balance sheets which show gloomy picture of their businesses.
