An exhaustive analysis of inflationary trends in Pakistan interestingly reveals that ex-factory prices of cement per bag have not increased in proportion to other construction industry inputs in the last ten years, which has rendered the balance sheets of most cement companies impaired and the industry has been recording huge financial losses.
During the last financial year i.e. 2010-2011, 11 cement units suffered loss before taxation aggregating to Rs5.681 billion while 7 cement units, of which 2 are located near Karachi in close proximity to the sea port, earned profit of Rs5.982 billion. At the end of last fiscal, industry debts to financial institutions have risen to a massive Rs125.3 billion and cement units located in the North are particularly challenged and are unable to service their debts.
According to data compiled, the price of bricks has gone up by Rs 2,800 per 1,000 in just 6 months of the current fiscal, while it increased only by Rs 2,400 in the 10 year period from 2000 to 2010. The current price of 1,000 bricks is Rs 7,000 which was Rs 4,200 in the year 2010-11. While the price of the same number of bricks was Rs 1,800 in the year 2000 and reached Rs 4,200 by the year 2010.
Similarly, steel prices have increased by Rs 6,000 per ton in just 4 years since 2007-08 and prices witnessed increase of Rs 30,000 in just one year from Rs 40,000 per ton to Rs 70,000 per ton from 2006-07 to 2007-08. Prior to this massive increase, steel prices increased on average by Rs 3,000 in the 7 year period from 2000 to 2006.
In addition to this, provincial tax on mining has been at the rate of Rs33 per ton for last three years, which was Rs18 in the financial year of 2008-09. This almost doubled in just one year. In the year 2000 it was Rs12 per ton and reached to Rs18 with the increase of Rs6 in the nine years from 2000 to 2008-09. There was an increase of Rs15 in just one year in the year 2009-10.
The mentioning of input cost increase in packing prices would not be out of place here as it has witnessed the increase of Rs7.54 per bag in the last 4.6 years, while it had the increase of only Rs3.11 in 8 years from 2000-01 to 2007-08. Currently one bag costs Rs 20.65, and the price of one bag was Rs 13.11 in the year 2007-08, while it was just Rs 10 in the year 2000-01. This means the price of one bag doubled in ten yeaRs. In contrast to the above, ex-factory price of a cement bag was Rs179 in the year 2000-01 and now it stands at Rs370 by this financial year. Despite rapid increases in input costs, cement prices increased only by Rs 139 per one bag. The compounded annual growth rate of cement prices was 6.28% in the last ten years, which is well below the inflation rate.
Besides all this, the devaluation of Pakistani rupee against the US dollar has played very negative role for the cement industry by dint of its heavy impact on almost everything. In the year 2000-01 one US dollar was costing Rs63, and now it is at Rs91. There was a devaluation of Rs5 in the 8 years from the year 2000-01 to 2007-08, but gained pace and the Pakistani rupee got devalued by about Rs23 in last 5 yeaRsOne dollar was at Rs68 in the year 2007-08 and now after 6 months of the current financial year it has reached to Rs91.
Deconstructing inflation
