Cement sales likely to hit record high this month

Despite this, manufacturers complain about low margins.

LAHORE: Cement manufacturers have expressed the hope that domestic cement consumption will reach a record high at around 2.5 million tons this month, but at the same time they complain about thin margins for the industry.

The cement makers expect domestic supplies to cross two million tons in northern parts of the country and 500,000 tons in the south. Previously, the record was reached in March 2010 when sales hit 1.993 million tons in the north and 317,000 tons in the south, totalling 2.31 million tons.

However, industry representatives say that despite the growth they are perplexed and forced to continue production even with losses as the cost of shutting down plants is higher due to loans acquired at high rates from banks.

A senior executive of one of the largest cement manufacturers said increases in electricity tariff in the form of monthly fuel price adjustment pushed up production cost substantially. The recent tariff hike would increase the cost of cement by Rs20 per bag in near future, he said, adding “it has become impossible to continue running the factories in the face of high input cost.”

“Increasing prices of diesel, coal and electricity are major factors behind the high production cost, but these have not been passed on to the consumers,” he claimed.

“Cement is a capital-intensive industry,” said analyst Intezar Mehdi. “Most of the industry added to their capacity in the past decade when interest rates were low and now they are servicing those loans at a rate which is three times higher,” he added. He said though the breaking of the monthly sales barrier of 2.31 million tons called for celebrations, the industry earned an average of Rs6 per 50kg bag in the past 10 years, which was quite low.

Published in The Express Tribune, March 30^th, 2012.