High production cost hits glass maker
Pakistan’s corporate sector has reported the first casualty of a spike in cost of production in the country, as a four-decade old glass manufacturing firm announced on Monday to temporarily suspend production of tableware glass due to “increase in prices of RLNG”.
“Keeping in view of instant increase in prices of RLNG (re-gasified liquefied natural gas – which the country imports), resulting into significant increase in cost of production coupled with other market pricing factors compelled the management to suspend its tableware glass operations located at Kot Abdul Malik (Unit-III) temporarily,” Balochistan Glass Limited (BGL) said in a notification dated May 27 to Pakistan Stock Exchange (PSX).
During this suspension period, the company has sufficient stock to cater customer demand in the current summer season. The management would inform its shareholders about resumption of its operations after revision in strategic decisions to make cost efficient operations and other market related policies, the notification said.
To recall, the company had completed refurbishment of a second furnace having capacity of 65 tons per day at the Unit-III and ignited it on June 5, 2021 to produce tableware glass.
The glass manufacturing firms use gas for heating purposes to melt raw material in the furnace.
Balochistan Glass’s share price dropped 2.19% (or Rs0.14) to Rs6.24 with a volume of 443,000 shares at PSX.
The company, incorporated in 1980, remained engaged in manufacturing and sale of glass containers, tableware glass and plastic shells.
A brief history of the company suggests it has continued to refurbish production units to increase production and/ or temporarily shut down units when the cost of production was high or profit margins were low in previous years.
The company incurred a net loss of Rs54.39 million in the nine-month period ended March 31, 2022 as compared to a net profit of Rs72.30 million in the corresponding period of the previous year “due to increase in cost of production during the current period”.
“The company is striving hard to overcome some challenges regarding supply of natural gas, massive increment in gas prices as well as overall inflationary pressure on other related costs during this period”, according to its latest nine-month financial statement.
During the first two quarters, supply of natural gas remained interrupted for the whole industry and curtailment of gas supply did not allow the company to achieve its targeted production level throughout the period.
Additionally, in the absence of requisite natural gas supply, the company had to use other alternative expensive energy sources (including furnace oil and LPG) to keep operations alive during that period.
Moreover, prices of RLNG increased consistently in the nine months period, up to 99% on an average as compared to the corresponding period.
Two weeks ago, the Oil and Gas Regulatory Authority (Ogra) notified surge in RLNG price by 40% for Sui Northern Gas Pipelines Limited (SNGPL) for the ongoing month of May 2022 as compared to April, while the hike was more than double for the current month compared to the same month of the previous year.
The price of imported gas increased to $21.83 per million British thermal unit (mmbtu) in May 2022 – showing a surge of 39.7% (or $6.21 per mmbtu) compared to April 2022 and 113% (or $11.58 per mmbtu) compared to May 2021.
The latest temporary shutdown was made in the wake of massive rise in global fuel prices amid Russia-Ukraine conflict and Covid-19 pandemic.
The government has decided to pass-on increase in international fuel prices to local consumers in an effort to fix government spending and revive the International Monetary Fund’s (IMF) $6 billion loan programme.
Published in The Express Tribune, May 31st, 2022.
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