Asia / Oceania
Cement prices under the gun
Jun, 01 2012
(KARACHI) -- The cement prices remained under immense pressure in the north and receded from Rs 435-440 to Rs 415-420 per bag during the month of May. This was due to commencement of wheat harvesting, unscheduled load-shedding, rains, shortage of labor and reduction in spending on the PSDP, said the industry sources. They said the immediate impact was evident by the fact that daily dispatches had reduced to a mere 60,000 tons from about 80,000 tons.
Sharp fall in demand and resultant over supply has resulted in price decline of Rs 20 to Rs 25 per bag for different brands, marketing head of one of the cement manufacturing company located in North of the country said. The current decline is fueled by excessive load shedding which hampers construction activities in North Zone particularly, which is the major market for cement consumption and has been witnessing massive load shedding which has dampened industrial and construction activities, he said.
Cement sector, being a process industry is always required to maintain adequate stock levels for smooth operations. Coal prices have dropped to US $ 95 per ton FOB South Africa, but during the current financial year, average cost to the industry has been around US $ 108 per ton, the same price as in last financial year. The cement industry did not get any benefit from reduction in coal prices. Rupee devaluation is also expected to offset reduction in FOB price. Industry sources informed that cement industry has not yet passed on the impact of recent increases in input prices of electricity, gypsum, devaluation of Pak rupee and transportation of goods from Karachi by any unit in the North zone due to severely depressed demand.
Energy, which constitutes more than 60 per cent cost of production, has taken a quantum jump in a couple of years, making the production cost almost double. Government of Pakistan through its power distribution companies is charging fuel price adjustment and during the last month it charged Rs. 2 per Kwh. The impact of fuel price adjustment is Rs. 10 per bag which is not yet passed on by the industry.
After the opening of Wahga border, mine owners are exporting gypsum in bulk quantity resulting in depleting scare resources of the country without any value addition resulting in increased cost of gypsum for local consumers by Rs. 100 per ton. If exports of gypsum increase, cost to local cement units shall also increase further, impacting cement prices. Industry sources question the prudence of allowing gypsum exports?
Cement production capacity in Pakistan is 44 million tons while local demand is only 24 million tons leaving a surplus of 20 million tons. Cement industry is striving for survival and making efforts for exports of its surplus capacity. Unfortunately, cement exports are continuously declining and reason for decline in exports is mainly high incidence of transportation cost which makes export unfeasible.
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