KARACHI: Feb 23: A meeting of the All Pakistan Cement Manufacturers' Association (APCMA) is scheduled to be held on Tuesday, when the concrete producers would decide whether they would allow a higher quota to Lucky Cement Company Limited.
Lucky Cement had earlier written a letter to the Association asking for the 'cartel'- a loosely formed agreement by the cement producers on quantity to be produced by each mill-to raise its quota.
"The quota for each cement company is decided on a weekly basis and it currently is at 60 per cent of the installed capacity," a major player said. He said that Lucky cement's quota was stood at 4,200 tons per day and the company was demanding that it be raised to 4,800 tons, a 600 tons increase.
"Lucky was demanding increase in its quota on company's expansion through de-bottlenecking," said an analyst, adding that initially the company was denied allocation of the additional quota.
The question now was: will the cement producers allow or disallow Lucky to raise its production at their meeting on Tuesday? Being one of the most powerful among cement producers, some market watchers thought that the Association might concede.
"But most of those are rich and powerful cement producers", said one source close to the talks, adding: "You never know what the mood of those 'seths' is that day", alluding to the fact that ego and not financial loss could be the guiding principle in deciding on the issue.
But the trouble was that if the Association decided not to allow additional quota and Lucky stuck to its guns, there was strong possibility of the break-up of the 'cartel'. And cement producers were not likely to risk that, for most mills had suffered enormous financial losses, when the cartel had last fallen apart. It was free for all then and due to production far exceeding demand, prices of cement had seen a steep fall. The market price per bag of 50kgs cement currently ranges between Rs215 to Rs225.
If Lucky was allowed to raise its quota, each of the other 20 cement mills would have to concede 21 tons of their daily production. A cement analyst said that he thought that a quarrel at this stage could jeopardize the cement producers profitability. He believes that prosperity has put cement producers on a more friendly footing and the bitter acrimony of broken-cartel days seem a distant memory.
The cement companies are coming up with record profit this season. For the first quarter of financial year 2004, cement sector had logged in after-tax profit amounting to Rs1,085 million which reflected more than five times the net earnings of the sector in the corresponding period of the previous year.
For all of the financial year 2003, the concrete manufacturers had incurred Rs191m loss before taxation. It was only through the positive cumulative net tax adjustments of Rs594m that the industry was able to shore up the bottomline.
According to the numbers released by APCMA, cement dispatch growth in the first seven months of the ongoing year (July- January 2003-04) recorded an increase of 12.3 per cent to 7,430 thousand tons as compared to 6,616 thousand tons in the corresponding period of the previous year.
The industry fundamentals had improved mainly on the back of reduction in fuel costs due to conversion to coal, sharp drop in financial charges as a result of restructuring of expensive debts, increase in average cement retention price, fairly visible revival in the construction industry, surge in exports and 25 per cent cut in excise duty on cement.
