KARACHI, April 6: Cement prices have been raised by Rs5 to 10 per bag by most producers and those who did not do so, had already raised prices in February this year, sources in the industry said. They calculated that the price hike would result in an increase of Rs80-Rs160 per ton at the retention level for various cement manufacturers.
Things seem to be going well for the industry as the dispatches in March had also touched highest ever mark of 1.62 million tons, reflecting improvement over the previous best at 1.41 million tons dispatches in September. All that should bode well for the industry. Already in the first quarter of the current calendar year (Jan-March), listed stocks in four cement companies were among the top 25 that had provided the highest return to shareholders. They included: Lucky Cement; Pioneer Cement; Attock Cement and D.G.Khan Cement.
But the flip side was a substantial increase in prices of major cost ingredients: coal, natural gas and furnace oil. Sharp upward movement in interest rates and increase in transportation costs were other burdens to be borne by the industry.
Sector analysts at JS Capital Markets suggested that in spite of the rising costs of inputs, most cement companies were expected to show reasonable growth in profits during 3QFY05 owing to increasing local and export prices. “This growth in profitability is likely to remain there for the next 1-2 years as majority of expansions will come online from 2007”, the analysts observe.
Stock brokerage firm, First National Equities Limited stated that increase in cement prices in the range of Rs5-Rs10 per bag was carried out by the companies so as to put floor under the falling gross margins as the landed coal prices had increased 14.6 per cent to Rs5,500 per ton in March from Rs4,800 per ton in HY’05 and cost of furnace oil (used in electricity generation by large manufacturers) had also climbed 21.6 per cent to Rs18,240 per ton from Rs15,000 per ton in HY’05.
Report by JS Capital Markets said that local dispatches during March stood at 1.44m tons compared to 1.23m tons in the corresponding month of the previous year, reflecting growth of 17 per cent. Compared to March last year, exports rose by 9 per cent to 0.18m tons.
Total cement dispatches for first nine months (Jul-Mar) of FY05 stood at 11.73m tons compared to 9.79m tons during the same time last year, representing growth of 19.8 per cent.
Local dispatches for the nine months (Jul-Mar, 2005) stood at 10.64mn, whereas, exports for the for same period stood at 1.09m, representing an increase of 18 per cent and 39 per cent respectively, compared to figures of Jul-Mar 2004. The industry was able to post improved dispatch figures face of difficult conditions in the third quarter, resulting from unprecedented rains all over the country and a severe winter snowfall in Northern Areas. Exports rose in spite of a decrease in the use of concrete as the pace of building work in Afghanistan slowed down due to an exceptionally cold winter season.
For the nine months (July’04 to March’05), overall, capacity utilization for the industry stood at 87.3 per cent. Analysts said that the cement industry was currently operating at 100 per cent quota compared to 72 per cent in early March. The revision to 100 per cent quota was stated to be quite reflective by the figures of March and industry sources affirmed that if quota remained the same throughout the next quarter, dispatches could climb up to 1.5m per month, total dispatch falling in the range of 16.2-16.5m tons.
Most cement plants were currently in the throes of giant expansion plans and industry sources said that D.G.Khan’s construction work on its expansion plant, located in Chakwal district, NWFP was likely to be inaugurated at the hands of the prime minister, over the week-end.
