LAHORE: Cement despatches in July — first month of current fiscal year — fell 2.8 per cent to 3.5 million tonnes from 3.6m a year ago primarily due to plummeting domestic demand as the economy contracts rapidly owing to policies targeting runaway budget deficit and current account gap.
The industry’s capacity utilisation also dropped sharply to 70pc from the average levels of 85pc as domestic consumption dropped 3.3pc to 2.9m tonnes. On the other hand, cement and clinker exports shrank slightly by 0.1pc to 518,000 tonnes, according to data compiled by cement manufacturers.
“The month-on-month comparison of despatches for July shows that seasonal fluctuations in local consumption are not to blame for the current downturn in sales,” argued a manufacturer, who did not wish to be quoted by name.
“It is the continuation of the trend that crept into the market last fiscal year because of the government policies targeting massive demand contraction. The downturn in cement sales is feared to be sharper in August and beyond,” he added.
The economy is undergoing contraction for several months now and has deepened by government’s documentation drive to meet tax revenue targets.
The industry data for the last fiscal year, which is yet to be released, showed local despatches slumped 1.9pc to 40.3m tonnes from preceding year. The total industry sales, nevertheless, rose by 2.1pc on the 38pc surge in overseas shipments. The capacity utilisation was recorded at 85pc.
Industry observers fear domestic consumption is likely to decline further unless construction activity picks up. A manufacturer said his factory was running at half of its installed capacity for the last few months. “If the economic activity doesn’t pick up we may be forced to further curtail production,” he added, refusing to give his name.
“Also, steep currency devaluation over the last year and a half and exorbitantly high interest rates have upended the financial feasibilities of our capacity enhancement plans,” the manufacturer complained. He said the precipitous drop in rupee’s value neutralised the advantage that slumping global coal prices had afforded them to reduce their production costs.”
Majority of the cement manufacturers in the northern market are facing considerable losses at present as their prices have fallen in the range of Rs525 per bag to Rs550 from an average rate of Rs700 because of the current slump in demand and a rift in the cement cartel. “Our costs have increased sharply because of 25pc increase in federal excise duty to Rs2,000 a tonne by the incumbent government.
Additionally, the freight charges have also increased exponentially and we also have to absorb tax amount of Rs35-40 per bag on distributors in our cost because they had refused to lift cement after imposition of CNIC condition in the new budget,” said a senior executive of another cement company.
The prices in the southern part of the country still hover around Rs700 a bag. “We are facing double whammy: on one hand, demand is waning and on the other, prices are under severe pressure,” the executive asserted.
Published in Dawn, August 31st, 2019