KARACHI: The cement consumption has remained stagnant for the past four years while exports are also on the slide, forcing the sector to operate at just about 69 per cent installed capacity, a spokesman for cement sector lobby, All-Pakistan Cement Manufacturers’ Association (APCMA), complained on Wednesday.
“It is not possible for the industry to service loans carrying high interest rates by operating at low capacities,” the spokesman said.
According to APCMA, during the first eight months of the current fiscal year, the industry had despatched 20.5 million tons recording a nominal increase of 3.48 per cent against despatches of 19.74 million tons during the same time last year.
APCMA stated that the capacities were increased at a time when economy was booming and most of the new production facilities were set up in the northern part of the country where Afghanistan was the only export market. But the export potential to the tribal land was limited and so was it to India, mainly on account of non-tariff barriers set up by that country.
He regretted that due to fierce competition ‘between the mills sitting on huge capacities’ cement prices had remained lower than average rate of inflation. He argued that cost of inputs had risen in line with inflation and rupee devaluation.
“The cement prices, on the other hand, increased by only 6 per cent from the average rates in 2006,” the spokesman concluded.
Yet for all the grumbling by the cement producers, the sector analysts at various stock brokerage houses said that the industry had witnessed “all-time high local cement prices and gradual improvement in export proceeds,” which managed to turnaround the industry performance to profitability in first six months of the financial year 2012.
The analysts observed that the recently released accounts of the cement sector for the first half of 2012 showed that in spite of a meagre four per cent growth in total despatches, net sales in terms of value had increased by 31 per cent to Rs64.4 billion compared to Rs49 billion in the corresponding half of the preceding year. The sector’s gross margins increased by hefty 900bps to 27 per cent in 1HFY12, with net margins climbing up to seven per cent, from negative one per cent in 1HFY11.
The analysts added that sector performance had seen a turnaround, with the industry making R4.3 billion in net profit for half year FY12 against net loss of Rs337 million suffered in same time last year.