Poised to play a greater role in the economy
By AMANULLAH BASHAR
Apr 07 - 13, 2003
Cement industry which is basically allied to the construction sector seems to assume a much active role in the economy in the years to come.
In fact, the revival of this important segment of the economy is closely linked with the revival of the national economy in Pakistan. After remaining in listless conditions for over 5 years, it started to pick with the growth of the overall economic activity within the country supported by the demand of cement in neighbouring Afghanistan.
Cement sector, it may be recalled, had to experience tough times at least for five years since 1998 and many of the cement sector had to wind up their operations.
The construction industry had come almost to a standstill while the cost of production never allowed this sector to compete in the international market.
After having gone through stagnant 5 years from 1998 to 2002, demand for cement has shown robust growth during the first half of the financial year 2002, obviously because of improved economic conditions at home front and increase in demand across the border in Afghanistan where a rehabilitation program is underway. The demand for cement on domestic side was also enhanced due to lower prices. Demand in the first eight months of the current financial year had risen by over 20 per cent with local sales up to 7.15 million tons, from 6.13 million tons during the corresponding period last year.
However, the decision to convert this industry from furnace oil to coal fired system played an important role to bring commercial viability to this sector.
While a significant cut in production cost by switching over from oil to coal and enhanced demand both locally and in Afghanistan greatly helped this sector to take a turnaround.
All the listed units with the stock exchanges earlier, showing huge losses, have started earning profits which justifies the use the term of turnaround in the cement industry. It may be noted that those units located in NWFP and are in close vicinity of Afghanistan have started running to the capacity to meet the demand in that country. These units have an edge over other units in rest of the country due to nominal transportation cost when compared to the units at distant locations.
Market players while analyzing the situation are of the view that the demand for cement is likely to take yet another jump with the start of re-construction process in Iraq after the current war comes to an end. Although it gives a bad taste that destruction one becomes the cause for growth of another, yet it is the hard ground reality.
It is said that currently, around 24 cement units are producing around 18 million tons of cement while 40 per cent of the production capacity of these units still lying idle. In view of growing demand in future both on domestic front as well as on export side, it is time to consider for expansion in this industry to meet the future demands.
It is, however, unfortunate that the cement manufacturers were not prepared to pass on the benefit of reduction in cost of production on account shifting from oil to coal fired system. One of the leading cement manufacturers, while responding to the question that why the benefit is not being shared with the consumers, he came out with a well thought out reply that the industry has suffered heavily for years due to exorbitant oil prices which increased from Rs2700 per ton to over Rs12000 per ton during last seven years. He, however, declined to admit that when the price of oil was increase it was simply passed on to the consumers. The cartel of the cement manufacturers however bent upon to recover the losses what they claim the industry had to bear on account of increase in oil prices.
The recent split in the cartel of cement manufacturers, however, helped the consumers as competition among the cement manufacturers resulted in considerable decline in the cement prices.
The bone of contention among the fighting cement manufacturers was the share in the Afghanistan export market. Cement manufacturing units like Cherat Cement and other wanted a much larger share of business from the Peshawar-Turkham route which was not acceptable to other units operating in rest of the country. The rift among the manufacturers led to a competition consequently plunging the cement prices to more than Rs1200 per ton during the second half of the current financial year. Dealers in cement are expecting that if the rift between the cement manufacturers persists, the cement prices are likely to drop even to Rs170 per bag. The normal retail prices were Rs215-220 in the market. There was a feeling in some circles that the current situation of low prices may be in the interest of the consumers, yet it may have adverse effect on the growth of this sector. It is one of the opinions, but we can also put it in this that low profit and higher volume of production should be the principle of the trade which helps both to the customers as well as the manufacturers.