It is reported that around 85 per cent of the cement industry has shifted on low-priced coal

By Syed M. Aslam
Jan 26 - Feb 01, 2004

The increased use of coal in the cement industry has cut the production cost by half and yet the prices of the basic raw material around which all construction activities and infrastructure developments revolve has fails to show any signs of reduction. In addition, the growing demand of cement within the country as well as neighbouring Afghanistan pushing the collective capacity utlisation to 75.10 per cent during the first half of fiscal 2003-04 ended December 31, 2003 has failed to bring down the retail prices of cement.

As is, the cement industry also benefited from the 25 per cent cut on the excise duty announced by the Finance Minister Shaukat Aziz in his Budget 2003-04 speech. However, the cement industry not only failed to pass off any benefit of the reduction in excise duty to the consumers but in fact the cement prices depicted an increase of Rs 10 per bag a month after the Budget was announced in June last year.

During the first half of the current fiscal ended December 31, 2003 a total of 6.29 million tons of cement was produced in the country showing a 14 per cent increase over 5.521 million produced during the comparative period last fiscal. The performance of the cement industry during the first half also shows that the target of 12.7 million tons set by the government last year would also be achieved in 2003-04 during the fiscal would be easily achieved.

Almost 8 per cent or 490,377 tons of the total 6.29 million tons of cement produced in the country during the first half this fiscal was exported to Afghanistan depicting over three-fold increase over 158,866 tons in 2002-03. The growing demand of cement in Afghanistan has played an important role to help push the collective capacity utilisation to 75.10 per cent compared to 68.76 per cent during the comparative period the previous year.

The total installed capacity of the cement industry is about 16.7 million tons per annum, around 89 per cent of which is collectively shared by about 21 units in the private sector. The remaining 11 per cent of the installed capacity is held by 4 units in the public sector.

It is reported that around 85 per cent of the cement industry has shifted on low-priced coal from relatively more expensive natural gas. It is also reported that by end this fiscal (June) the entire cement industry would switch to coal. The government had also planned to increase the coal production in the country to 3.6 million tons per annum this year depicting an increase of about 6 per cent over the previous year.

However, the domestic cement industry is heavily dependent on imported coal which is blended with its local counterpart. A commercial coal importer told PAGE that the switchover would push the coal imports by as high as 25 per cent this fiscal. "Around 1.6 million tons of coal was imported last year and the imports are expected to touch 1.8-2.00 million tons this year."

The cement industry is the biggest user of the imported coal absorbing over 90 per cent of the total imports. However, the rising international prices of coal is feared to push the landed cost and the retail prices. However, that should not be allowed to provide a pretext to the cement producers to burden the consumers with increased retail prices because they had not passed off even a fraction of the substantial reduction in the production costs by shifting to coal in the first place.

The international prices of coal which used to be around $ 42 per ton C&F Karachi has soared to $ 50 per ton at present. However, the consignments booked at the old price are still arriving at the Port Qasim and the producers would have to absorb the impact of new prices when new consignments begin to arrive shortly.

Meanwhile. the prices of local coal also touched record highs of as much as 100 per cent couple of months ago due to growing demand by the cement industry and in Afghanistan with the advent of winter. The price of the low quality coal of Lakhra mine which was Rs 700 per ton increased more than double to Rs 1,500 per ton while the prices of other varieties of coal extracted in Sindh and Balochistan jumped to Rs 2,800-3,000 from around Rs 1,400 previously.

The growing demand of cement as well as baked-building-blocks in Afghanistan has not only resulted in increased demand of imported but also local coal. The demand would only increase in the coming months as the cement industry gears itself to shift completely on coal from gas.

The growing demand of coal offers great opportunity for the local as well as foreign investors to invest in the mining sector in Pakistan which sits on one of the top coal reserves anywhere. According to a data collected recently by the Ministry of Petroleum and Natural Resources total coal reserves in the country is 186 billion tons of which only 3.6 million tons would be mined this year and the years to come.

Sindh houses the largest reserves of coal estimated at 184.6 billion tons 175.5 billion tons in Tharparker alone and also in and around the Sonda and Larkana areas, Salt Range area of Punjab and parts of Balochistan and North West Frontier Province also house substantial deposits. Punjab has 0.256 billion tons of coal deposits, Balochistan 0.195 billion tons and NWFP around 0.081 billion.

The increasing use of coal as fuel in the cement industry to replace comparatively more costly natural gas is a welcome sign indeed for the development of more coal-based projects in the country. It would not only help cut production costs but also create jobs to help tackle the unemployment problem. However, the benefits of reduced production costs should be passed to the consumers of cement.