Mar 28 - Apr 3, 2011

It is reported that selling prices of cement in India have touched new heights and range between 275-300 Indian rupees per bag of Ordinary Portland Cement. This equates to over Rs550 per bag in Pakistani rupees. Cement prices are rising in India owing to sustained increase in demand spurred by impressive growth of GDP in its economy.

Capacity utilization of Indian cement manufacturers has almost reached optimum levels and new plants are slow in being set up because of depleting limestone and gypsum reserves in the country. Industry insiders say this presents an interesting opportunity for Pakistani cement as domestic manufacturers here are languishing because of slack demand in Pakistani markets owing to the recent troubles with the economy.

It is understood that Pakistani cement manufacturing capacity has touched 44 million tons annually whereas domestic demand has reduced to 23 million tons. There is a large pool of unutilized capacity available in Pakistan which could feed the demand in India.

Against the equivalent price of Rs550 per bag prevailing in India, Pakistani prices, particularly in the North have barely touched Rs375 and that too on the back of recent sharp increase in imported coal from US$110 per ton to US$150 per ton, increase in electricity charges, and special excise duty. Analysts say selling price less than Rs450 per bag is not sustainable and the industry will continue to show heavy losses. Last year accounts of the North Zone manufacturers show losses in excess of Rs10 billion and only a handful of units in the south were able to finish in the black owing to their ability to export by sea and freight saving in imported coal delivered to their units.

Perhaps the cricket diplomacy unleashed by the Indian Premier could present an opportunity at Mohali to get out of this quagmire. This meeting of the political high-ups could present an opportunity to iron out the difficulties in export of cement to Indian, which it is reported, relates mostly to transit complications at Wagha border which could be ironed out smoothly if Pakistani trucks were allowed to deliver goods to the adjoining states in India where cement has to be brought in from far off manufacturing centers within India. This could be a win-win solution for both sides no matter who wins the cricket match.

The analysts further say that should the present situation of the cement industry continue in Pakistan and price of cement does not increase to Rs450 per bag, there could be an exponential rise in non-performing loans in this sector where banks have invested over Rs125 billion. (AB)