PAKISTAN: Cement makers absorbing high input cost.

Contrary to the whopping surge in the cost of inputs, the cement prices merely rose by an average of 6.28 percent over the last ten years, implying that most of the hike in cost inputs was absorbed by the manufacturers themselves, partially by squeezing their profit margins and mainly by introducing new energy-efficient plants. Industry sources said that the ever-increasing prices of diesel, coal and electricity are the major factors contributing to the rampant hike in the cost of production, but the industry has never passed this on fully to the already overburdened consumers.

Over the last 10 years the coal prices increased at an average of 14.27 percent, electricity tariff surged by 9.5 percent diesel cost shot up by 19.59 percent, furnace oil rate jumped by 18.32 percent, packing material rate elevated by 6.82 percent and mining taxes were lifted by 10.06 percent , thus multiplying the cost of production. The rampant increase in the cost of production cost will completely destroy the cement industry, they feared.

The industry sources said that the surge in energy costs has forced the sector to opt for cheaper energy sources resulting in further capital costs. In total 1,000 trucks are attached to a typical cement plant, which consume diesel, which has been increasing at an average Compounded Annual Growth Rate (CGR) of 19.2 percent over the last 10 years. They claimed, that the cost of transportation of one bag of cement from factory to average Pakistani consumer is Rs50. The sector requires continuous capitalization to install larger and more efficient plants, equip existing plants with capabilities to use alternate energy and also keep changing equipment with more energy-efficient one. For instance it costs Rs. one billion to convert furnace oil cement plant to coal, they stated.

“We always look for ways of lowering the energy cost by identifying alternate energy sources and also by updating equipment with more efficient machinery. We have to bear research cost, capital cost and the cost to pursue more efficient plants, but this is not usually included in manufacturing cost of cement,” they claimed. They said that cement is a bulk commodity, the cost of which is directly linked with electricity and diesel costs. For instance, a typical 7,000 tons per day (TPD) plant requires an electric load connection of 40 megawatts, for which manufacturers have to pay monthly bill of Rs150 million. Moreover, one tripping of power causes loss of Rs25million as the plant is shut for 8 to 10 hours and kiln requires reheating.