No cartel operating in cement industry

RECORDER REPORT

LAHORE: Cement industry circles has termed increase of Rs 10 per 50kgs cement bag by the south zone's cement companies and decrease of Rs 20 per bag in the north zone as a proof that there is no cartel working in the industry.

Sources in the industry said the allegation of cartelisation in the cement sector did not hold grounds because the cement manufacturing units in the north and south zones acted as per the ground realities they faced being located in different geographies.

The north's sector is facing some issues like start of harvest season, massive load-shedding, heavy rains, shortage of labour and slowdown of construction activities, which have made them to decrease the prices of per bag. Also, the cement sector in the north zone of the country has been witnessing decline in sales and the immediate impact is evident by the fact that per day sales of dispatches have been reduced to 60k tons from 80k tons.

Besides, the export of cement to India is not a viable option for the sector. In the 10 months of the current financial year (July to April) 537,895 tons against 466, 961 tons of the same period last fiscal. With the growth of just 15.19 percent in this regard, the cement sector is apparently not getting the full benefit of MFN status to India.

"The units of the north zone have been facing losses on coal import as they are not given freight subsidies by the government," sources said, adding that opening of Wagah border was a good option for that matter as it would help the units of the north to gain some benefits through exports.

Since the government has not yet paid the outstanding claims of Rs 287 million it owes to the cement sector in terms of inland freight subsidy, it announced to give from March to July in the year 2010, the cement sector is finding it difficult to sustain in this time of severe inflation.

In order to encourage exports, the government had decided to allow inland freight subsidy to the cement sector for the period from March 2010 to June 2010, but no payment has yet been made and to date there are outstanding claims of Rs 287.686 million.

There are some benefits that are natural to the companies situated in the south zone, as they have easy and good accessibility of raw material by dint of seaports in Karachi. Therefore, the cement units of the north zone cannot make profits if they are declined from the inland freight subsidies by the government.

One more issue is of capacity differences. It is to be noted here that total operational capacity of all the 19 units of the north zone as on April 2012 is 35 million tons for clinker and 37 million tons for cement. While, total operational capacity of all the five units of south zone as on April 2012 is 6.7 million tons for clinker and seven million tons for cement.

But, as per data, total capacity utilisation of the cement industry is on decline with 71.25 percent this year against the last year's 76.20 percent. The highest capacity utilisation the industry had was 93.62 percent in the year 1992-93.

It is pertinent to mention that the surplus capacity the industry had in the nine months of this fiscal is 9.5 million tons, which was 9.81 million tons last financial year.

"The ever-increasing input cost is seemingly conducive for this backtracks of the sector despite good policy initiatives of the industry men," industry sources added.

Furthermore, the market capitalisation of the country's cement sector was in decline in the current financial year for all big units against their capitalisation in the year 2006, the sources concluded.