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Inflationary trends badly hit cement industry: APCMA

25 April, 2012

ISLAMABAD: An exhaustive analysis of inflationary trends in Pakistan interestingly reveals that ex-factory prices of cement per bag have not increased in proportion to other construction industry inputs in the last 10 years, which has rendered the balance sheets of most cement companies impaired and the industry has been recording huge financial losses.

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ISLAMABAD: An exhaustive analysis of inflationary trends in Pakistan interestingly reveals that ex-factory prices of cement per bag have not increased in proportion to other construction industry inputs in the last 10 years, which has rendered the balance sheets of most cement companies impaired and the industry has been recording huge financial losses.

This was claimed by All Pakistan Cement Manufacturers Association (APCMA) Chairman Aizaz Shaikh.

During the last financial year 2010-2011, 11 cement units suffered loss before taxation aggregating to Rs 5.681 billion while seven cement units, of which two are located near Karachi in close proximity to the sea port, earned profit of Rs 5.982 billion. At the end of last fiscal, industry debts to financial institutions have risen to a massive Rs 125.3 billion and cement units located in the North are particularly challenged and are unable to service their debts, he said.

According to data compiled by APCAM, he said the price of bricks has gone up by Rs 2,800 per 1,000 bricks in just six months of the current fiscal, while it increased only by Rs 2,400 in the 10-year period from 2000 to 2010. The current price of 1,000 bricks is Rs 7,000, which was Rs 4,200 in the year 2010-11. While the price of the same number of bricks was Rs 1,800 in the year 2000 and reached Rs 4,200 by the year 2010.

Similarly, steel prices have increased by Rs 6,000 per tonne in just four years since 2007-08 and prices witnessed increase of Rs 30,000 in just one year from Rs 40,000 per tonne to Rs 70,000 per tonne from 2006-07 to 2007-08. Prior to this massive increase, steel prices increased on average by Rs 3,000 in the seven-year period from 2000 to 2006.

In addition to this, provincial tax on mining has been at the rate of Rs 33 per tonne for the last three years, which was Rs 18 in the financial year of 2008-09. This almost doubled in just one year. In the year 2000 it was Rs 12 per tonne and reached Rs 18 with an increase of Rs 6 in nine years from 2000 to 2008-09. There was an increase of Rs 15 in just one year in the year 2009-10.

The mentioning of input cost increase in packing prices would not be out of place here as it has witnessed the increase of Rs 7.54 per bag in the last 4.6 years, while it had the increase of only Rs 3.11 in eight years from 2000-01 to 2007-08. Currently one bag costs Rs 20.65, and the price of one bag was Rs 13.11 in the year 2007-08, while it was just Rs 10 in the year 2000-01. This means the price of one bag doubled in 10 years.

In contrast to the above, ex-factory price of a 50 kilogrammes cement bag was Rs 179 in the year 2000-01 and now it stands at Rs 370 by this financial year. Despite rapid increases in input costs, cement prices increased only by Rs 139 per one bag. The compounded annual growth rate of cement prices was 6.28 percent in the last 10 years, which is well below the inflation rate, Shaikh mentioned.

Besides all this, devaluation of the rupee against the dollar has played very negative role for the cement industry by dint of its heavy impact on almost everything. In the year 2000-01 one dollar was costing Rs 63, and now it is at Rs 91. There was a devaluation of Rs 5 in eight years from the year 2000-01 to 2007-08, but gained pace and the rupee got devalued by about Rs 23 in last five years. One dollar was at Rs 68 in the year 2007-08 and now after six months of the current financial year it has reached Rs 91.

Comparison

1,000 bricks

2011-12 Rs 7,000

2010-11 Rs 4,200

50-kg cement bag

2011-12 Rs 370

2000-01 Rs 179

End.


 
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