The profitability of cement manufacturing companies listed in Karachi Stock Exchange (KSE) has sharply declined despite growth in export and domestic sales during the first half of fiscal year 2007-08.
Eight out of the total 21 cement companies representing 90 per cent of the total market capitalisation of the cement sector have witnessed 87 per cent decline in their profits albeit there was substantial growth in volumetric sales of the industry by 21 per cent. The listed companies include Lucky Cement, Attock Cement, DGK Cement, Fauji Cement and some others.
Analysts attributed the declined in profitability of cement manufacturers to the lower retention prices and higher input costs due to which the gross profits declined by 25 per cent to Rs 3.9bn. According to industry sources, cement companies are currently purchasing coal at a price range of $130 to $140/t and most of the coal used by local companies is imported from South African and Asian countries.
Analyst Bilal Hameed told Daily Times that the rising coal prices in McClosey Coal Index have witnessed around $60/t increase from $80 per tonne to $140/t during the July to December. The fuel cost constitutes 60 to 65 per cent of the total production cost of Pakistani cement companies, which mainly use oil and coal as fuel. In order to get hedged against rising oil prices, more than 90 per cent of the producers converted their plants to coal-based production few years back, increasing the weightage of coal to 95 per cent in their fuel consumption profile.