The cement cartel has further increased ex-factory cement prices by Rs10 per 50-kg bag, pushing the prices to Rs228-230 after a rise of Rs 8-12 last week, it was learnt.
Talking to The Nation industry sources were hopeful in further rise by the following weeks. The sources believe that the rising input costs continue to be the prime reason for the increase in cement prices.
They said that the coal prices have surged to US$130-140/t, significantly increasing the costs of cement companies, which is creating negative impacting to the cement sector profitability.
The sources said that the cement prices got the raise of Rs5-10 per 50-kg of bag at the retail level after experiencing persistent depression in the first quarter of fiscal 2007-08. The cement price of 50-kg bag was started raising from Rs. 205-210 to 210-215 at retail level last week.
The industry sources confirmed that the ex-factory cement prices have now improved slightly by Rs. 10 per bag. Talking about the main reason for the recent rise, they termed that the upbeat cement demand in the country following the booming construction activities was the main reason. They said that northern manufacturers felt that the cement market in the north is not facing supply glut and there is some room for jacking up prices.
Sources said that fuel cost constitutes 60-65 per cent of the total production cost of cement companies, which mainly use furnace oil and coal as fuel. In order to get hedged against rising furnace oil prices, more than 90 percent of the producers converted their plants to coal-based production few years back, increasing the weight of coal to 95 percent in their fuel consumption profile.
Industry sources said that cement companies are currently purchasing coal at a price range of US$130-140/t and most of the coal used by local companies is imported. Whereas the assumptions are there that an average C&F coal price of US$125 per ton for fiscal 2008 and US$112/t for fiscal 2009.
However, on the other hand total cement sales have shown a decline of seven per cent in October this year to 2.35Mt. The primary reason for the decline is the fewer working days during the previous months.
They said that the combined profitability of the cement sector had depicted a decline of 51 per cent in fiscal 2007, compared to their earnings the last fiscal. Although the total cement dispatches of the industry increased by 32 per cent, low retention prices is the primary reason behind their lower profitability for the year.
The cumulative profits of companies for fiscal 2007 stood at Rs5.7bn as against Rs11.6bn as against the corresponding period of last year, showing a decline of 51. Despite improvement in cement sales by a massive 40 per cent, the companies’ net sales depicted just 1 percent growth mainly on account of lower retention prices. Resultantly, gross margins with increased raw material cost declined to 22 per cent in fiscal 2007, which was 42 per cent in fiscal 2006. Aizaz Mansoor Sheikh, chairman Cement Manufacturers Association was not available for his comments till filing of the report.