Sunday October 24, 2021

Cement makers likely to raise prices by Rs25-30/bag

October 15, 2021

KARACHI: Cement makers are mulling to increase prices by Rs25 to Rs30 per 50kg bag to absorb the impact of rupee depreciation and rising coal prices in the international market, industry sources said on Thursday.

Since the cement industry uses coal as a fuel in the manufacturing process, the rise in the price of the commodity as well as the increasing cost of freight across the globe have taken a toll on the domestic manufacturers, who were already combating the increasing costs of input.

The current price of a bag of cement stands at Rs670 to Rs710. The impact of this rise in coal prices from July 1, 2021 in rupee works out to Rs142/ bag, which has so far been absorbed by the manufacturers.

Pakistan’s cement manufacturers depend on coal imported from Australia, Indonesia, South Africa, and Mozambique. The sector imports around 8 million tonnes of the fossil to burn for clinker manufacturing.

Currently, free on board (FOB) coal price stands around $247 per tonne, sources said, adding that ocean freight has also increased to $30 per tonne from $11 per tonne.

Since the rupee depreciated drastically, falling from Rs165 to Rs172 against greenback, the overall cost of the commodity has also risen sharply for the manufacturers.

The cost and freight coal price was around $277 per tonne. On July 1, 2021, FOB coal price was around $117 per tonne. Thus, coal prices since July 1, 2021 have increased by 111 percent. Cement industry has been absorbing this impact so far; however, industry sources expect the change would soon be passed on to the buyers for sustainability.

Gross margins of cement companies would otherwise suffer, and some have been looking at increasing the share of domestic coal in the mix to escape from the supply chain constraints.

Domestic construction activities have been booming on the back of government incentives, which increased local cement sales by four percent to 11.279 million tonnes in Q1FY22. However, exports have suffered a drop of 44 percent to 1.56 million tonnes from 2.743 million tonnes during Q1FY21 due to supply chain constraints and rising cost of freight. Higher power and energy rates as well as the cost of transportation due to increase in petroleum prices have added to the cost of delivery to different destinations. The escalating prices have pushed the cost of doing business up as well, sources said.