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‘Low prices endanger cement units’ existence’

By Nauman Tasleem

CHAKWAL: Many cement plants would be forced to shut down in the near future if the prevailing cement prices were not raised, said Dr Arif Bashir, General Manager Works at DG Khan Cement plant at Khairpur.

Explaining the reason for his concern, he said that the cost of production of the most efficient cement factories in Pakistan is around Rs 275 per 50 kg bag, while the market prices are hovering at around Rs 230 to 240 50 kg bag.

“It is impossible that the industry can sustain the loss of Rs 35-45 per 50 kg bag,” he observed.

In his presentation on the Cement Sector of Pakistan, Dr Arif Bashir said that while the cost of production is high, owing to rising fuel & energy costs, the domestic demand of cement has dropped by 13.44 percent in 2009. “The only saving grace for the cement industry at present was that cement exports increased by 47.4 percent,” he added.

Replying to a question about what could be the solution, Dr Bashir suggested that the government should work out a formula in consultation with the cement manufacturers to decide the floor price on the basis of the cost price of the cement industry plus a margin of profit.

He also suggested that the government can also help the cement industry from closing down by giving them some relief on the high cost of fuel energy, as this constitutes 45 percent of the cost of production.

Asked whether cement exports can be increased, Dr Arif said that the existing world demand shows that we can increase our exports to India and other African & Middle Eastern countries, for which the government should immediately help the industry by removing the transportation bottlenecks in the way of exports of consignments to India and at the ports of Karachi.

The government should introduce special ‘cement train’ to India for better and efficient transportation.

He said that special daily trains of cement should be introduced for the transportation of cement to the port and to India. If this cannot be done urgently then alternate arrangements should be made with India for allowing our trucks cross the border.

Dr Bashir further explained that the cement industry has invested around $6 billion in expanding its capacity from 16.72 million tonnes in 2002 to 41.76 million tonnes in 2009. “It is this investment which has enabled the industry to meet country’s domestic demand and produce exportable surplus. “Pakistan has exported over 11 million tonnes in 2009, earning foreign exchange of about $750 million with Rs 30 billion contribution as direct taxes to the exchequer,” he added.

Dr Bashir said that in the coming years the cement industry of Pakistan would face tough competition in the export market when Indian, Iranian and Saudi Arabian plants would come on stream and enter the exports market. He requested the government officials to help the industry by having interactive discussion session with the industry so that the present exports market potential can be fully utilised by Pakistan.

In response to a question, Dr Bashir said that it is a fact that the cement industry of Pakistan had seen good years in which it has earned sizable profits. Explaining the economic rationale of capacity expansion he said that the important point to note is that profits lead to capital formation, which is then are ploughed back as investment by the industrialists. The same thing happened in the cement industry were heavy investments were made taking a long-term view of the country’s growth potential.

While discussing the state of the art DG Khan’s Khairpur site at Kallar Kahar, Dr Arif Bashir, who has a PHD in engineering, said that the plant is regarded as the largest cement manufacturing unit in Pakistan. He explained that the DGK group has two cement plants situated at DG Khan and at Khairpur. These factories have captive power plant to provide uninterrupted electricity.

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