LAHORE: Continuous increase in coal prices globally has badly affected the cement industry in Pakistan which is already under severe pressure to stay afloat amid rising input cost.
Cement sector has been using coal as fuel for manufacturing of clinker since 2004, which it imports from South Africa, Mozambique, Australia and Indonesia, as availability of local coal to meet the requirement of the sector is not sustainable due to lack of infrastructure and inferior quality.
“Every year, the cement sector imports around eight million tons of coal to meet the demand of cement in the country and this will grow by 4 million tons in the next two to three years as the cement industry is increasing its annual capacity of cement production from 70 million tons to 100 million tons by the end of fiscal year 2022-2023,” said an industry source while talking to Business Recorder.
“Coal prices are at an all time high. It has increased by over four times in the last 15 months from US $ 55 per ton FOB to US $ 224 in October 2021, badly affecting the production cost of cement,” they added.
Ocean freight from South Africa to Pakistan has also increased from US $ 13 per ton to US $ 30 per ton during the same period from July 2020 to October 2021. US dollar also played its role and increased to PKR 172 which has increased the overall fuel cost by almost 100 percent. In July 2020 C&F price of coal for Pakistani cement manufacturers was US $ 68 per ton which has increased to US $ 254 per ton in October 2021. The impact of this increase in Pak Rupee works out to Rs 119 per bag of cement.
“Cement is an essential fuel for the construction industry and a key contributor to the economy of Pakistan. For cement manufacturers coal is not only an essential fuel source but the largest cost component in the manufacturing process besides electricity,” he said, predicting that coal prices will continue to increase at least till February 2022 and may hit the mark of US $ 300.
Moreover, the sources said the order of Supreme Court of Pakistan to close KPT for coal unloading has further aggravated the situation as there is now only one berth at PIBTL for the handling of about 10-12 million tons of coal imported annually by cement, textile and power sectors, which will grow to 16-18 million tons in next two to three years and therefore it is anticipated that terminal may not be able to handle such large volume resulting huge demurrages to the Industry of Pakistan.
Due to the exclusivity granted to just one terminal at Port Qasim as a common facility for the handling of imported coal cement industry has faced severe congestion, which will cause some serious threats not only to the cement industry but also the power and textile sectors.
“Now coal importers are facing delay in unloading of their consignments, which is not only causing production disruptions but also an additional cost of millions of dollars per month in the form of vessel demurrage, resulting in increased production cost and preventable depletion of precious foreign reserves. The high cost of coal and resulting demurrages has already dented the exports of cement and clinker from Pakistan,” they claimed.
The continuous increase in the prices of petroleum products has also increased the transportation, logistic costs.
“Due to the impact of increase in petroleum products’ rates, the transport cost of cement has also registered an increase of Rs 8-10 per bag,” they pointed out.
Two premier cement and clinker export markets namely Bangladesh and Sri Lanka have cut cement imports from Pakistan due to 60 percent increase in their transportation cost.
“Now, cement imports from Pakistan are getting affected by the diversion of the focus of the important markets towards other low-cost economies,” said the industry circles.
They further said that the cement industry is subject to FED at Rs 1,500 per ton and GST at 17 percent of maximum retail price. These taxes for the year 2020-21 come to around Rs 170 per bag. Cement industry is among the highest contributors to the national exchequer over the last few years. The contribution has increased to 152 billion rupees in 2020-21 from 39 billion rupees in 2012-13. “This incidence of high taxation negatively affects domestic consumption,” they added.
The industry circles claimed that the sector need relief from the government direly in shape of abolishing the excise duty on cement because it is an item for basic needs and complete withdrawal of excise duty would help the construction sector as well. They also called for abolishing import duty on coal/fuel and revoking the monopoly of one terminal at Port Qasim by opening all berths for coal importers for unloading through geared vessels, which is cheaper by US $ 3 per ton, also avoid demurrages of US $ 5 per ton due to congestion at Port.
One main relief to stabilize the viability of the industry is providing the industry gas and electricity at the same rates as being provided to the five exporting sectors, for at least 3 years,” suggested the industry circles.
Copyright Business Recorder, 2021
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