Cement sector profits and dispatches decline in four months of current fiscal

The spokesman for APCMA said that cement industry’s profitability has declined considerably due to increase in input cost while the construction sector is not posting the anticipated demand. Profit after taxation of cement manufacturers has declined up to 42 percent in first quarter of this fiscal as compared to same period last year.

Exports became competitive only because of a steep decline in the rupee value, as dollar increased from around 124 rupees at the start of this fiscal to 133 on 1st November, an increase of 7.26 percent in just four months. This decline in Pak currency however increased the input cost of most of the fuels (imported coal) and spare parts consumed by the industry.

Cement industry of Pakistan is heavily taxed. During the financial year 2018-19, federal excise duty has further been increased by Rs. 250/- per ton. Federal excise duty was Rs. 400/- per ton (Rs. 20/bag) in the financial year 2013-14 which has increased to Rs. 1,500/- per ton (Rs. 75/bag) in the budget for 2018-19.

Cement dispatches is also subjected to General sales tax @ 17% on maximum retail price which is Rs. 86 per bag. Other taxes include Income tax @ 31%, Workers profit participation fund @ 5%, Workers welfare fund @ 2% and provincial levies i.e. royalty and excise duty.

The total taxes on a bag of cement works out to Rs. 185 per bag which is 31% of Rs. 600 per bag.

Stagnance in domestic cement consumption and increasing input costs have badly hurt the bottom line of the cement sector but the saving grace was healthy growth in exports from south mills by sea that saved the day for the industry.

Consumption pattern in Northern and Southern parts of the country highlights the huge contrast in cement demand in different parts of the country. The mills in the Northern part of the country usually leads the growth but they suffered so far due to negative domestic and export demand. Domestic cement demand declined in first four months of this fiscal by 4 percent as the dispatches fell from 10.671 million tons in July-Oct 2017 to 10.244 million tons in July-Oct 2018 while the exports posted a decrease of 21.54 percent, going down from 1.287 million tons in first four months of last fiscal to 1.010 million tons during same period this year.

In contrast Mills in Southern part of the country posted high growth in the first four months of this fiscal. These mills dispatched 2.702 million tons of cement for local market that was 24.53 percent higher than 2.170 million tons dispatched during the corresponding period of last year. Exports of cement from Southern region also increased by 216 percent to 1.397 million tons in July-Oct 2018 from 0.442 million tons only during same period last year.

It is worth noting that in the first four months of this fiscal the overall dispatches increased by 5.37 percent to 15.353 million tons. The domestic uptake increased by paltry 0.82 percent during July-October 2018 while the exports registered growth of 39.13 percent during the same period.

In October 2018, cement dispatches grew by 7.45 percent. The industry dispatched 4.536 million tons of cement last month out of which almost 3.921 million tons was consumed domestically and rest 0.615 million tons was exported. Exports grew by impressive 38.87 percent while the domestic consumption registered an increase of 3.76 percent.

He appealed to the government to cut down duties and taxes on cement to improve its local demand and help the manufacturers to explore foreign markets to earn precious foreign exchange and contribute more to the national economy.

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