How much cement makers' earnings hold out hope for future growth?

Cement makers seemed alarmed when they revealed in March that the month that usually records highest demand in a year saw a 14 per cent drop in sales compared to the same month of the previous year.

They termed the business decline, especially in March, a rare event.

Despite the concerns, three out of the five cement manufacturers that disclosed earnings of the latest quarter by now gained a year-on-year growth in profit.

The main factor that boosted profit was a drop in raw materials' prices in the international market, said Masud Khan, chief advisor to the board of Crown Cement.

Also, the devaluation of the taka against the dollar slowed down in January-March, compared to the period of October-December last year, he said.

The currency exchange rate saw a steep rise from the start of the Russia-Ukraine war in February last year to Tk 105.74 in March this year. The weighted average range was between Tk 100 and Tk 102 in January-March this year.

The lower-than-expected-growth in demand for cement in the country has been a matter of concern for the industry for at least three years.

The demand has even gone down in the past year as the government decelerated the construction of mega projects to protect the foreign exchange reserves from depleting, import cost escalated amid the dollar shortage, and energy price rose.

In the nine months to March, three of the four listed local manufacturers -- Confidence Cement, Crown Cement and Meghna Cement Mills -- saw a negative growth in profit.

Earnings of Crown Cement and Meghna Cement plunged 34 per cent and 50.6 per cent year-on-year for July-March, FY23.

Industry people say manufacturers' excess capacity compared to the market demand has squeezed profit margins.

Cement makers scaled up their production capacity over the years forecasting the demand to rise.

The industry's production capacity multiplied by an astonishing 271.64 per cent to 83.29 million tonnes in the last 14 years while the demand increased 105 per cent to 46.72 million tonnes as of November 2022.

Meghna Cement built a new plant in 2021 in Mongla to double its annual production capacity to two million tonnes despite a sluggish growth in public and private development works due to the pandemic.

Every additional capacity of one tonne required an investment of $40, said Mr Khan. The unused capacity has a cost burden too on the operation of a business.

This is the backdrop when a senior official of the Bangladesh Cement Manufacturers Association (BCMA) said that increasing the product prices was not possible to improve profitability in a highly competitive market.

If the profits of the last five years are considered, it becomes obvious that the business viability of most of the listed companies had plummeted.

Except for LafargeHolcim Bangladesh, all companies failed to grow in terms of profit since 2018. Some even incurred losses.

Aramit Cement incurred a loss of Tk 155 million-Tk 232 million between FY18 - FY20. After making a profit of Tk 20 million in FY21, it again went into the red.

Heidelberg Cement Bangladesh suffered losses in three fiscal years -- FY19, FY20 and FY22.

Crown Cement reported losses of Tk 132 million and Tk 229 million in FY20 and FY22.

Premier Cement Mills reported the highest loss of Tk 1.13 billion in FY22.

LafargeHolcim, which is yet to disclose earnings of the latest quarter, could consistently make profit for the last five calendar years because it has a cost effective source of the major raw material clinker.

The production of the cement companies mostly depends on imported raw materials, such as clinker and fly ash. After the outbreak of the Covid pandemic and then the war, the cost of imported raw materials jumped.

LafargeHolcim bagged a profit of Tk 4.45 billion last year, reaping the benefit of its own source of clinker.

mufazzal.fe@gmail.com