Profit ratio

Cement industry in slowdown, profitability shrinks further

The cement industry had another bad quarter in March this year, with a slowdown seeming to be its new headache in addition to the pains of shrinking profit margins.

A price increase of 20% on average since the end of December has caused a slowdown while an even faster escalation of costs has not allowed cement manufacturers to maintain their profitability already under pressure.

February-April is the peak season for the cement industry, but cement sales in months this year have declined from the October-December quarter and the same season last year, the vice said. -President of Bangladesh Cement Manufacturers Association (BCMA), Md Shahidullah.

Masud Khan, adviser to the board of Crown Cement, told The Business Standard that the industry sold 3.84% fewer bags of cement in the January-March quarter, compared to the previous quarter.

The two industry professionals said the slowdown was a consequence of soaring construction costs that forced many builders to halt projects to wait and see if prices for construction rods and cement come down.

The cement industry, which desperately needs a gross profit margin of at least 15% – the ratio of the price of the product to the cost of production – to survive, has entered single-digit territory for the first times for years late last year and she continued to contract, Shahidullah added.

Cement factories increased their prices in the January-March quarter, by around 20% according to Masud Khan, but this was not enough to offset the rise in the cost of raw materials.

Shahidullah said the price increase was halfway to the cost increase as the market is too competitive.

An analysis of publicly traded cement companies suggests that companies’ gross profit margin fell 8-9% in the October-December quarter of 2021, from around 15% a year ago.

However, the industry was recording sales growth which helped companies salvage their bottom line to some extent.

Today, the slowdown led to a further decline in earnings, said BCMA’s Shahidullah, managing director of Metrocem Cement.

Listed companies such as Crown Cement, HeidelbergCement and Premier Cement saw their gross profit margins fall by 5-9% in the January-March quarter.

The price of clinker at source rose more than 80% to a near record high since July last year, while transportation costs soared, only increasing the cost of raw materials, a Khan said.

LafargeHolcim Bangladesh, which has the unique advantage of sourcing clinker from its mines in Meghalaya, India, and transporting it to its factory in Chatak by conveyor belt, maintains its gross profit margin of more than 28 % because it is not a victim of the explosion of the world commodity market.

Its highly lucrative aggregates business also contributes to its superior profitability today, analysts say.

The cement industry which has been in a price war amid overcapacity is trying to cut retail prices slightly more recently to avoid a further downturn, Khan said.

Shahidullah is concerned about the growing pressure on profitability as costs are not falling and even the global market is not reporting any immediate cooling.

Apart from LafargeHolcim Bangladesh and Meghna Cement, the three other listed cement companies recorded a drastic drop in their earnings per share in the January-March quarter.