Cement industry in a slowdown, profitability shrinks further

The cement industry has passed another bad quarter through March this year as a slowdown appeared to be its fresh headache on top of the pains of shrinking profit margins.

An average of a 20% price hike since the end of December caused a slowdown while an even faster cost escalation did not allow cement manufacturers to retain their already-squeezed profitability.

February-April is the peak season for the cement industry, but cement sales during the months this year declined, compared to the October-December quarter and the same season last year, said Bangladesh Cement Manufacturers Association (BCMA) Vice President, Md Shahidullah.

Masud Khan, an advisor 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 that in the previous quarter.

Both the industry professionals said the slowdown was a consequence of the sharp rise in construction costs which forced many builders to halt projects to wait and see if construction rod and cement prices ease. 

The cement industry that direly needs at least a 15% gross profit margin – the ratio of product price to production cost – for survival, entered single digit territory for the first time in years late last year and it continued to shrink further, added Shahidullah.

Cement mills did raise prices in the January-March quarter, roughly 20% according to Masud Khan, but it was not enough to offset the rising cost of raw materials.

Shahidullah said the increased prices went halfway to the cost hike because the market is too competitive.

An analysis of publicly listed cement mills suggests the gross profit margin of the companies drastically dropped to 8%-9% in the October-December quarter of 2021, from around 15% a year ago.

However, the industry was registering a sales growth that helped companies save their bottom line to some extent.

Now the slowdown has further dragged profits down, said BCMA's Shahidullah, managing director of Metrocem Cement.

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

Clinker price at source increased over 80% to a near record high since July last year, while freight charges spiralling up, only kept adding to the cost of raw materials, said Khan.

LafargeHolcim Bangladesh, which has a unique advantage of sourcing clinker from its Meghalaya, India mines and transporting that to its Chatak plant by conveyor belt, is maintaining its gross profit margin of over 28% as it is not a victim of the skyrocketing global market for raw materials.

Its high-profit business of aggregate selling also contributes to its superior profitability nowadays, according to analysts.

The cement industry that has been in a price war amid overcapacity is trying to slightly reduce retail prices most recently to avert a continuation of the slowdown, said Khan.

Shahidullah is concerned about the rising pressure on profitability as costs are not going down and even the global market signals no cooling immediately.

Except for LafargeHolcim Bangladesh, and Meghna Cement, the other three listed cement manufacturers posted a drastic decline in their earnings per share for the January-March quarter.