The daily sale of cement has dropped to 5 lakh bags from around 25 lakh bags previously
The daily sale of cement has dropped to around one fifth– 5 lakh bags from up to 25 lakh bags in regular times – during the nationwide shutdown enforced to slow the coronavirus spread.
The ongoing Covid-19 pandemic has pushed cement manufacturers into a territory of nearly an unmanageable crisis, where no one knows how and when things will rebound.
Data available with the Bangladesh Cement Manufacturers Association (BCMA) suggest the annual demand for cement is 3.3-3.5 crore tonnes. If a year counts 300 working days, the daily sale stands at up to 1.2 lakh tonnes or 24-25 lakh bags.
"Daily sales have now dropped to around 5 lakh bags," estimates Md Shahidullah, vice-president of the association.
Bangladesh's cement industry has been growing at a near double digit rate over the years by catering to the booming economy, alongside exporting the product to some neighboring markets.
More than three dozen large and mid-size manufacturers had been managing problems such as over-capacity, tough competitions, tax burdens, a rapid increase in utility bills and of course volatility in prices of imported raw materials.
But the coronavirus-induced crisis has pushed them into a new crisis.
Who is there to buy cement?
The industry supplies almost equal quantities of cement to government projects, corporate projects and individual homebuilders.
At present, in the existing situation brought about by the shutdown, the first two groups are running no construction sites.
Some individuals are trying to complete their constructions – building or extending homes – before the upcoming monsoon, mainly in rural areas. Small sites are now the key destinations for the cement industry.
In the circumstances, each of the companies has had to scale down production considerably.
"If the current situation is prolonged, many companies may declare layoffs," said Shahidullah, adding that the current scale is not enough for cement factories to avert losses.
Before the shutdown,the industry's daily revenue was over Tk100 crore with an average factory-gate price for each bag at Tk400. The price gets 10-12 percent higher in the retail market.
According to Shahidullah, the daily revenue has now fallen below Tk25 crore.
His bigger concern is that the industry with over Tk50,000 crore investment has receivables of about Tk10,000-12,000 crore because of dependence on credit sales.
"The receivables have already been in a disrupted cycle and the worst part is we are not confident about the pace of bill recovery in the coming days," said Shahidullah, who is also managing director of Metrocem Cement Ltd.
An equity analyst at a top brokerage research firm shared his outlook on the cement sector with The Business Standard yesterday.
"If the pandemic is prolonged, or if the economy faces a harder time in the coming days, the cement industry will suffer more," he said, seeking anonymity as he was not authorised to speak to the media.
He further said that during any economic stress, construction material industries take a heavy toll as individuals and corporates tend to halt their spending in order to better focus on essential current expenses.
Despite all this, hope still remains – that the government will accelerate its infrastructure spending to offset the impact of a potential slack in private sector activities.
There will also remain challenges as the government is likely to be overburdened through providing fiscal incentives to prop up the economy. It may downsize the development budget to finance the non-development one.
"If demand from all sectors squeezes, the cement industry may face unmanageable pressure," said the investment analyst.
However, one good thing for the industry is raw material price in the international market is already 10-15 percent down after the novel coronavirus outbreak. But most of the local market brands are offering discounts to compete with each other, he observed.
The industry needs sufficient working capital in the coming days so that it can withstand the reduced cash flow – both because of low revenue and slow collection of receivables.
"To tackle the reduced cash flow amid low sales and high receivables, we need our fair share from the government-declared Tk30,000 crore package of concessional loans to industrial entities," said Shahidullah.
Once the tough times are over, the industry will be capable enough to repay the loans from the cash flow of the next three years.
The association of cement manufacturers has already written to the government to defer the payment of utility bills for six months with the option of paying them in installments later.
Besides, the cement industry will request the government to withdraw the recently imposed minimum advanced income tax (AIT) on raw material imports.
At the beginning of the current fiscal year, the government imposed a minimum 5 percent AIT on raw material imports for the cement industry. The tax has been reduced to 3 percent since January 1.
The 3 percent too is an unbearable burden because manufacturers are paying the minimum income tax regardless of whether they are making profit or not, said Shahidullah.
As the AIT is not refundable in case of ultimate losses in business, it is putting bigger pressure on some large companies.
"Besides, we have to pay Tk500 in duty for importing a tonne of intermediate raw materials –13 percent in reality – which is too high compared to that in other countries," he added.
"We will request the government to make it 5 percent so that the industry can withstand tough economic times."