Higher production costs blindside building material industry

Bangladesh's economy has been facing tough times of late as sustained high inflation, hike in interest rates and massive devaluation of the local currency continue to plague the country. In this series, we take a look back at how various industries fared amid the crisis in fiscal year 2022-23. Here, in the third instalment of the series, we take a look at how building material companies fared that year.

Although building material makers in Bangladesh registered higher sales revenue in fiscal year (FY) 2022-23, their profits were eroded by increasing production costs, according to industry people.

The overall sales revenue rose as manufacturers hiked the prices of their goods, such as rods and cement, to cope with higher raw material and energy costs.

However, their efforts proved futile as the import-heavy industry faced growing input prices amid continued devaluation of the local currency.

Besides, the ongoing US dollar crunch caused difficulties in opening letters of credit (LCs) for importing the required raw materials, even in the energy sector.

As such, electricity prices rose by 5 percent three times in FY23, resulting in a compound increase of around 15.7 percent, while the price of diesel grew 37 percent and furnace oil 41.4 percent.

Similarly, the retail price of gas for industries was hiked by 150 percent to 178 percent throughout the previous fiscal.

And as per data of the Trading Corporation of Bangladesh, the prices of 40-grade and 60-grade mild steel rod rose by an average of about 14 percent at the same time.

So, despite making price adjustments, building material makers saw their combined sales revenue soar 30 percent year-on-year to Tk 32,904 crore while their profits fell 18 percent to Tk 602 crore.

Rod makers were among the worst affected by an erosion in profits as the steel industry is highly import dependant.

Tapan Sengupta, deputy managing director of BSRM Group, told The Daily Star that the increased sales revenue resulting from price adjustments was not enough to compensate for rising input costs.

The costs rose mainly due to massive devaluation of the local currency while the price of raw materials and energy soared in the global market.

"Higher bank finance costs also aggravated the situation," he said.

Sengupta informed that many companies even had to reduced production for struggles in opening LCs.

"So, profits of the industry dropped," he added.

Bangladesh Bank data showed that local cement makers opened LCs for importing clinker and limestone worth $693.29 million in the first eight months of FY23, down 12.33 percent year-on-year.

Meanwhile, LC opening for scarp vessels, iron and steel scrap used for making rods and other products declined 44 percent year-on-year to $1.201 billion during the July-December period.

BSRM Ltd saw its sales revenue rise 43 percent to Tk 11,506 crore that year but its profits dropped 5.5 percent to Tk 291 crore at the same time.

Likewise, BSRM Steel's turnover rose 25 percent to Tk 8,452 crore while its profits fell 9 percent to Tk 297 crore.

GPH Ispat Limited saw a similar fate as the company's sales revenue rose 23 percent to Tk 5,765 crore but its profit nosedived 82 percent to Tk 26.7 crore.

SS Steel and S Alam Cold Rolled Still Mills registered a 94 percent and 25 percent rise in turnover respectively. However, their profits simultaneously dropped by 97 percent and 30 percent respectively.

The sales revenue of Fu-Wang Ceramic and Shinepukur Ceramic rose while that of Standard Ceramic fell, with profit margins in the ceramics industry remaining relatively unchanged from the previous year.

On the other hand, the cement industry was a mixed bag with only Aramit Cement and Premier Cement remaining in losses while Confidence Cement and Crown Cement posted higher profits.

Only Meghna Cement saw lower sales revenue while Premier Cement logged the highest growth of 53 percent to register earnings of Tk 2,183 crore.

Premier Cement incurred losses of Tk 84 crore in FY23 while the loss was Tk 112 crore the year prior.

"2023 was a very challenging year for the cement industry due to the adverse economic condition," said Mohammad Iqbal Chowdhury, CEO of LafargeHolcim Bangladesh Limited.

"A number of big projects also ended in 2023, and we noticed the construction sector was very sluggish in the last quarter that year due to the national election," he added.

Against this backdrop, Chowdhury informed that now the election is over, they believe new projects will be launched and fresh investments will come and help the cement industry to flourish.

"But at the same time, the US dollar crisis, increasing inflation and high interest rate shall impact the industry's growth. Overall, 2024 is going to be a mix of opportunities and challenges," he said.