Cement makers slash output as political tension flares up

Cement makers in Bangladesh have reduced production in the face of falling sales due to ongoing political tension and a slowdown in public and private construction projects, according to industry people.

Cement mills in the country have a combined production capacity of nearly 50 lakh tonnes per month. However, their production capacity has dropped to around 17 lakh tonnes per month.

In terms of the annual average, production of the key construction material dropped to 25 lakh tonnes per month in 2023 while it was 36 lakh tonnes per month the previous year.

"Manufacturers are continuing operations at less than 70 percent capacity to keep their workers engaged," said Md Moshiur Rahman Dalim, head of business at Akij Cement.

However, in absence of adequate demand, even reduced production could lead to higher buffer stocks, which is a burden for owners, he said.

"So, some manufactures are meeting the slow demand with previous stocks and it is not clear how long it will take for the situation to improve after the election," he added.

Dalim informed that cement sales have declined by more than 50 percent compared to normal demand in the ongoing dry season, which was the peak season for the construction sector.

Also, production costs increased by about 30 percent over the past year due to the US dollar turner costlier in terms of the local taka, he said.

"I never witnessed this type of shock in the cement sector in my 22-year-long career," said Dalim.

According to him, individual buyers make up a bulk of their sales but people have become apprehensive over spending money amid the current political situation.

Mohammed Amirul Haque, managing director and chief executive director of Premier Cement Mills Limited, said cement factories were operating at 30 percent capacity due to slow sales since November.

"We cannot even import raw materials for problems in opening letters of credit (LCs)," he said, citing how cement makers have been facing one obstacle after another.

"If we solve one problem, then another arises, which is hampering the sector's growth," he added.

Haque also said other than low sales, cement mills were suffering from having to open LCs at Tk 111 per US dollar while settling them at Tk 123 to Tk 124.

"Earlier, we would blame the central bank but now, private banks are creating problems in opening LCs citing a US dollar shortage," he added.

Against this backdrop, Haque emphasised that they would face severe losses if the situation continues for the next four months.

"But even though we are facing a tough situation, we do not have any plans to cut jobs and will instead work to absorb the shock," he said.

Echoing the same, Asadul Haque Safyani, chief operating officer of Bengal Cement Limited, said the market situation was quite dull despite it being the peak season.

"This is because demand declined drastically as people are gripped by panic amid the ongoing economic vulnerability and political unrest," he added.

Preferring not to be named, a senior official of Shah Cement, a concern of Abul Khair Group, said their four manufacturing units have a daily production capacity of about 31,000 tonnes.

However, they are currently producing just 9,000 tonnes of cement each day as demand from public and private construction projects has fallen, the official added.

"The cement market witnessed negative growth throughout the year. The negative growth was slightly higher in November and the situation will persist in December," said Md Alamgir Kabir, president of Bangladesh Cement Manufacturers Association.

The government scaled down large-scale infrastructure development works in the country by almost 65 percent this year compared to 2022 and 2021, he said.

Similarly, private-sector industrial development has fallen to almost zero, impacting sales of construction materials such as cement, he said.

"For example, there has been a huge decline in the construction of houses in the private sector. So, the use of cement is decreasing," he added.

Kabir, also vice-chairman of Crown Cement PLC, noted that the country's current economic condition, especially considering the forex crisis and subsequent devaluation of taka, has led to the requirement of additional working capital while hampering sales.

Besides, production costs increased due to the hike in bank interest rates, transportation and power costs alongside additional taxation, he said.

He explained that even if there was no profit, advance tax deduction at source was a liability.

There are 37 active cement factories in Bangladesh with a combined annual production capacity of 5.8 crore tonnes against local demand of 3.6 crore tonnes.