Lahore - Around 16 percent hike in coal prices in global markets has raised concerns for Pakistan’s cement industry.

According to industry experts, international coal prices witnessed around 20 percent dip in the past two-and- a-half years, and came down to $52/tones, while slowdown in demand from China and US, along with rising capacities in other countries, also led to a decline in coal prices.

The coal prices also remained weak for a short term as US demand remained depressed. However, potential demand from South Asian countries took the prices up in longer term.

Now coal prices rebounded primarily due to higher consumption in the US and production roll backs in China. Surging international gas prices, up 20 percent MTD, (a rebound of 68 percent from its low on 03 March 2016) also provided support to the recent rally in coal (coal being a direct substitute for natural gas).

However, expectations regarding UK’s exit from EU may trigger yet another commodity price slump, thereby reverting prices to lower levels.

Coal output of China, the largest coal producer in the world, has been falling consistently; already down 17 percent. Decline in the production is mainly due to strict execution of the 276 day working rule in the country coupled with exit of small  miners.

This reduction in production has eased off the supply glut in the international market, thus reviving the prices. Despite market expectations of higher prices till the end of the year, price performance is expected to be limited as coal prices above $70/tonnes could trigger production resumption among small coal mines. Experts believe as global commodities have already shown signs of reversal, margins of the industry are expected to shrink amid increasing fuel and power costs.

Thus, the investment case of the Pakistan Cement sector is now premised on volumetric growth backed by rising property prices, increased public and private sector infrastructure spending and CPEC related projects.

All Pakistan Cement Manufacturers Association spokesperson has asked the government to withdraw import duty on coal as it is injustice to the cement sector which is running its plants mostly on imported coal.

He observed that instead of providing incentives to the cement industry, which is consuming over 95 percent of the total imported coal, the government created trouble for it by imposing discriminatory tax on imported coal.

He said the cement industry had spent millions of dollars on converting its plants from the expensive furnace oil to coal in order to produce cheaper cement for the consumers of Pakistan as well as making cement prices competitive in global markets.

“Our all efforts to reduce production costs faded away when the government imposed import duty on the cement industry’s main source of fuel, reducing our competitive advantage significantly,” he lamented.