Cement industry in grave crisis

Highlights

• Over Tk4,000 crore loss in pandemic
• 35 active factories
• Annual demand 3.50 crore tonnes
• Production capacity 8 crore tonnes
• 10 companies occupy 81% of market share
• Tk42,000 crore investment
• Tk30,000 crore bank loan 

Cement companies are facing major problems due to declining demand because of the coronavirus pandemic and tax complications.

The Bangladesh Cement Manufacturers Association (BCMA) said some factories are at risk of closure due to losses and inability to meet operating costs continuously.

In this situation, the association has written to the National Board of Revenue (NBR) and raised several demands, including adjusting clinker tariff price with the international market and exemption from paying advance income tax.

According to industry insiders, 90 percent of cement production was halted in April-May during the general holidays announced after the detection of coronavirus in the country. At present, production has resumed up to 60-65 percent. However, the loss has exceeded Tk4,000 crore.

In addition, the sector is in crisis due to the imposition of 3 percent advance income tax on cement in the budget for the 2020-21 fiscal year, and clinker import tariff being higher than that in the international market.

As a result, industry players think it is necessary to save this sector by changing the unreasonable tax structure of the government.

BCMA vice-president and managing director of Metrocem Cement Md Shahidullah told The Business Standard that even though clinker price in the international market had dropped due to the pandemic, customs is assessing it at a higher price. "As a result, producers have to pay additional taxes. Besides, many companies have to pay taxes despite losses due to advance income tax."

The letter sent to the NBR chairman said clinker price in the international market is $38-40 per tonne and its import tariff should be set accordingly. The NBR at present makes calculations based on the previous price of $50 per tonne. 

Currently, the main raw material for cement, clinker, is subject to an import duty of Tk500 per tonne. Clinker is presently imported at $38-40 per tonne, and thus the import duty of Tk500 exceeds 16 percent.

Cement companies have demanded that the import duty be set at Tk300 per tonne or at least 5 percent.

Amirul Haque, managing director of Premier Cement, said, "Imposing over 5 percent tariff on intermediate raw material is, by no means, acceptable. This does not happen in any other industry. It is important to determine the assessment value in line with the international market and to reduce tariff further."

The BCMA has raised two other demands related to advance tax but they can be considered as one. 

It has asked the tax authorities to accept the current 3 percent advance income tax as the final tax of the company, and to refund advance tax if final tax is less than that.

Alamgir Kabir, president of BCMA, said in the letter that the tax authorities are continuously disregarding the three demands.

"We think we are being subjected to unjust treatment. We are just surviving despite facing continuous losses. Some companies have already stopped operations and some others are on the brink of closure. We have no idea how long we can survive like this."   

Amirul said, "Until the 2018-19 financial year, Tk750 crore was paid to the state treasury in unadjusted advance tax by all cement companies. As a result, the companies are not able to meet their operating expenses. We demand that the money be returned."

The use of cement in the country has increased manifold in the last two decades, said companies. In 2000, per capita cement use was only 45kg, but this rose to 200kg by the end of last year.

As a result, companies have been increasing their production capacity for several years to strengthen their position in the growing market. There is stiff competition among them due to production capacity being more than double the demand.

For this reason, even though the cost of cement production has increased, the price of cement has not increased in proportion to that. Consequently, the cement company that has always made a small profit faces losses even in the face of small obstacles.

According to industry insiders, there are currently about 35 active cement factories in the country. Although the demand for cement is 3.50 crore tonnes per annum, the total production capacity of the factories is eight crore tonnes. In the next three years, it will rise by another 1.1 crore tonnes.

Entrepreneurs in this sector have invested around Tk42,000 crore. Of this, bank loans are more than Tk30,000 crore. Moreover, more than several lakh construction workers, employees and officials are directly and indirectly involved in this industry.

The top 10 companies occupy 81 percent of the market share, with Shah Cement being the top player.

LafargeHolcim, Bashundhara, Seven Rings, Heidelberg, MI Cement, Premier Cement, Fresh Cement, Akij Cement and Confidence Cement are some of the leading brands.