The cement industry which saw a decade-low profit margin in late 2021 due to soaring costs, construction slowdown and stiff competition got hit even harder by the foreign exchange crisis in 2022.
Just like its competitors, Premier Cement Mills Ltd was struggling to make some profits till March last year as its Earnings Per Share (EPS) for the first nine months of the 2021-22 fiscal year (July 2021-March 2022) dropped to Tk0.37, from Tk4.07 for the same period a year ago.
The publicly traded firm incurred Tk11.07 losses per share in the remaining three months, which forced the company to post an annual loss even bigger than its paid-up capital for the 2021-22 fiscal year.
The unforeseen blow came from the turbulence in the dollar market, according to the company's Chief Financial Officer Selim Reza.
"Even though stressed, our operations were profitable," he told The Business Standard, adding that almost the entire loss occurred due to the depreciation of the taka and the strong US dollar.
Companies were importing raw materials and pricing their products based on the greenback's value at 85-88 Tk. During the settlement of the letters of credit (LCs), it soared to Tk110.
With LCs either deferred or cleared, importers had to absorb the entire shock. The gap between forex expectation and reality was the highest over the April-September period, according to industry people.
The company, having a decent reserve, managed to announce a 10% cash dividend to its owners for the last fiscal year and its stock prices did not tank due to the floor price imposed by the Bangladesh Securities and Exchange Commission.
Cement consumption in the country dropped by more than 1.5% in 2022, according to Bangladesh Cement Manufacturers Association (BCMA).
Premier Cement's sales increased significantly with the help of its strengthened marketing efforts and the added capacity that went into production in July to push the company to a top spot in terms of installed capacity.
However, the extended operation started sour as it only added to the unbearable forex losses.
Except for LafargeHolcim Bangladesh which depends on its own sources of limestone from the nearby Indian state of Meghalaya and the raw materials from its own conveyor belt, and Meghna Cement which might have gone conservative, no listed cement manufacturer managed to save their bottom line in the April-June quarter, according to cement analysts.
The quarterly loss was equal to 92.6% of the paid-up capital for Aramit Cement, 70.3% for Confidence Cement, 24.5% for Crown Cement, 6.6% for Heidelberg Cement Bangladesh and a massive 110.7% for Premier Cement.
Breathing space slowly widens
As the dollar was going up both in the central bank-fixed impractical market and also in the LC-settling commercial banks, the gap between the rates started to narrow down, and the forex loss for businesses started to reduce.
Confidence Cement bounced back into profitable territory, and the other loss makers significantly cut down their losses in the July-September period.
And, in the October-December quarter, even Premier Cement came up with some profits. Also, Crown Cement bounced back to profitable territory while Meghna Cement's profits declined a bit.
Thanks to the central bank that slightly handed over the dollar market to the banking industry in September last year and the gap between the official and the market rates for the greenback narrowed to a moderate extent like a higher single-digit percentage point the forex losses further reduced.
When the industry is running at a decade-low gross profit margin, how much a company makes in production level is still under stress, according to Md Shahidullah, vice-president of the Bangladesh Cement Manufacturers Association (BCMA).
The US dollar is still dearer, banks barely agree to open LCs for raw material imports until they are offered an above-market rate for dollars, and some forex losses are still here in February, according to companies.
The worst pressure the cement industry is still facing is the increasing tax and duty burden on the raw material imports, while they are struggling to cope with the higher energy and logistics costs, added Md Shahidullah, who is the managing director (MD) of Metrocem Cement.
Premier Cement MD Mohammed Amirul Haque, a director of the BCMA said, effectively more than 45% of the raw material import value is being taken by the government as taxes and duties, which is unbelievable for a key industry like cement.
The government should rationalise the taxes and duties to let the industry continue serving, he added.