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October 12, 2008


Pakistani cement industry reeling under coal price surge

The News reported that Pakistan’s cement industry, being dependent on coal, is going through a tough time due to the rising international coal prices and that the surge in prices may change the very nature of the energy mix of Pakistan.

During the last 6 months, the prices of coal and furnace oil have doubled and it is increasing with the rising international oil prices generating a direct burden on the cement industry as they use coal as the basic fuel. According to a cement company’s official, the rising coal prices have already increased the manufacturing cost of cement up to PKR 15 to PKR 20 per bag and they say that there is a need to pass on this burden otherwise the cement industry would suffer considerably.

At present most of the cement companies in Pakistan have switched to coal or gas as their basic fuel; the process has been completed in the last 6 to 7 years. According to the data of the All Pakistan Cement Manufacturing Association of mid 2007, the cost of cement production per tonne by furnace oil was around PKR 2,083 whereas the cost of production per tonne by coal was PKR 868, saving KR 1,215 per tonne. Similarly, the saving per bag was PKR 60.75, which is a huge difference.

Pakistan has considerable coal reserves: tidal, solar and hydel potential. It is ironic that Pakistan has fourth-largest coal reserves in the world but it is importing 2.5 million tonnes of coal per annum for the cement industry. At the same time, due to high cost of energy, the government has also decided to enhance the share of coal in the overall energy mix from 5 to 18 per cent up to 2018.

Among the other alternative sources, coal is the main source for producing cheaper electricity and its availability is much higher. In view of predictable shortfall of electricity and other energy resources during the next 10 years, demand for indigenous coal would grow in power generation considerably.

The cement industry being the second biggest coal user in the country but is using imported coal as a fuel instead of local coal due to the high percentage of sulphur in it. Javed Ali Khan, CEO of Pioneer Cement said that local coal contains 6% of sulphur which is not suitable for cement industry; however, the imported coal contains 1% of sulphur.