Power Cement Shuts a Third of Capacity on Pakistan Downturn

(Bloomberg) -- Pakistan’s Power Cement Ltd. has suspended almost a third of its output as demand and prices fall amid an economic downturn and higher costs bite.

The second largest producer in the country’s south has shut about 3,150 tons per day of old, high-cost production capacity after market conditions rendered them unviable. Newer lines accounting for 7,700 tons remain operational.

The old units were closed because they are “inefficient lines,” Chairman Nasim Beg said in a message. “The output of these is not competitive under the present conditions.”

The cutback is the latest evidence that Prime Minister Imran Khan’s measures to lift the economy out of a crisis are yet to bear fruit. While the nation has devalued its currency and secured a $6 billion loan from the International Monetary Fund, equity investors remain unconvinced that corporate earnings can achieve a quick turnaround.

Power Cement’s shares fell 13.6% to the lowest in almost five years at 9:30 a.m. local time. The cement manufacturer shares have plummeted 45% this year, more than the 21% loss for the benchmark KSE-100 Index. The stock now trades at 3.2 times its projected earnings in the next 12 months, compared with the country’s average of 4.9.

Production costs across the industry are rising because of higher utility prices and taxes, according to Raza Jafri, the director of research at Intermarket Securities Ltd. in Karachi.

“Demand is slowing down and new capacities are coming up,” he said. “There will pressure on prices going forward.”

Dwindling demand and rising costs are a dramatic change for the industry that was operating at maximum capacity over the past few years. Virtually all cement producers expanded to increase Pakistan’s total output by almost half to 70 million tons during that time.

Now, with an economic slowdown taking hold, those calculations are going wrong. Pakistan’s gross domestic product is projected to slow down to 3.2% this year, while inflation is forecast to rise to double digits. Cement sales dropped 6% to 5.4 million tons in nine months ended March.

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To contact the reporter on this story: Faseeh Mangi in Karachi at fmangi@bloomberg.net

To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Srinivasan Sivabalan

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