KARACHI: The cement silo (storage for materials and cement) of Fauji Cement Company Limited (FCCL)’s plant collapsed over the weekend, destroying the coal mill and damaging the new production line of the company, according to industry sources.
As per details, the FCCL’s Line II Control Flow Silo (CFS) used for blending and storing raw cement meal, has incurred a major break down. The reported accident has also damaged coal kiln adjacent to the silo as well. Production at the FCCL has halted due to the collapse of the raw material silo at its Jhang Bahtar cement plant in Attock, Punjab.
The 25,000 tonnes capacity raw material silo collapsed and also damaged the coal mill building of the plant’s 7200 tpd clinker production Line 2, requiring the closure of the line for up to six months until the damage is repaired. However, the cement mills remain unaffected and cement dispatches will continue as normal.
According to a company official, the plant’s 3700 tpd clinker Line 1, which is currently undergoing planned maintenance, will soon resume operations.
This line was commissioned in 2011 and has a nameplate capacity to produce 7,560 tonnes per day, 2.268 million tonnes per annum, of cement which is 66% of total 11,445 tonnes per day total production capacity and contributes a significant chunk towards profitability of the company.
Industry sources suggest that this could prove to be a major loss as company will not be able to replace damaged line for the whole Fiscal Year 2016-17.
Faizan Ahmad of JS research’s analyst while commenting on potential implications of this incident said, “We believe that proceeds from insurance claims having major insurers – Adamjee and Jubilee Insurance – will not be sufficient to cover the current replacement cost of the plant which is estimated cost of $80/tonne
for replacement of damaged parts.”
Under worst case scenario, the FFCL earnings forecast from FY16 to FY18F period will be revised down by 8-73% from FY16-FY18F period, assuming only one line of 3,885 tonnes per day of cement (old line) continues production in FY17 and new line is replaced by the mid of FY18F.
Sources said that damage assessment would potentially be completed in approximately 10 days after which accurate information would be made available.
“We believe that capex of approximately Rs 21 billion (assuming $80/tonne replacement cost) will have to be incurred in FY17 for replacement and a cut in dividend can be expected given the uncertainty surrounding insurance cover,” added Ahmad.
Ahamad believes that North based manufacturers with closed proximity and unutilised capacities such as Pioneer Cement (PIOC), Kohat Cement (KOHC), Cherat Cement (CHCC), DG Khan Cement (DGKC) and Maple Leaf Cement (MLCF) will be key beneficiaries of this development.
An analyst at Elixir Reserch said that plant rehabilitation and reconstruction would at least take 6-9 months with the possibility of closure of line I as well for overall plant reassessment. He estimated total plant CAPEX to be around Rs 700-1000 million depending upon the damage to the kiln.
“We opined that the company has to use furnace oil as an alternate to coal resulted in margin accretion during the said period,” said an analyst at Shajar Research.