Pakistan cement market progress
Latest statistics on the Pakistan cement sector show that the country will have ended the first quarter of FY12-13 (July-September 2012) ahead of the same period as last year as September sales gather pace on the back of increased real estate activity and higher government infrastructure spending. Improving prices and government incentives are likely to further spur industry profitability but declining exports remain a concern.
Preliminary estimates for September 2012 dispatches show total sales reached 2.582Mt compared to 2.287Mt in September 2011, reflecting a growth of 13 per cent. The monthly sales rise is thanks to an expected 19 per cent YoY hike in local deliveries to 1.778Mt compared to 1.497Mt in September 2011. Local dispatches from the south are seen rising 53 per cent YoY to 356,000t primarily due to a boom in construction activity on the back of spurring demand for housing coupled with government spending on post-flood reconstruction efforts. Exports, on the other hand, are expected to have declined by two per cent YoY to 803,000t. Manufacturers have started orienting their sales to supply the domestic market amid higher local demand and improved prices which have seen a 19 per cent YoY increase to PKR6988/t (US$73.10/t).
While total dispatches were down 2.18 per cent in the first two months of the first quarter (largely due the monsoon effect, Ramadan and a 5.87 drop in exports), total sales for the first quarter are seen reaching 7.678Mt, up by two per cent. Again, growth during the period stems primarily from a five per cent YoY rise in local sales to 5.419Mt with the south having witnessed a surge of 17 per cent YoY to 1.110Mt. Exports, meanwhile, are expected to have declined three per cent YoY (2.258Mt) during the period due to a spike in inland transportation costs incurred by companies with lower demand on the export front and unattractive export prices.
The sector closed FY11-12 (ending June 2012) with total dispatches of 32.52Mt, up 3.45 per cent YoY. Local deliveries accounted for 23.947Mt and were up 8.84 per cent YoY while exports were 8.568Mt, a decline of 9.12 per cent. The Pakistan sector has a cement capacity of 44.77Mta and last year utilisation rates stood at 72.63 per cent with excess capacity at 12.25Mta.
Karachi-based brokerage house InvestCap has underlined the strength of the real estate market which appears to be back on track after years of subdued demand. The advance, it believes, is attributed to remittances and increased urbanisation. Despite higher cement prices, a downward revision in the cost of borrowing is expected to reduce the overall costs of projects and rejuvenate construction activity. This is foreseen to act as an impetus for increased cement demand going forward.
The approaching winter season is expected slow demand. However post-winter sales are forecast to escalate as the government is likely to increase infrastructure development spending in the run-up to the elections scheduled for February 2013. Moreover, according to government estimates, the rebuilding of damaged infrastructure relating to the devastating 2011 floods, will requite approximately 7-8Mt of cement and incremental demand of 1.5Mta over the next five years exclusively for flood reconstruction projects can be expected. However, the industry has expressed its concerns over declining exports, which fell by 9.1 per cent in FY11-12 to 8.6Mt. The All Pakistan Manufacturers Association has is also concerned about continued declining volumes to India which a spokesman said was due to "stringent non-tariff barriers" put in place by the neighbouring country.
In terms of profitability, the industry is beneftiting from strengthening prices and government relief measures targeting the cement sector in its FY12-13 budget. The Federal Excise Duty (FED) has been slashed by PKR100/t and the general sales tax by one per cent. Moreover, a number of large cement manufacturers are expected to reap the benefits of investments in alternative fuel and waste heat recovery projects, which will further improve profitability going forward.
