A review of 9MFY19 performance of Pakistan’s cement industry

IGI Securities has reviewed the performance of Pakistan's cement industry for the first nine months of FY18-19 (July 2018-March 2019). Provisional numbers show that cement dispatches for March 2019 declined by 12 per cent YoY to 4.11Mt. On a cumulative basis, this brings 9MFY18-19 total dispatches to 34.19Mt as against 34.76Mt, recorded in the same period last year, marking a fall of two per cent YoY.

While local sales from southern Pakistan have grown by over 15 per cent during the nine-month period as a result of excess capacity and deeper penetration, those from the north of the country have dropped by 12 per cent YoY largely, due to curtailed government spending on development projects and reduced private construction activities amid weak macroeconomic indicators.

While export sales have been on the rising trend ever since 4QFY18, amid rising capacities in the south, clinker exports account for a major share. Contrary to cement exports which achieve better prices of US$50-55/t in the international market, clinker is sold at relatively-lower and less-profitable prices of US$32-35/t.

Cement exports from the north, particularly in the last two months, have been on the decline, mainly due to the deteriorating trade terms with India amid rising political tensions between the two countries.

Cement prices
As of 28 March 2019, average cement prices in the northern region stood at PKR596/bag (US$4.23), down by one per cent MoM, according to weekly data published by the Pakistan Bureau of Statistics (PBS). Average cement sale prices in the south have marginally edged up by 0.6 per cent to PKR613/bag.

Outlook
Pakistan’s cement sector in FY18-19 is ending with a decline with little improvement expected in FY2019-20. Following the seven per cent YoY contraction of local dispatches in 9MFY18-19 and with the holy month of Ramadan around the corner during which construction activities are substantially reduced, analysts expect FY18-19 to end with a below-par performance when compared with the previous year.