State Bank of Pakistan reviews cement industry performance in 1HFY20

The State Bank of Pakistan has released its second quarterly report of FY20 (July 2019-June 2020) on the state of Pakistan's economy on 14 April. The report reviewed the performance of all sectors and appreciated the cement industry's progress, but pointed out the challenges of the coronavirus on all industries.
 
According to the report, the global and domestic spread of COVID-19 has brought an exceptional set of challenges for the country. The spillovers from the global economy and the infection-containment measures in the country are expected to weaken economic activity and consumer demand as well as adversely impact supply. As the situation is extremely fluid and highly uncertain, the economic outlook remains subdued compared to the pre-outbreak estimates. Therefore, the government and the SBP have taken a number of measures to mitigate the adverse impacts of COVID-19 on the economy. These include sizeable fiscal spending programmes, tax reliefs and incentives to the construction industry. As for the SBP, within a span of eight days (in March 2020), the Monetary Policy Committee cut the policy rate by 225 basis points.
 
Growth in cement industry
The cement industry registered growth of 6.3 per cent during 2QFY20 in contrast to a contraction in the previous quarter, owing to both higher exports as well as some revival in domestic demand. However, the steel sector, although having some complementarity with cement, was not able to post positive growth in 2QFY20 despite improvement from the 1QFY20.
 
The LSM sector started showing some positive signs during 2QFY20. Compared to both 2QFY19 and 1QFY20, the growth outcome improved noticeably. Expansion was evident in the construction-allied industry that seemed to have benefitted from an uptick in cement exports and an increase in government development expenditures.
 
All Pakistan Cement Manufacturers Association (APCMA) data on cement dispatches shows that growth reached 9.9 per cent in 2QFY20 from 2.6 per cent in the preceding quarter. The performance was driven in equal measure by local and export sales, as opposed to being predominantly export-driven previously. Furthermore, disaggregated data shows that the growth in local sales was driven entirely by the north region while the south contributed to export performance.
 
Cement exports
Meanwhile, cement and cement product exports decreased by 7.5 per cent in the 1HFY20 compared to a 32 per cent increase in the same period of FY19. However, Pakistani cement exports this year have become more diverse in terms of market access compared to last year, when India was the key importer of Pakistani Portland cement, importing a quarter of Pakistan’s cement export volumes in 1HFY19. In 1HFY20, Pakistan exported 41.8 per cent higher shipments to other destinations like Afghanistan, Madagascar and Sri Lanka.
 
In addition, Pakistan shipped significant volume of clinker in the first half. The demand for the raw material was created in Bangladesh, when Vietnam’s exports to the country had started to recede as it redirected its supplies towards a much bigger market, China. While overall clinker shipments of Pakistan rose 14.6 per cent in 1HFY20, Bangladesh’s share in Pakistan’s clinker exports increased from 77 per cent in the previous year to 87 per cent in the same period this fiscal year. But, the overall value of cement and clinker was pulled down by low unit prices, the report remarked.
 
Cement price
The central bank has accepted that there was an increase in cement prices during this period due to the increase in Federal Excise Duty.
 
Coal imports
Lastly, coal imports declined by a sharp 15.8 per cent to US$669.5m during 1HFY20, with lower unit prices accounting for the entire drop in import values. Disaggregated data indicate that coal import volumes had fallen during July-October, before surging by 65.8 per cent in November 2019, pushing up import volumes for the six-month period YoY. A corresponding increase in coal-fired power generation was also noted in November, indicating that some of the drop in LNG generation was compensated for by generation from imported coal. At the same time, some downward pressure on coal imports was exerted by the commissioning of a 660MW indigenous coal power plant, along with lower demand by the steel industry (for which coal is a major raw material).