Encouraging developments for Pakistan's cement industry
Pakistan's cement industry saw several encouraging development last week, including the news about the implementation of Diamer Basha Dam project, reduction of interest rates by the central bank, sufficient allocation of a development fund in the upcoming budget with a sorry note of the fall in cement production during 20 March due to the direct impact of COVID-19. As a result, the stock market turned bullish on last Tuesday on the back of a sharp rally in the cement and steel stocks.
In anticipation of the higher dispatches going forward, investors started to accumulate cement shares, which sent their prices soaring right from the start of trade. Pioneer Cement, Maple Leaf Cement, DG Khan Cement, Lucky Cement and Fauji Cement climbed to touch their upper circuits or finish just short of that.
Diamer Basha Dam project
Prime Minister Imran Khan has announced the construction of the Diamer Basha Dam followed by signing an agreement worth PKR442bn (US$5.19m) with a joint venture, namely Power China-FWO for construction of diversion system, main dam, access bridge andthe 21MW Tangir Hydropower project as part of the Diamer Basha Dam project. The whole project is estimated to cost PKR1406.5bn and will be completed in 2028. The project has a gross storage capacity of 8.1m acre-feet (MAF) and power generation capacity of 4500MW, with an annual generation of 18.1bn units, says a WAPDA statement.
According to a report of Arif Habib Ltd, the project would potentially create cement demands of 50Mt over 10 years or 0.5Mta, which is around 15 per cent of the annual demand in the north of the country. Cement plants nearby include Bestway Cement, Dewan Cement, Cherat Cement Co, Kohat Cement, DG Khan Cement and Fauji Cement Co, but all players in the north are expected to be beneficiaries.
SBP slashes interest rate
Because of falling inflation, the State Bank of Pakistan (SBP) has slashed the policy interest rate by 100 basis points to eight per cent to provide easy liquidity to help businesses under stress due to the COVID-19 pandemic. This was the fourth reduction within two months and cumulatively interest rates were slashed by 5.3 per cent.
According to a report of Arif Habib Ltd, several cement companies would benefit from a cut in interest rates, which now stands at eight per cent.
Production falls on 20 March
Pakistan's Federal Bureau of Statistics (PBS) has released industrial production data for the ninth-month period of July 2019-March 2020 and March alone, with a grim note that overall output of large-scale manufacturing industries (LSMI) decreased by 5.4 per cent during the 9MFY19-20, when compared to the equivalent period of the previous year and 23 per cent during March, YoY. The large-scale manufacturing (LSM) output during March contracted by 23 per cent YoY, due to the closure of industries amid lockdown.
However, in the nine-month period, Pakistani cement production increased by 1.7 per cent YoY to 30.049Mt, compared to 29.535Mt a year earlier. The upward trend was reversed in March 2020, when production contracted by 16.6 per cent to 2.982Mt, versus 3.574Mt in March 2019.
