State Bank reviews the cement industry’s performance for the period 9MFY20

The State Bank of Pakistan released its 3QFY20 report on ‘The State of Pakistan’s Economy’ on 30 July. According to the report, successful stabilisation measures that had fostered macroeconomic improvement in July 2019-February 2020 provided a valuable cushion against the downturn faced from late March 2020 onward in the wake of the COVID-19 outbreak.

The cement industry was also recovering during July 2019-February 2020. Cement dispatches rose by 10 per cent during this period compared to zero growth during FY19. Robust local sales in the north and export-led growth in the south put the cement industry on the path of recovery. However,  dispatches were down by 14.3 per cent during March 2020. On the whole, though, the sector grew during 9MFY20 and is expected to make some recovery following the recently-announced incentive package to the construction industry.

Some revival in construction activity was apparent as PSDP spending was higher during 3QFY20 as compared to last year. However, the financial position of most cement firms remained weak (evident from after-tax losses booked in the third quarter), as an overall economic slowdown did not allow them to pass on the impact of higher taxation and freight to end-consumers.

As a result, the sector borrowed an additional PKR13.7bn (US$82m) during the quarter, taking the cumulative borrowing to PKR20.6bn in the Jul-Mar period.

Cement exports dropped five per cent to US$210m in 9MFY20. Disaggregated data shows that volumetric exports of Portland cement and clinker both increased in the 7MFY20 period, whereas unit prices for both had dropped. Faced with slowing local dispatches and trade disruptions with India (a significant destination in the past), the cement manufacturers have revived traditional markets, such as Afghanistan and Sri Lanka, and diversified towards some African countries, such as Madagascar and Mozambique. These markets accounted for the bulk of increase recorded in quantum Portland cement exports.

Meanwhile, Bangladesh accounted for almost the entire rise in Pakistan's clinker exports, with indications that Pakistani firms are eating into Vietnam's share in the Bangladesh market owing to Vietnam's increased focus on the Chinese market.