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Cement exports, earnings keep declining

Despite rising local sales the profitability of the cement industry has declined. Cement industry recorded an earnings decline of three per cent year-on-year. The pre-tax profits was down 15 percent in July-September against double-digit growth of 17 percent and 32 percent observed in the comparable quarters of 2016-17 and 2015-16, respectively.

Sector sales grew 11 percent year-on-year in July-September, mainly supported by 21 percent growth in local dispatches due to robust demand from construction and infrastructure projects year. Cement dispatches in the first quarter of this fiscal year stood at 10.348 million tonnes. The industry operated at 88 percent installed capacity. Of the 10.348 million tonnes, the North Zone despatched 7.522 million tonnes locally, up 23 percent than corresponding quarter of last year. The region during this period exported 0.953m tonnes which was 7.41pc less than the same period last year when exports stood at 1.029m tonnes.

Mills located in South Zone despatched 1.539m tonnes in the first quarter, showing a jump of 17.76 percent than the corresponding period last fiscal. Its exports during the same period were 0.334 million tonnes, down 35.22 percent than last year when exports were at 0.516 million tonnes.

According to the data released by All Pakistan Cement Manufacturers’ Association (APCMA), the sector dispatched 3.199 million tonnes in September 2017, up 4.61 percent than a year earlier. Local consumption was 10.33 percent higher than the corresponding per­iod last year. Export went down by over 23 percent in September 2017 as compared to September 2016. Exports from the region declined by 16.27 percent from 0.368 million tonnes from a year earlier to 0.308 million tonnes in September 2017. Exports from the region dropped considerably to 0.093 million tonnes only in September 2017 from 0.155 million tonnes in the same month last year, down 40 percent. APCMA spokesperson expressed dismay over continued decline in exports particularly from Southern part of the country that is nearer to the seaport.

In September 2017, local despatches from North-based mills stood at 2.367 million tonnes, 12.05 percent higher than 2.113 million tonnes in September 2016.

Mills based in the Southern region posted a meager rise of 1.77 percent in local despatches from 0.423 million tonnes in September 2016 to 0.431 million tonnes in Sept 2017.

Vigorous construction activities within the country are supporting the cement sector but it still is sitting on some idle capacity that could be exported through government facilitations like sharing the transport cost.

Cement production capacities are likely to increase in near future and the industry would require an export base to operate at optimum capacity. The construction sector’s credit off-take was up 48 percent year-on-year by September.

Coal prices averaged $87 per tonne, up 34pc year-on-year, while gas prices increased around 25 percent in July-September. Owing to upcoming capacities and an inability of manufacturers to pass on rising input costs the profitability declined.

During July-September, net retention prices of producers were down by an average of 4 percent or Rs13 to Rs312 per bag. In July-September, net earnings of cement producers fell only 3 percent due to 10 percentage-points lower effective tax rate year-on-year, which contained the decline in profitability.

Upcoming capacities of Attock Cement, D.G. Khan Cement and Lucky Cement will translate into a cumulative addition of 5.3m tonnes per annum in the south zone in July-December.

The price pressure might appear soon in the south zone, which has remained unaffected so far.

The cement industry closed the fiscal year 2016-17. The domestic demand declined steeply in June by 19.62 percent that was almost double than the decline of 10.95 percent in exports. The decline in domestic demand was beyond the usual reduction in construction activities during Ramazan that fell in June.

The industry has been warning the planners to reduce excise duty and import duty on coal and check import of under invoiced cement from Iran.

The government imposed additional tax on cement in the 2017-18 budgets. This would further reduce domestic consumption and the revenue that the government expects from the new tax would in fact decline because of lower consumption. During the year 2016-2017, domestic cement despatches by north zone mills were 29.141 million tons and export despatches were 3.150 million tons depicting a growth of 7.72 percent and negative growth of 18.22 percent, respectively.

Domestic cement despatches by south zone mills were 6.511 million tons and export despatches were 1.514 million tons depicting a growth of 9.47 percent and negative growth of 25.10 percent, respectively.

The overall growth in cement despatches during the year 2016-17 was a mere of 3.71 percent. The capacity utilization for the year 2016-17 was 86.90 percent.

The statistics released by the All Pakistan Cement Manufacturers Association (APCMA) revealed that the industry despatched 2.727 million tons of cement in June 2017 against despatches of 3.351 million tons in June 2016.

For the first time in 11 months, cement despatches declined below 3 million tons. The steep decline in domestic demand gradually destroyed the excellent growth that the cement sector registered in past 11 months. It was on the strength of that demand in the domestic market that the industry was able to despatch record 40.315m tons of cement during the fiscal year 2016-17. The entire cement industry is depending on domestic uptake of cement as the exports have been on constant decline for the last two years.

The cement industrialist urged the government to withdraw the tax imposed on cement this year besides withdrawing duty on import of coal to ensure sustained growth of the sector. They said the new taxes imposed on construction related materials including cement would result in negative growth of construction sector.

The cement sector closed off fiscal year 2017 with the highest ever dispatches in the sector’s history with 4o million tons and running at 86 percent of the capacity. Falling exports, cast a gloomy picture on overall growth in cement industry. The turnaround may come from a 40 percent increase in exports to Afghanistan in July 2017 against this month last year.

Stronger sales this July compared to last to the lesser working days last year due to Eid holidays, but the Afghanistan exports do come off as a surprise. Iran continues to capture a large market share and has in fact been expanding its capacity to cater to the demand in Afghanistan, Central Asia and other regional countries. It is rather too early to be happy with the increase in exports to that market. Based on figures reported by All Pakistan Cement Manufacturers’ Association (APCMA) show that capacity utilization this July reached 87 percent compared to 61 percent last year.

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