The strong cartel of the cement manufacturers,
despite enjoying robust growth in sales and exports reflected in the
quantum jump with increased capacity utilization to over 90 percent
has increased cement prices at least by 60 percent during last two
years. Recently, the cement prices have gone up by Rs50 per bag which
has given a severe blow to the housing and construction industry, a
leading builder observed.
The cement, which is a basic ingredient of the
labor-intensive housing and construction industry, was selling at
Rs235-245 per bag till December last year. The cement prices, contrary
to the hopes of bringing stability in the market, were suddenly
increased by Rs40-50 per bag at the retail stage all over the country.
Though some of the cement manufacturers have attributed the increase
to the disrupted supplies due to bad weather and increasing cost of
transportation, yet it seems to be lame excuse of the profiteers as
weather or transportation cost cannot be a justification for the
Chairman, Association of Builders and Developers (ABAD)
while rejecting the increase in cement prices has urged the government
to control the cement cartel which in a way flouting the well thought
out policy of using the housing and the construction industry as an
effective level to accelerate economic activity in Pakistan.
While looking back on the pattern of increase in
cement prices during last three years, one comes to know that cement
was selling at Rs160 per bag in December 2002 which gradually
increased to the level of Rs220 in 2003. A comparative study of the
cement prices indicates that prices increased by almost 60 percent
during last two years which is a clear negation of the government to
provide all possible assistance and support to the construction
industry with a view of its diversified impact over 84 allied
ABAD chairman feels that unless corrective measures
were taken by the government in the cement sector, which is operating
at its whim on the strength of the cartel, it would be counter
productive to the agenda of the government for revival of the economy
on sound footings.
Meanwhile, figures released by the All Pakistan
Cement Manufacturers Association (APCMA) indicates that cement demand
growth during January 2005 has slowed down to 7.6 percent as against
the 20 percent plus growth witnessed during most of the first six
months of 2004-05. According to industry sources, this slowdown is
seasonal and mainly attributable to the Eid holidays during the month,
which generally leads to a decline in construction activities.
Industrial cement sales during January stood at 1.23m tonnes with
local sales and exports amounting to 1.17m tonnes and approx. 53,000
Exports to Afghanistan have also decelerated
markedly on shipment delays and closure of routes on the back of the
winter season. Overall demand growth during July-Jan 2005 is up 21.5
percent to 9.04m tonnes as against 7.43m tonnes during the
corresponding period of last year.
DIVERSE DEMAND TREND IN THE NORTH AND SOUTH CEMENT
Cement demand in the North and South cement zones
depicts a diverse trend. During January, sales in the North zone were
up 13 percent to 0.974m tonnes. On the other hand, sales in the South
zone at 0.249m tonnes depicted an 8.5 percent dip. Taking a look at
the year-to-date figures (since July 2004), local cement dispatches
have soared 19 percent to 8.2m tonnes and exports are 53 percent
higher to 0.83m tonnes.
INDUSTRY CAPACITY UTILIZATION STOOD AT 86.5PC
Industry capacity utilization during FY05 has stood
at 86.5 percent, considerably higher compared to approximately 75
percent last year. Among the leaders, the utilization levels of D.G.
Khan Cement, Bestway Cement and Lucky Cement surpassed the cent
percent levels to respectively 103 percent, 109 percent and 103
percent. The capacity utilization of Fauji Cement and Attock Cement
was at 94 percent and 88 percent respectively. Maple Leaf Cement's
plant utilization remained at the lower side at 86 percent.
POSITIVE SECTOR OUTLOOK — FAVORABLE DEMAND
Our outlook on the cement industry is positive on
the back of favorable demand prospects and gradual capacity additions
by manufacturers. President Musharraf during the last few weeks has
repeated mentioned the need for construction of new dams and water
reservoirs and for building national consensus towards it. These
prospects bode extremely favourably for domestic demand. Going
forward, industry gross margins are also to improve on the dual impact
of declining international coal prices and slight increase in cement
At the same time, exports to Afghanistan will
continue to multiply with UAE also emerging as an important outlet for
the country's cement. Following the slowdown during January, we
anticipate demand to sharply rebound during the remaining months of
FY05 with full year industry sales growth expected around 24 percent.
The cement sector financial results for the half-year ended Dec 2004
are also to portray a sanguine picture. We shall be coming out with
our earnings expectations in the coming days. Lucky Cement, D.G. Khan
Cement and Pioneer Cement are our favorite scrips of the sector.