CEMENT DEMAND -GROWING HIGHER

MARIAM NASIR
Manager Research

Aug 13 - 19, 2007

All Pakistan Cement Manufacturers Association released the data for the first month of current fiscal year as per which the cement dispatches recorded a humungous growth. This growth was well connected with the rising export in both the zones. Overall cement dispatches grew by 41% to 2,380ktons during the first month of the current fiscal year as against 1,690k tons in the same month of the last fiscal year. Local dispatches posted a y-o-y growth of 29% to 1,939ktons whereas exports registered an increase of 134% to 441ktons. The northern zone dispatches contributed 82% to the total which in the same period last year contributed 78% whereas the southern zone dispatches shrank to 18% as against 22% last year. Exports in both the zones contributed almost equally as they grew by 129% and 146% to 287k tons and 153ktons in northern and southern zone respectively.

(K.Tons)

1M/FY07

1M/FY08

?%

 

NORTH ZONE

Local

1,187.56

1,663.00

40%

Export

125.71

287.58

129%

Sub Total

1,313.26

1,950.57

49%

 

South Zone

Local

315.06

276.21

-12%

Export

62.46

153.46

146%

Sub Total

377.52

429.68

14%

 

NORTH + SOUTH

Local

1,502.62

1,939.21

29%

Export

188.16

441.04

134%

Grand Total

1,690.78

2,380.25

41%

CAPACITY UTILIZATION

In the current scenario, whilst the pricing cartel remains suspended, volume growth and increasing utilization level are of prime importance for producers for earnings growth. Capacity utilization even after huge expansions remained quite impressive and stood at around 95% while excluding exports it stood around 77%. Amongst the producers PCCL and FCCL operated at utilization levels in excess of 100% while DGKC and LUCK also had encouraging utilization levels of 75% plus.

MARKET SHARE

Top market share holders during the first month of the fiscal year were Lucky at 18.26% followed by DGKC, PCCL and MLCF at 12.7%, 9.36% and 8.84% respectively. These top four companies managed to grab 50% of the market while the rest was catered by the remaining 24 players. D.G.Khan and Maple Leaf cement started commercial production of their new line benefiting the company in terms of enhanced market share.

Lucky Cement

18.26%

D.G.Khan Cement

12.70%

Pakistan Cement

9.36%

Maple Leaf Cement

8.84%

Others

50.85%

POTENTIAL EXPORT TO INDIA

Cement sector has the supply glut of 5.8m tons on the current capacity of 36.5m tons. The upcoming capacity of another 5.8m in FY08 can further intensify the supply glut to 13.6m tons, if new potential sales venues like India do not materialize. Recently, BIS (Bureau of Indian Standards) gave approval to seven Pakistani cement companies (Lucky Cement, Maple Leaf, Pakistan Cement, Attock Cement, Bestway Cement, DG Khan Cement and Zeal Pak Cement) to sell their products in cement-hungry India for a period of five months. The cement demand in India grew by 9.9% in FY07 with similar growth projections for next 2 years to its higher economic growth pace. The current price of a 50kg cement bag in India is in the range of 200-225 per bag (Pak Rupee290-325) depending on location, giving an opportunity to Pakistani cement manufacturers to get the retention price of Pak Rupee 190-200 per bag.

But on the other hand Pakistan Standards and Quality Control Authority (PSQCA) issued notices to three cement companies as their quality didn't acquire the mandatory standard set by the Government. The companies were: Javedan Cement Limited, Zeal Pak Cement and Thatta Cement. The PSQCA has informed the consumers, sellers, retailers, dealers, and government organizations to refrain from involving any kind of business with these companies besides avoiding buying and selling of products being manufactured by them.

OUTLOOK

Domestic demand has remained buoyant throughout the calendar year on account of rising development spending and continuation of demand from housing sector. The former has been fueled by higher Govt. Spending ahead of general elections while the housing sector, on the other hand, may face seasonal slowdown during remaining part of the year due to monsoon during August and beginning of Ramadan from mid-September.