Manager Research
Oct 08 - 21, 2007

Total cement dispatches during the first quarter of current fiscal year have shown a tremendous growth of 34% to 7,284k tons as against 5,418k tons in first quarter of last fiscal year. During Jul-Sep FY08, local cement dispatches have shown a remarkable growth of 21% resulting in an increase to 5,744k tons as compared to 4,752k tons during Jul-Sep FY07. While exports during the period under review also registered a growth of 133% compared to corresponding period of last year. The steady volumetric base performance of the industry is the result of lower cement prices coupled with improved housing and construction activities during the period. Total cement dispatches depicted a 22% increase during September 2007 as against 1.93m tons during the month last year. Local dispatches stood at 1.8m tons while exports were at 523k tons, representing 8% and 120% respective growths on y-o-y basis. However, on m-o-m basis, dispatches declined by 7% to 2.35m as against 2.5m tons during August 2007. This is primarily due to lower local dispatches due to the month of Ramadan.

Breaking the numbers zone wise it is revealed that, cement dispatches in the north zone were up by 37% to 5.95m tons. Local dispatches in the zone were up by 26% whereas exports were up by 132%. In the south zone dispatches grew 24% to 1.33m tons. Local dispatches in the south zone were down by 5% however the zone focused on the exports as the numbers grew by 133%. Since 1992, the capacity in South has grown by 108% to 8.5m tons whereas in North, the capacity has grown by 581% to 27.7m tons. This has created supply glut in North and to aggravate the situation, 80% of 12.5m tons capacity expansion in pipeline is planned in North. Owing to excess supply in North, manufacturers are forced to target Southern market which has more balanced supply demand scenario. As per industry sources, atleast 5% of North s total produce in being parked in South.


Cement exports to India has not been able to reach sizeable scale as only 11.3k tons were exported during September 2007. However, opening of land route for cross-border trucking from 1st October onwards shall remove a major bottleneck. However, there are several regulatory hurdles such as, a) issuance of permits and uniforms to truck drivers, and b) legal documentation between Pakistani exporters and Indian importers are causing export delays. Though the issues may soon be resolved, we do not expect exports from Wagah to exceed 1m tons, which means that North manufacturers will continue to target South market in future. Apart from that, Russian cement industry has also requested Pakistani government for cement imports as it requires 85-90m tons of cement a year, for housing and industrial construction, development of the infrastructure, and the manufacture of other building materials.


Lucky Cement has started to lose its market share to D.G. Khan Cement on the back of its plant expansion. The market share of D.G. Khan Cement witnessed 3pps increment during the last three month. Lucky Cement was at 18.4% followed by D.G. Khan Cement at 13.7% on the back of its new plant in Chakwal. Maple leaf cement and Pioneer Cement market share improved during the period while that of Fauji Cement declined.


Domestic cement dispatches have shown robust growth of 21% during 1QFY08, and so did the prices. The prices per bag in the local market have averaged around Rs.240/bag in the 1Q/FY08 as against Rs.210 per bag in the last quarter of last fiscal year. In the export markets, regional supply shortage has ballooned prices. That's the major reason why the local manufacturers are seeking approval from different countries.


Cement sector is expected to perform well on the back of higher Public Sector Development Program allocations and new avenues for exports. Though the industry has already brought most of its planned expansions online, however, there are still a few capacities scheduled to be included going forward. On exports front, as per recent news reports, Russia is also eyeing to import cements from Pakistan. If Russia opens up the doors, Pakistan would be parking its excess cement in Afghanistan, Iraq, India, Middle East and African countries.