CEMENT SALES - JULY TO NOVEMBER FY08

MARIAM NASIR
Manager Research
Dec 10 - 16, 2007

All Pakistan Cement Manufacturers Association released the data for the month of November enabling us to compile the statistics for the July to November period of FY08. Cement sector which recorded growth of 32% in FY07, recorded the same growth in the same period of current five months as the dispatches stood around 12m tons as against 9m tons in the five month period of last fiscal year. After an 11% m-o-m decline in Oct-07, cement sales rebounded in November, with 15% increase in total dispatches. While comparing the month of November 2007 with 2006 it recorded an increase of 25% y-o-y. Disintegrating the data in north and south zone revealed that dispatches in the southern zone increased by 32% to 9.8m tons whereas the same in northern zone also increased by 32% to 2.14m tons. Local dispatches in the northern zone increased by 20% to 8.1m tons whereas export provided healthy impetus to the rising volumes and rose by 152% to 1.69m tons. Similarly local dispatches in the southern zone declined by 2% to 1.2m tons whereas exports from that region rose humungously by 173% to 0.87m tons.

(000' TONS)

FY06

FY07

CHG.

5M/FY07

5M/FY08

CHG.

NORTH ZONE

Local

13,354

17,517

31%

6,810

8,183

20%

Export

1,409

1,904

35%

671

1,691

152%

Total

14,763

19,422

32%

7,480

9,874

32%

SOUTH ZONE

Local

3,554

3,516

-1%

1,298

1,268

-2%

Export

96

1,283

1242%

321

875

173%

Total

3,649

4,799

32%

1,619

2,143

32%

(NORTH+SOUTH)

Local

16,907

21,033

24%

8,108

9,451

17%

Export

1,505

3,188

112%

991

2,566

159%

Grand Total

18,412

24,221

32%

9,099

12,017

32%

Source: APCMA

MARKET SHARE

Talking about market share not much of change was witnessed and the top positions remained well intact. Lucky Cement continued to be the leader with dispatches of 2.26m tons and a market share of 18.85%. D.G Khan Cement managed to roll out 1.64m tons of cement and grabbed a market share of 13.67%. Ever since D.G Khan Cement new plant has come online the market share of the company has rose significantly. Pakistan Cement continued to grab third position with market share of 8.88% at 1.06m tons while Maple Leaf Cement was fourth at 8.7% and dispatches of 1.04m tons. Bestway Cement grabbed fifth position with market share of 8.18% and dispatches of as much as 0.98m tons. These top five players managed to take hold of the market and grabbed market share of more than 58%. While the remaining 20 players only have a market share of 42% which proves the pricing power among the top five players of the industry.

PRICES

The local cement prices have started to recover from Nov 2007 on the back of developing consensus over Cartel arrangements between the local cement players. According to newspaper reports, cement prices have witnessed approximately Rs25-30/bag increments across the country. In FY06 the prices of the cement were high with greater margins which resulted in the sector profitability growth of more then 66%. However in the anticipation of getting more market share companies underwent expansion and incurred heavy financial charges along with low prices the sector profitability went down by 60% and the same remained further depressed in the first quarter of FY08 as the profitability went down by 87% with most of the companies even undergoing losses. Historically, cement cartel break-ups have been followed by severe price wars and cartel reformations have followed frequent meetings amongst manufacturers and successive price increases. Cement cartel, which emerged in 1998 owing to similar scenario of over-expansion, is by its nature an unsustainable arrangement. The prevalent situation of regular meetings and price hikes leads us to believe that efforts are being made to restore the quota arrangement amongst the manufacturers. And if that actually happens, the ex-factory prices would reach close to Rs.250/bag level.

RECENT NEWS

As per recent news report Srilanka has offered Pakistan to send their cement in their country as their country is facing some issues related to late arrival of cement from their existing exporting countries. The reasons given are that damage due to a loading port in Padang. Indonesia from the recent tsunami caused loading delays and manufacturers have been rationing the supply due to excessive demand, and also the Ramadan fasting period in Muslim majority Indonesia slowed down work at the loading ports further aggravating the present crisis. Local cement suppliers depend on Indonesian cement due to high price of Indian cement and quality inconsistency of available sources of cement from countries like Malaysia. The cement prices in Srilanka are steadily increasing every three months by about SRs20-40 resulting today in a bag of cement being sold at SRs695 and bulk cement price at SRs11,700 per MT.

OUTLOOK

After Middle East, Afghanistan, India and Russia, Srilanka has also offered Pakistan to export their surplus cement to its country. If the arrangement with Srilanka is made and the cartel formation results in some kind of price stability the result would be better profitability of the cement sector in the second quarter. However the same would not result when compared on a half yearly basis as the sector witnessed considerable drop in the first quarter.