Mar 9 - 15, 2009

According to the cement dispatches data available to us (based on 27 days provisional), the overall cement dispatches are to witness a decline of 1% during the month of Feb 2009 at 2.36mn tons versus the same month last year. On cumulative basis, cement dispatches during the first eight months of FY09 (Jul-Feb 2009) are likely to depict 2% nominal increase at 19.02mn tons as compared to 18.69mn tons during the same period of last year. An analysis of numbers with others details a different insight of the industry. However, one point is clear that due to cut in PSDP and overall economic slowdown in the country local cement off take may remain low and keep producers under pressure.

During February this year, cement plants operated at 69% capacity utilization level as compared to 80% utilization in the same month of last year. While, the overall utilization levels during the period first eight months of current financial year was 2009 recorded at 69% as against 75% in the corresponding period of previous year. The drop in utilization level is due to the combined effect of both flat cement demand and addition of new capacities during the period.


Domestic cement demand during Feb 2009 has depicted a declining trend and on MoM basis, the local cement dispatches registered a decline of 4% at 1.46 million tons during February 2009 versus 1.52 million tons in the month of January 2009. On the other hand, this also represents a heavy decline of 21% on YoY basis. In aggregate, the domestic cement dispatches for eight months were recorded at 12.24 million tons, depicting a decline of 15% YoY. Furthermore, the break-up of the data reveals that Northern cement manufacturers led local dispatches with 1.19 million tons as compared to 268,000 tons for the southern zone during the period under review.


Cement exports in February were recorded at 899,000 tons, a decent growth of 39% on YoY basis. While, cumulative exports for the first eight months period also witnessed a significant upsurge of 59% to 6.79 million tons versus 4.26 million tons in the same period of last year. Moreover, on MoM basis also, cement exports grew by 12%. Segregating the data, the weight of sea-based cement exports during the month was recorded at 67% in overall cement exports as compared to 60% in the same month of last year. Moreover, cement exports to India remained at the lowest with weightage close to zero percent as against 18% in the same month of last year.


As per the recent news reports, Iran and India have decided to cut levies on cement export. In this regard, India has reduced its general excise duty from 10% to 8% while service tax has been cut from 12% to 10% on its local cement sales, thereby, reducing the attractiveness of imported Pakistani cement. Iran has also withdrawn duty on cement export to facilitate the Iranian cement manufacturers to enter in regional market. The both above-mentioned developments bode negative for Pakistan cement exports.

Pakistan cement sector has already started bearing the brunt of economic slowdown with the domestic cement demand of the country registering 15% decline during eight months. The local cement demand is expected to remain depressed, as the consumption will continue to face strong headwinds due to lukewarm construction activities due to economic slowdown, high interest rates, liquidity crunch, and cut in infrastructure spending in both public and private sectors.

The shrinking regional cement demand owing to global meltdown and the completion of pending regional expansions, under supply situation of the region has started tapering off. This is likely to cast negative impact on the cement exports from FY10 onwards. The production capacity of the country has crossed 41million tons mark and likely to increase to 48 million tons by FY10. With expected demand slowdown, both at domestic and exports levels, the industry is likely to face an over supply situation in the near term. However, domestic cement prices, in the wake of pricing consensus, are not expected to depict a significant decline owing to the supply demand imbalance.

On the recent development boding well for the sector is construction of dedicated cement export handling facility.

The cement export terminal constructed at Karachi port at the cost of $12 million has commenced operations. Addressing the inaugural ceremony, Federal Minister for shipping and ports, Babar Khan Ghori said that Pakistan could now export more cement due to the construction of this terminal, as this terminal has the capacity of handling up to 12,000 to tons cement per day. Babar Ghori directed Director General, Ports and Shipping to work out a plan for the reduction in port charges. The cement exporters have urged the KPT to cut down its charges. In India and other regional countries port charges per ton amount to one US dollar, while in Pakistan it comes to about five dollars, which can possibly keep cement exports under pressure.


In the decline cement off take scenario, manufacturers have two options 1) to contain supply by forming a cartel and 2) to enhance demand by reducing selling price. While exercising the first option can prompt proceedings by the Competitive Commission headed by Khalid Mira, reduction in price seems a better option because of massive reduction in coal price.

As Dubai construction boom seems to be tapering domestic construction offer more opportunities. There is an old saving that during economic slum construction activities must be enhanced. Acceleration of construction activities has positive impact on more than 40 other industries. As the banks are also witnessing decline in consumer finance, activating housing finance companies has the potential to boost private sector credit offtake.

There also an advice to the government that it should not cut down development expenditure but curtail all sorts of non-development expenditures, particularly the lavish spending by ministers etc. at provincial and federal levels.