CEMENT INDUSTRY

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
June 22 - 28, 2009

Pakistan's cement industry comprises of many companies with a huge production capacity. The overall industry has shown an increase in production from time to time. Pakistan's main cement export destinations include UAE, India, South Africa, and Afghanistan. The cement industry is allocated utilization quota and pricing arrangements to operate in particular market. The high capital cost, large economies of scale, and other operating efficiencies required in the cement sector do not allow more companies to come into play so easily.

EXPORT OF CLINKER AND CEMENT (QTY/TONS)
.

CEMENT

CLINKER

. .

YEARS

AFGHANISTAN Via Land

INDIA Via Sea & Land

OTHER COUNTRIES Via Sea

OTHER COUNTRIES Via Sea

Total

%age Incr/(Decr)

2001-2002 106620 - - - 106620 100.00%
2002-2003 430,332 - - 41,500 471,882 342.53%
2003-2004 1,118,293 - - - 1,118,293 137.02%
2004-2005 1,407,900 - 157,270 - 1,565,170 39.96%
2005-2006 1,413,994 - 91,165 - 1,505,159 -3.83%
2006-2007 1,725,526 - 1,071,928 390,973 3,188,427 111.83%
2007-2008 2,777,826 786,672 3,045,995 1,106,127 7,716,620 142.02%
2008-2009 (11 months) 2,836,653 599,615 5,843,323 884,228 10,163,818 49.45%
Source: apcma

FISCAL PERFORMANCE 2008-09

Pakistan's cement exports witnessed a healthy growth of 65%, to over six million tons during seven months of the current fiscal year mainly due to rise in international demand. According to All Pakistan Cement Manufacturers Association, the cement exports mounted to over six million tons in seven months as compared to 3.62 million tons earlier, depicting an increase of 2.38 million tons. Cement exports during January 2009 went up by 30% to 0.81 mn tons as compared to 0.623 mn tons in January 2008. However, slow construction activities in the country during the period badly upset domestic sale of cement, which depicted decline of 15%, to 10.77 mn tons as compared to 12.59 mn tons in last fiscal year. On MoM basis, local dispatches of cement during January 2009 showed a decline of 8%, to 1.51 mn tons from 1.65 mn tons in January 2008. Overall dispatches, including export and local sales, reached 16.77 mn tons during July to January of 2008-09 as against 16.20 mn tons of last fiscal year, depicting an increase of 3%.

RELIEF IN BUDGET 2009-10

In budget 2009-10, the government reduced the excise duty on cement to Rs 700 per ton from Rs 900 that would bring down 50-kg bag price by Rs 8 to 10. The budgetary measures of reducing excise duty on cement would result in easing of cement prices. Cheaper cement may reduce the construction cost, but the increase in capital value tax (CVT) on property transactions to 4% from 2% may negate the advantage. The allocation of Rs 646 bn for Public Sector Development Programme (PSDP) that also included Rs 4 bn for Bhasha Dam and plan to build houses for internally displaced persons (IDPs) would augur well for the cement industry. However, the local cement sales by end of this fiscal year may dip to 18-19 mn tons from 22 mn tons in last fiscal owing to slow economic growth. The cement price should come down by Rs 8-10 per 50 kg bag. The local demand of cement would depend on law and order situation and government spending on development expenditure.

LOCAL DISPATCHES FY2009

MONTH NORTH SOUTH TOTAL GROWTH
January 1,288,637 307,902 1,596,539 -3.28%
February 1,278,101 302,564 1,580,665 -14.40%
March 1,466,993 343,253 1,810,245 -21.14%
April 1,360,190 304,909 1,665,098 -16.30%
May 1,344,361 303,727 1,648,088 -14.11%
Source: apcma

CHALLENGES FOR THE INDUSTRY

The cost and exports may be affected due to high electricity charges, freight costs, and coal prices that all make 65 to 70% of total production cost of cement. The PSDP allocation for 2009 has been cut by Rs 75 bn and further cuts would curtail cement demand. Production capacities of countries like India and Iran are expected to inch up by FY10 and onwards, which are likely to convert these countries from major importers to potential exporters. The growth in cement exports is expected to be short-lived due to higher interest rates and inflationary concerns are likely to make it disadvantageous for investors to enter in the construction industry. In addition to this, to control real estate prices the government is considering further taxes.

INDUSTRIAL OUTLOOK

Pakistan cement exports are all set to touch one billion dollar mark by 2010 after establishing its position as an exporter of cement and clinker in the region as cement manufacturers strengthened their positions among foreign competitors. The rising international and local cement prices provided good opportunity to local cement industry to increase its sales and profitability. The industrial analysis suggests that the cement industry exports would reach $1.043 bn by the end of 2009-10. The industry is achieving milestones by recording highest ever volumes in exports, capturing the enormous potential Pakistan cement industry possesses. The demand and supply will be balanced and will remain favorable. The overall outlook of the cement sector appears positive under the current scenario.