KARACHI – Cement sales remained weak in January and fell by 16 percent in annual terms. With regards to quantity, the sale of cement declined to 2.5 million tonnes. Rising product prices and meek domestic demand attributable primarily to poor public sector spending kept local off-take constricted (down 16 percent annually), whereas unattractive prices in the regional markets dragged exports down by 17 percent annually.
Though local sales improved by seven percent in monthly terms on account of seasonality, it remained below the historical average (three-year) of 18 percent witnessed in January. Improving weather conditions, particularly in the Northern parts of the country, have been the primary driver behind this growth.
Hence, total dispatches during 7MFY11 stood at 17.2 million tonnes, down 12 percent annually (local down 10 percent annually, exports down 17 percent annually). Local sales are forecast to be 23.2mn tonnes in FY11 with exports anticipated to fall by 8 percent to 8.9 million tonnes.
In annual terms, local demand was down 16 percent and 10 percent in January 2011 and 7MFY11, respectively. The lack of public sector projects due to government’s liquidity constraints, rising product prices on the back of high input costs and limited activity on the part of private sector on account of increasing interest cost were key negative factors in the case of local demand.
Cement exports during January 2011 declined by 17 percent annually and 20 percent monthly, to 566,000 tons, as international prices have fallen to unattractive levels for local cement manufacturers to actively pursue exports, particularly those located in the North of the country.
However, in the longer term, any recovery in regional prices due to an improvement in global demand amid massive infrastructure development required in Qatar and Russia for the Football World Cups they will be hosting will likely boost Pakistan cement exports.
Poor demand conditions continue to be a concern for the industry, but stakeholders are cheered by the recent recovery in local cement prices. Sensitivity of the industry’s bottom-line is more skewed towards local prices compared to offtake. Analysts estimate that every five percent change in demand and local prices has an earnings impact of 17 percent and 33 percent, respectively (based on DGKC and Lucky cement).
Recent data gathering suggests that prices in the North have touched Rs350 per bag, while in the South; prices are in the region of Rs325-330 per bag. Overall sales for the industry are expected to touch 32.1 million tonnes in FY11, down six percent from last year. According to figures released by Trade Development Authority of Pakistan (TDAP), exports in January have witnessed a strong annual growth of 38.2 percent to reach $2.3 billion.
Imports, on the other hand, rose by 3.7 percent annually, to $3.3 billion in the past month, leading the trade deficit to increase to $1.1 billion. Resultantly, cumulative exports for 7MFY11 improved by 23 percent annually to $13.3 billion, while imports augmented by 16.9 percent annually to $22.6 billion, taking the deficit to $9.3 billion.
