Local sales countering cement export decline
February 17, 2012
The cement sales in January 2012 stood at at 2.5 million tonnes against 2.4 million tonnes in the corresponding period last year, latest data released by All Pakistan Cement Manufacturers Association said.
APCMA data relvealed that local dispatches witnessed a marginal increase of 2 percent year-on-year (YoY) basis while severe winter has affected the local demand on a month-on-month (MoM) basis (down by 3.8 percent).
Interestingly, exports were up by 4.5 percent YoY, nevertheless limited demand in the export market was evident as exports plunged by 15.1 percent MoM. Cumulatively in seven months fiscal year 2011-12, total dispatches are up by 4 percent YoY on the back of steady domestic demand.
Domestic demand firm despite high prices
Although average retention prices in the local market have surged by 38-39 percent YoY in 7MFY12, local dispatches rose by 7.2 percent YoY. This growth is partially due to low base as floods had hindered demand. Additionally, reconstruction work after floods of last year and strong remittances have helped in keeping domestic demand reasonably buoyant.
In January 2012 domestic demand is up marginally by 2 percent YoY to 2.0 million tonnes. However, on a MoM basis, severe spell of winter in the country did weaken the local demand as domestic dispatches dropped by 3.8 percent MoM.
Exports scenario remains weak
Excess regional capacities along with high prices in domestic market have kept exports weak, down by 3.6 percent YoY in 7MFY12. Though demand in Afghanistan and India has remained healthy, exports via sea have been falling. In January 2012 exports are up by 4.5 percent YoY but seasonality was apparent on a MoM basis where dispatches have declined by 15.1 percent.
Overall trend in cement volumes is fairly humdrum. Nonetheless, the industry is enjoying the price ride; consequently margins have shown an improving trend, Furqan Ayub, analyst at JS Research said.
Though the recent raid by Competition Commission of Pakistan (CCP) did generate jitters initially, analyst reiterate that a major correction in prices is highly unlikely, still some minor adjustments cannot but ruled out.
Furthermore, reconstruction activities related to floods in Sindh and construction and extensions of dams (Bhasha and Tarbela) is likely to provide some impetus to cement dispatches going forward.
The fiscal year 2010-11 proved to be a nightmare for the cement sector as 80 percent of the cement manufacturers suffered huge losses on the back of stagnant local consumption, an official of APCMA said.
On top of this the government failed to honor its commitment for payment of inland freight subsidy that could have boosted exports, he added.
Cement consumption declined by 8.24 percent during the fiscal year 2010-11 as compared to the last year which has rung alarm bells for the industry and planners of the country alike.
He said that cement despatches for FY 2010-11 reveal that capacity utilization of the industry was at its lowest at 76.12 percent in past eight years with total dispatches declining by 6.68 percent to 21.97 million tonnes, down from 23.55 million tonnes in 2009-10.
He further said that continuous losses to cement industry are unbearable and might jeopardize the servicing of Rs 132 billion in loans the industry owes to the banking sector. Cement industry has been incurring massive losses due to high cost of production, declining exports and decrease in local demand of the commodity but the government ignored all the issues of cement makers and no support was extended to the ailing industry, he highlighted.
According to the data for FY2010-11, the cement industry remained particularly challenged and under pressure in the northern part of the country, while the few plants operating in the south were relatively better off.
The 19 cement units in the northern region have a cumulative production capacity of 36.17 million tonnes. These units despatched only 17.892 million tonne of cement in FY2010-11 which was less than 50 percent of their potential capacity. In 2009-10 these units despatched 11.22 percent more cement amounting to 20.154 million tonnes.
The total installed capacity of the 5 cement plants in the south is 6.381 million tonnes. These units despatched 4.083 million tonnes of cement in FY2010-11 which is 20 percent more than the cement despatches of 3.396 million tonnes, a year earlier in 2009-10.
He said that two years ago the government agreed to share transportation cost from mills to sea port. This boosted exports and provided some relief to the industry but it is regrettable that the promised support was never provided. Even in the current budget, there is no mention of an inland freight subsidy of Rs 270 million to the cement makers which has added to the problems of the industry, he said with dismay.
He recalled that the Economic Coordination Committee (ECC) and Trade Development Authority of Pakistan (TDAP) had approved inland freight subsidy on export of cement by sea.
Accordingly, the government issued a public notice dated March 26, 2010 allowing inland freight subsidy at the rate of 35 percent on cement exports till June 30, 2010. On this basis, export orders were taken up by the manufacturers but the government failed to honour its pledge.
However, he lauded government’s step to reduce the Federal Excise Duty (FED) on cement by Rs 200 per tonne and bringing down GST from 17 percent to 16 percent, which has reduced the worries of cement industry to some extent and consumers, would get much needed relief.
It was also heartening to note that the government had provided a road map to exempt cement from levy of excise duty over the next two years which was a much needed reform and hoped it would spur activity in the construction sector.
Lastly, he hoped that government would encourage the construction of concrete roads and use of cement blocks instead of bricks which is the modern and internationally recognized method of construction.