A ripe year for cement sales

A little over a year in office and the governments well-known appetite for infrastructure development is reaping for the cement sector, evident from the recently released numbers from APCMA. At 26.14 million tonnes, local cement despatches for FY14 have been the highest ever recorded in the sector.
The year closed on a rather positive note for cement players despite declining exports, which have come down by 2.9 percent compared to last year. At 2.53 million tons, local sales peaked during the last month of FY14. On the other hand, exports continue to slide due to suppressed demand from Afghanistan.
The year also marks the highest recorded number in total cement despatches in the country, which grew by 2.52 percent on a year-on-year basis. The last highest recorded cement despatches stood at 34.24 million tons during 2009-10.
In particular, local sales have experienced a significant uptick from the Rawalpindi-Islamabad Metro Bus Project lately, while the increasing trend is projected to continue over the current year on account of key mega projects including Khanki Barrage, Bhasha Dam and the recently approved Karachi-Lahore Motorway and Dasu Dam. Recall that the government has also allocated a sizable portion of the PSDP toward infrastructure development.
On the other hand, the cement industry has reportedly been concerned by the imposition of 1 percent duty on imported coal since most players have converted to coal due to shortage of gas in the country. Further, three of the largest players, Lucky Cement, Maple Leaf and DGKC would also be marginally affected by the recently imposed increase in GIDC on captive power plants, leading to higher prices. Across the industry, the increase in FED at five percent on retail price (from Rs400/ton earlier) will also create pressure on prices.
Such pressures have historically been passed on to consumers in the sector. However, industry analysts believe that the impact of prices will not only remain insignificant but is also unlikely to affect cement sales, which are already expected to be higher as FY15 proceeds. Given the healthy outlook for the sector, dominated by government sponsored projects, one wonders whether there are adequate reasons for the industrys concerns.