Cement sales for the first quarter ending September was unexciting, but it hasn left cement manufacturers dumbfounded. On the heels of a two-month long flood soap opera, which engendered supply disruptions and brought construction across monsoon-hit regions to a standstill, the market had already envisaged a weak cement off-take.
The first three months of most fiscal years have traditionally been slow for the construction material industry. On top of that, dull construction activity during Ramadan tends to further squeeze demand.
Consequently, cement sales during the first quarter of the current year plummeted by a greater extent against last year, while in September alone domestic dispatches fell to around 2 million tons, being nailed to the lowest level since December 2008.
With construction activity relatively lethargic during winters and Eid holidays, local cement demand may remain weak till the end of the second quarter. For the latter half of the fiscal year, however, the industry is banking on huge growth in cement demand stemming from private housing and reconstruction projects.
"Sales will gingerly improve as the country moves towards the third quarter, but major growth will be realized after the spring harvest," said one cement maker.
The business environment in the international cement market is not shy of problems either. Growing capacity for cement production in Middle Eastern countries can obviate cement imports from Pakistan.
Egypt is all set to throw its surplus cement in the Middle Eastern and African countries, as chances are slim for the renewal of a cement-export embargo which expired last month.
Moreover, Dubais government has shelved nearly half of the real estate projects of late, while cement manufactures in East African markets - which served as most preferred export destination for local producers - have been pressuring their governments to increase duty on cement imports.
Though all these factors bode tough competition ahead for local cement industry, cement makers are upbeat about the growing demand in Sri Lanka, Iraq, Sudan, Afghanistan, Djibouti and Burma. With cement prices depressed in the international market, only southern players will be able to stand the competition, compelling northern manufacturers to slowly phase out from exports.
In a nutshell, FY11 will be hard for cement manufacturers that own inefficient plans and are highly leveraged. But for manufacturers that have adopted cost reduction and fuel saving projects and have clean balance sheets, it is time to prove their mettle.
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Cement 1QFY11 1QFY10 % Chg
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Local 4,617,617 5,495,884 -16%
Export 2,290,888 2,897,940 -20.9%
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Source: APCMA
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