LSM sector struggles

The production of large scale manufacturers is getting smaller by the day. In recent news, the LSM index measured by the Federal Bureau of Statistics decreased 2.07 percent year-on-year in the four months ending October.
This was despite the first positive month-on-month change since May 2010, as LSM sector saw a monthly growth of 7.77 percent in October, its biggest since May 2008.
Knowing that growth in LSM sector tends to follow month-month changes in private sector credit off-take, one can expect the LSM index to have recovered further in November, when boosted by a 26-month high in textile sector borrowing, private sector credit jumped to Rs67 billion, its highest single-month off-take since December 2009.
This view, however, can be quashed considering the fall in the production of cotton and cotton cloth. According to FBS data, the production of cotton yarn and cloth decreased by 12.37 percent and 2.24 percent, year-on-year, in the Jul-Oct period.
One could otherwise expect the typical seasonal recovery in LSM numbers, but chances of that happening also appear dim, given the production deterrents in the form of gas and power load shedding.
Gas load shedding has been more severe in this years winter season for a variety of reasons including reduced gas production, higher T&D losses and inefficient use especially by the domestic and transport sector that has resulted in massive load shedding for the industrial and power sector.
Electricity load shedding is more or less the same, as reduced generation resulting from lower availability of gas has somewhat been offset by a slight increase in generation capacity after new plants started operations. However, power tariffs have increased as the energy mix has titled further in the favour of furnace oil-based generation, which naturally means more expensive power.
The impact of the worst ever gas load shedding is yet to be shown in the LSM numbers. But going by the news reports of prolonged power closures to the industrial sector, the picture was possibly not too rosy for the remaining months of calendar year 2010.