Cement industry on track

For builders fretting over construction costs, increasing cement prices may be bad news, but for local cement producers, its surely a much needed breather after a struggling season last year.
After remaining stuck in a range of Rs245-270 per bag in the past one year, cement prices have started flaring up of late.
The increase in cement prices, which currently stand at Rs310-325 per bag from around Rs275 per bag three months ago, is being attributed to rising cost of production and higher transportation cost. The most important factor behind the price hike, however, is improving demand.
In essence, cement players are taking heart from upbeat PSDP allocations - Rs663 billion for FY11, an increase of 30 percent over last years spending - governments growing interest in dam construction projects and slight but gradual improvements in consumer confidence.
Moreover, for those located in the countrys south, the icing on the cake is inexpensive access to overseas markets through the sea route. Many southern players have already expanded and many others are currently planning to further expand to increase exports.
Optimism about growing demand can be gauged from the fact that one of the smallest cement makers, Thatta Cement Limited, is now eyeing to double its production capacity to 3,000 tons a day within two years.
According to Fazlullah Shariff, Thattas CEO, the company, which currently produces 0.5 million tons per year, was able to diversify around 30-35 percent of their production abroad in FY10. Thatta was also able to increase its domestic sales by 18 percent last year.
To remain competitive, the company also aims to build a power plant within 15 months and invest in fuel efficiency and conservation projects.
Thatta Cement is already more competitive than its northern peers, being located in the southern region, the firms freight costs to transport goods to ports is just around $4 per ton, equivalent to Rs350-400 per ton, compared with producers in the north which roughly incur $14 per ton for the same.
Being situated near the port has enabled southern players to capitalize on the export market.
Since the last two years, when demand for imported cement started drying up in Middle Eastern region, local manufactures started making inroads in the African market, where they have been earning huge profits.
The African continent alone absorbed around 30 percent of exports during the first nine months of last fiscal year, according to the last available data provided by TDAP, and it appears that there is more room to grow.
"All the cement companies in East Africa have a capacity of about 5.2 million tons annually while forecasts indicate the whole region would require 11 million tons to meet demand that is growing at an annual rate of six per cent", according to a research note published by Sterling Investment Bank based in Nairobi, Kenya, last year.
On the other hand, the other promising export destination these days is Sri Lanka, where demand is expected to grow between 6 to 7 percent in 2010 on the back of post-war construction in tourism and housing projects, Manilal Fernando, Chairman of the Sri Lanka unit of Holcim, a Swiss-based firm told Sri Lankan media last month.
Despite all the positives, cement scrips at the local bourse have massively underperformed the benchmark index, implying that behind the story of expansions and rising cement prices, there are other factors keeping investors jittery.