Cement makers bank on exports

After facing doom and gloom in 1HFY11, cement manufacturers are eyeing the second half of the fiscal year to increase cement sales to improve the industrys profitability.
Total cement dispatches fell by 11 percent in 1HFY11 and around 16 percent alone in January, while a slight growth in cement sales in February has raised hopes amongst cement manufacturers for better cement demand outlook for 2HFY11.
Local dispatches in February remained close to last years level of around 1.77 million tons, while export dispatches surged to 0.7 million tons as against 0.66 million tons, the same month a year earlier. Behind this optimism is the growth in dispatches on the export front, as this is the first time the industry has shown a positive year-on-year growth since the start of the fiscal year.
However, the industrys total domestic sales fell to 13.7 million tons in the first eight months of the current fiscal year - a fall of 8 percent over the same period last year. At the same time, exports plummeted to a greater extent; fell by around 15 percent to around 6 million tons.
The main culprit behind the dull cement export is waning exports through sea routes. However, better demand from Afghanistan has been supporting total exports from a greater fall. This can be gauged from the fact that around 44 percent of cement was exported through sea routes in 8MFY11 as against 53 percent in FY10. Simultaneously, the share of cement exports to Afghanistan increased to 48 percent from 38 percent.
As the majority of Pakistans cement makers are located in the countrys north, from where it is not viable to export through the sea route due to high inland freight costs, limited export options have waged a price war amongst manufacturers to increase their presence in Afghanistan.
Historically, demand for building material usually remains high in the last quarter on account of favourable weather conditions for construction. At the same time, income from spring crop harvest would also support cement demand.
Given this scenario, there are likely chances that growth in cement demand in the second half might lift the industrys total FY11 sales close to last years level.
However, excess cement capacity along with high production cost would continue to dent the industrys profitability. Currently, cement companies share-price performance mirrors the dull profitability outlook as evident from the BR Cement index - an index that tracks share-price performance of all listed companies on the KSE - which fell by 13 percent in the last two months.