Cement: is the worse over yet?

Cement dispatches for April 2011 disclosed by the All Pakistan Cement Manufacturers Association present little cause for celebration; except for the better-than-expected tally of export dispatches.
For 10MFY11, overall cement dispatches declined by nearly 9 percent year-on-year, owing mainly to a downfall in both local and export dispatches during the initial months of FY11.
While the floods were responsible for the initial decline in local dispatches; export dispatches had been modest because of competitive price pressures in international markets.
The initial hit at cement dispatches is reflected in the year-on-year decline for 10MFY11, even though the total dispatches for April 2011 increased marginally by 2 percent relative to April 2010.
Yet, despite the overall decrease in local and export dispatches, 10MFY11 dispatches to the South and to Afghanistan depicted a year-on-year increase.
The increase in dispatches registered by the southern region is attributable to the relative cost advantage enjoyed by southern players in terms of lower transport costs, which allow them to sell more of their product at a time when cement prices in local markets are high.
Growth in dispatches to Afghanistan can be attributed to the ongoing developmental work in the country.
On a month-on-month comparison, while local dispatches declined for both the regions in April 2011 versus March 2011, export dispatches depicted an increase of 14 percent.
The decline in local dispatches is seasonal. Industry sources assert that during this time, labourers drift from construction work to wheat harvest in agricultural lands.
The allotting of Bureau of Indian Standard certificates to a few local cement manufacturers, on the other hand, helped dispatches to India, although industry players believe that the quantum of exports to India is trivial for the domestic industry. Nevertheless, the uptick in exports to India is encouraging for the industry.
Going forward, local cement dispatches are expected to pick up after the April-effect in the near-term and due to post-flood reconstruction activity, with expectations of better dispatches during FY12.
On the export front, while the allotment of BIS certificates bodes well for exports to India, high freight costs for local players, especially those located in the North and competitive price pressures in international markets remain significant challenges.

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(mn tons)            10MFY11      YoY   April FY11     MoM

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Local                   18.1      -7%         2.0      -8%

North                   14.8     -11%         1.6      -7%

South                    3.3      19%         0.4     -11%

Exports                  7.7     -13%         0.9      14%

Afghanistan              3.8      17%         0.5      10%

India                    0.5     -17%         0.1      36%

Other, clinker (sea)     3.4     -32%         0.3      15%

Total                   25.7      -9%         3.0      -2%

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