FY11 had been a testing year for the cement sector, with both external and domestic issues having brought down dispatches of the construction material. While the floods brought down dispatches in the earlier half of the fiscal year, the latter half witnessed a slump too, spurred by low domestic and export demand. The drop in sales in the first half was particularly marked, with local dispatches falling by over eight percent and exports by around 17 percent in 1HFY11 against 1HFY10, mainly on account of production and supply disruptions caused by the calamitous floods. However, how far the promised government outlays will be implemented remains a relevant question mark. The downward trend in cement dispatches continued in the latter half as cement demand remained depressed due to muted construction work, plausibly attributable to a slash in PSDP expenditures and overall slow pace of economic growth in the country. The drop in cement dispatches for the north was particularly marked, while southern dispatches moved in the upward direction. Industry players attribute the drop in the northern off take to rising costs of production for northern players, particularly fuel costs, which made manufacturers lower their dispatches. The rise in the southern off take was lead by a spur in construction activity in suburban areas in Karachi, according to key cement players. Export dispatches, on the other hand, didn offer any respite because of overcapacity and low prices in the Middle East on one hand, - which makes exports unfeasible for local manufacturers - and issues over the renewal of BIS (Bureau of Indian Standard) certificates of Pakistani exporters on the other. Afghanistan, however, was a robust international market for local players due to developmental work going on in the country that warrants extensive use of cement. Overall, both local and export dispatches for FY11 witnessed a considerable year-on-year decline. Signs of recovery, however, were evident in a month-on-month comparison of the dispatches recorded in June 2011. Local dispatches were up by 10 percent in June versus May, with northern sales recording a rise of eight percent on a month-on-month basis. With the renewal of BIS certificates of some local manufacturers, exports to India also witnessed a rise of 14 percent in June, with expectations of further improvement down the road. Going forward, with the announcement of a reduction in GST and FED for FY12, one anticipates local cement dispatches to increase due to a reduction in retention prices. However, industry players are concerned that rising gas and fuel prices may prevent manufacturers from passing on the price decrease to consumers. Regardless of that, reconstruction work in flood-affected areas, together with an improved PSDP allocation for FY12, - Rs730 billion against Rs646 billion budgeted for FY11 - and talks of the construction of Bhasha Dam, will keep hopes up for the current fiscal. Similarly, the international front also appears more promising than the previous year. While the local industry is expecting demand from Afghanistan to rise up to five million tons in FY12, demand from India is also expected to remain robust and cement prices in the Middle East are also likely to rise. So, the industry braces for FY12 with high hopes that the gloom of FY11 will not spread to this year.
====================================================== Cement dispatches ====================================================== (mn tons) FY11 YoY June FY11 MoM ====================================================== Local 22.0 -7% 2.0 8% North 17.9 -11% 1.6 10% South 4.1 20% 0.4 0% Exports 9.4 -12% 0.9 -3% Afghanistan 4.7 18% 0.5 0% India 0.6 -18% 0.1 14% Other, clinker (sea) 4.1 -31% 0.3 -9% TOTAL 31.4 -8% 2.9 5% ======================================================
Source: APCMA
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