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Coronavirus
VERY HIGH Source: covid.gov.pk
Pakistan Deaths
27,072
6824hr
Pakistan Cases
1,218,749
2,92824hr
5.08% positivity
Sindh
448,658
Punjab
419,423
Balochistan
32,707
Islamabad
103,720
KPK
170,391

The cement industry had a troubling FY19 but the blows are still coming. Cement companies saw that profitability came down considerably (Kohat by 17%, Mapleleaf- 60%, DGKC- 82%, Bestway- 23%, Cherat- 17%, Attock- 53% and Lucky- 14% and so on.) across the board as local dispatches dropped 2 percent, saved by an exports growth of 38 percent. Though export growth mainly came in less pricey clinker sent to markets overseas which compared to cement fetch lower margins (there is a per ton differential of $20-$25 between cement and clinker). Demand dynamics though have not changed yet.

Over the past six months, cement dispatches have fallen month after month. In April-19, they peaked at 4.6 million tons but by Aug-19 had come down by 28 percent. Contribution of exports into total sales however has grown. In FY19, exports were 14 percent of all dispatches, up from 10 percent during FY18. It looks like the growing trend of exports will continue through FY20 as Jul-19 saw exports as a share of total dispatches climb to 15 percent (Jun-19: 10%), and further climb up to 20 percent in Aug-19.

Since the All Pakistan Cement Manufacturers Association (APCMA) is no longer releasing market-wise data for public consumption, one can only make an informed guess where these exports are headed—and it is certainly not cross-border into India or Afghanistan, though the latter market is still accessible to Pakistani cement manufacturers. In fact, 72 percent of the exports are originating in the south zone which indicates that they are being sold off into markets abroad, which also implies that it is the lower value-add clinker that predominantly south players are sending off overseas.

Demand compression will certainly affect capacity utilization which will leave plants idle. Domestic dispatches have fallen by 34 percent since Apr-19, with the decline particularly pronounced in the north zone. Cement’s demand drivers are pretty common knowledge and evidently receding. Developments spending by the government and public infrastructure projects particularly drive domestic demand, followed by demand coming from private sector spending in commercial projects as well as housing. Investment in the latter has visibly slowed down as the economy finds back its footing.

Perhaps the only silver lining is the increased activity in Punjab and up where the Naya Pakistan Housing Program could actually witness the launch of some of the housing projects. If construction of these projects begins over the next six months, cement manufacturers could find this to be an additional source of demand which would come as reprieve at this point.

On the cost side, companies should employ good inventory management mechanisms to utilize the low-cost coal scenario in the global markets.

 

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