It will be difficult to definitively tell how any industry would fare post-coronavirus because we do not know when the spread of the coroanarvirus will stop. One can only speculate and estimate. We do know that it will leave a lot of carnage in its wake. GDP projections around the world tell a sobering tale. But there is some good news for firms that are backward linkages in what is now officially the construction “industry” in Pakistan. Last week, the PM announced a package to revive construction in the country which is expected to create demand for building materials including cement.
We know that cement industry has had a rough year already and with coronavirus unexpectedly knocking on our collective doors, the prospects have shrunk further. In the first half of FY20, most companies were in net losses, some in gross losses. The economy was shrinking. There was some hope from new numbers that some construction projects were coming back. In 8MFY20, market demand for cement was up 10 percent in overall volumetric sales driven by recovery in domestic northern market and clinker exports demand overseas. But since then, activity reduced considerably as major urban centers went into lockdown (read: “Construction in uncertainty”, March 20, 2020).
Now with the PM’s announcement, several cement companies that had closed down operations are now re-opening plants emboldened by the potential of this new policy. The latest are DG Khan Cement and Mapleleaf Cement (PSX: DGKC and MLCF) and there is no doubt that other plants will also restart operations and prepare for a marked increase in demand. There are already some projects including 12,000 flats that have been launched by Federal Government Employees Housing Foundation (FGEHA) under the Naya Pakistan Housing Plan (NPHP).
Before coroanvirus hit the streets, about 20,000 new flats in total had gained approval from the government. With the construction package, relaxed restrictions and new tax regime, plus a tax-incentive to invest in NPHP—FY21 could prove to be a much better year than the current one, though still contingent on how soon the lockdown ends, how fast new projects can start and how incomes recuperate so more people can get into the buying market.
One thing is for sure, FY20 will not end on a strong note and this supposed recovery will take another 6 months or so to start translating into numbers. Currently the government is working on reducing the approval times of construction projects down from 6-18 months to 30 days. This would eliminate a lot of the time delays that cause projects to stall and it would certain grow demand for materials faster.