At the end of the last quarter, no one had expected that market dynamics would turn positive so quickly for the cement industry.
Signs of growing optimism in the industry can be gauged from the fact that producers in the north, accounting for 80 percent of the total capacity, have increased cement prices to about Rs275 per bag from almost Rs250 per bag last month.
Improvements in industry dynamics signal good times ahead for cement manufacturers, with many expecting retail prices to settle around Rs 290 per bag by the end of the current fiscal year.
Cement makers are pinning their hopes on economic growth as well as the governments plans of substantial spending on infrastructure in the coming fiscal year. The government has increased the PSDP allocation to Rs663 billion for FY11, from the revised estimate of Rs510 billion in 2009-10.
On the export front, the industry also seems safe on the back of robust demand from African countries and neighboring war-torn economies.
Moreover, export incentives to the industry in the form of 35 percent inland freight subsidy, which is expected to continue on to the next fiscal year, will further benefit the industry.
The freight subsidy will result in average transportation cost savings of $5 per ton and $1.25 per ton for northern and southern manufacturers respectively, and would make exports from Pakistan more competitive in the international market.
Though, East African cement producers have been asking their regulators to increase restrictions on imports of low cost cement from Pakistan, any such move is unlikely given strong demand projections in the region.
Industry sources reveal that local sales posted strong growth during the eleven months ending May -- reaching 21.5 million tons as against 18.5 million tons in the same period last year. Overseas sales also rose to 9.8 million tons during the 11-month period compared with 9.6 million tons in the same period last year.
This means that full year exports would likely touch 11 million tons, enabling total industry sales to reach its targeted quantity of 34 million tons by the end of the current fiscal year.
Yet, despite all these positives, its a bit strange how top cement firms have been underperforming the market since April. Perhaps, the smart money knows what others don .
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CEMENT SALES
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Tons (mn) 11MFY10 11MFY09 % Chg
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Export 21.4 18.5 16%
Local 9.8 9.6 2%
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Source: PAMA