For the cement industry, FY11 kicked off on a positive note with the fiscal budget boasting infrastructural developments projects.
Unfortunately, however, on the heels of the two-month flood saga that resulted in supply disruptions in certain parts of the country, the industry took a knock during the first quarter. Total dispatches fell by 18 percent year-on-year in the quarter ending September.
With the country trekking back to a normal routine, domestic offtake in October showed recovery, up 3 percent over October last year, while posting a 43 percent growth on a month-on-month basis.
The export market, which absorbs around one-third of domestic cement production, saw a declining demand - nudging down to around 0.94 million tons in October as against 1.11 million tons in the year-ago period. Exporters cite lower cement prices as the main culprit behind low cement exports.
At present, the cement export market is offering around $41-42 per ton for loose cement, and $51-52 per ton for bagged cement - an average decline of 10 percent over the same period last year. This makes it unfeasible for northern cement manufacturers to maintain their export share, as they have to incur about $10 per ton inland freight costs.
With cement exports to Middle Eastern countries winding down on account of falling demand amid growing capacity expansion in the region, growth in export largely hinges on identifying new markets, primarily in the African region. "Turkey and Iran are now brewing up as competitors in the cement export market," according to one cement exporter.
However, cement makers are upbeat about growing demand in Sri Lanka, Iraq, Sudan, Afghanistan, Djibouti and Myanmar. Therefore, the market expects total cement export to land between 8 to 9 million tons in FY11, compared to around 10.5 million tons exported in FY10.
Given this scenario, growth in the cement industry purely depends on the uptake at home. For that, the industry needs a lucky break in the form of timely commencement of floods restructuring projects.
Only a few cement makers in the industry are optimistic that major restructuring activities will kick off within this year that may help the industry realise a growth of around 10 percent in FY11, as many fear that the governments dilatory attitude towards restructuring might push projects onto the next year.
Since the latter scenario seems more probable, local cement demand is expected to remain flat at around 22 to 23 million tons.
Amid escalating commodity prices and freight costs, it seems that only those companies can post improvement in profitability that can adopt cost efficiency measures. Those who plan to move in that direction must move fast as lower cement offtake in the first quarter has already put a dent on the industrys bottom line.