Pakistani cement manufacturers had been far from pleased with their sale performance till February. Supply disruptions due to the 2010 floods, lower demand due to the cut in PSDP expenditures and declining exports had taken a toll on net dispatches for the first eight months of FY11.
The market, however, expected the situation to improve in March FY11, and rightfully so. The All Pakistan Cement Manufacturers Association (APCMA) revealed an overall improvement of 22 percent in March FY11 relative to the previous month.
The seasonal nature of cement demand, which bounces up in the latter months of the fiscal year on account of construction-friendly weather conditions, can account for the upbeat market expectations vis-à-vis dispatches in March.
Over the previous 5 years, average local sales in March have increased by 21 percent month-month-month, according to JS Research, indicating the seasonal nature of cement demand.
Despite the month-on-month rise in March, however, dispatches depicted a year-on-year decline for both 9MFY11 and March FY11. With the exception of the southern region in local sales, and Afghanistan in overseas sales, the year-on-year growth was negative for the remaining categories (see table).
The 9-month decline in FY11 versus FY10 can be attributed to the impact of the floods and reduction in public sector development over the previous months, as highlighted at the beginning of this note.
On the export front, cement sales via the sea - a costly route for manufacturers up north - have registered a decline. This can be attributed to rising competition in international markets, which has brought down cement prices, and therefore, squeezed exports, particularly for north-based manufacturers.
Yet, exports to Afghanistan portrayed a year-on-year increase on the back of development work carried out in the war-torn country.
At the same time, the heartening year-on-year increase in local southern sales in March can be traced to the commencement of reconstruction activities in the flood-ravaged areas.
While robust demand from Afghanistan, and an expected increase in local demand in the final quarter of the fiscal year due to the seasonal impact and reconstruction activities come up as a breather, concerns remain from other quarters, particularly in the international arena.
Industry players have complained of the withdrawal of freight subsidy which helped off-set rising transport costs, while the governments failure to convince India - an otherwise lucrative market - to allow cement exports via the Wahgah border have knit the brows of several cement exporters.
At the same time, the pressure of rising electricity, coal, and oil prices have caused an upward pressure on cement prices, which were already adapting to the increase in Special Excise Duty to 2.5 percent from the previous 1 percent.
Therefore, while the demand outlook for the coming quarter appears good, export sales to India and via sea may remain challenging.
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CEMENT DISPATCHES
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tons (mn) 9MFY11 YoY March MoM YoY
FY11
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Local 16.0 -8% 2.2 25% -4%
North 13.1 -12% 1.8 28% -11%
South 2.9 17% 0.4 14% 42%
Exports 6.7 -14% 0.8 16% -12%
Afghanistan 3.3 16% 0.5 23% 12%
India 0.4 -22% 0.1 29% -13%
Other, clinker (sea) 3.1 -33% 0.3 3% -34%
TOTAL 22.7 -10% 3.0 22% -6%
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Source: APCMA