A review of the Pakistan cement industry’s performance in FY11 (July 2010 – June 2011) by the State Bank of Pakistan (SBP) shows that foreign direct investment increased markedly compared to the previous year, but exports have decline for the second year in a row. Meanwhile, production costs have risen while capacity utilisation rates have dropped.
Pakistan’s cement industry received US$65.2m worth of Foreign Direct Investment (FDI) in financial year 2010-11 (July-June) compared to nil in FY2009-10, according to the SBP report. It said Pakistan had received investments of US$33.7m, US$102.5m and US$32.6m in FY07, FY08 and FY09, respectively. However, the report on negative note added that Pakistan’s cement exports declined for the second consecutive year. This decline was on account of: low demand from the UAE, qualitative barriers from India on cement imports, imposition of higher import duty in Afghanistan and increased production capacities in Middle East and India.
During FY11, Pakistan exported 9.154Mt of cement and earned US$453.845m compared to 10.85Mt at US$484.004m in the corresponding period. This shows cement export fell by 15.65 per cent and 6.23 per cent in terms of quantity and value compared to FY10. However, the average export price of cement rose to US$49.57/t compared to US$44.59/t, up 11.17 YoY.
Domestic utilisation rates were 76.2 per cent in FY11 compared to 81.5 per cent in FY08, representing a decline of 6.5 per cent in the last four years. The report highlighted that the commissioning of new volumes had contributed to declines in capacity utilisation.
According to SBP’s report 2010-11, production costs increased as coal prices also rose. However, the cement industry has been able to bear the price rises much better as it has invested in improving energy efficiency measures such as the installation of waste heat recovery plants and increased use of alternate fuel in kilns (eg rice husks, refused dried fuel, used tyres, etc.). However, regulatory glitches are preventing a more aggressive replacement of imported coal. The Thar coal development project in Sindh Province is taking off very slowly and high custom duties on imported tyres are preventing more widespread use in cement kilns, the report noted.
The bank has remarked that the Pakistan cement industry faces a number of challenges but does not fear the threat of any imports into the country as they are not feasible given the low price to volume ratio of cement. Transport costs would add up significantly, bringing the price of imported cement above the local price, even when local prices are very high.