Catastrophic floods in Pakistan have caused irreparable losses and the estimate has not yet been calculated but its impact on cement sector would be negative as reconstruction would be prolonged.
Moreover, agricultural losses are far more than the infrastructure losses, according industry experts. Cement sales could be affected in 1HFY11 and prices may go down mainly due to lower cement demand during the abnormal rainy season. Recent floods have severely affected the road and distribution network.
This will negatively impact local cement sales, according to analysts Topline Securities Limited. In August cement dispatches have already declined by 20 to 30 per cent and this trend is expected to continue in coming months. The total cement dispatches in July 2010 dropped by 13 per cent with major contribution by exports which fell by 31 per cent while local sales posted no increase.
Exports of cement having 32 per cent share in total dispatches are also affected by the damaged road network. As a result of weak sales, it is expected that cement prices will decline by around INR10-20 (US$0.10-$0.20) per bag during next 1-2 months. However, once reconstruction begins by the end of this calendar year, prices will be restored.
Total cement sales in FY11 (local and exports) is likely to remain flat at 34Mt in spite of reconstruction after the floods, according to our estimates. It is feared that despite reconstruction activities, development spending will be cut drastically as it has been reported that government may reduce development expenditure by 50 per cent that could affect local cement demand.
With UN, World Bank and other donor agencies pledging for reconstruction activities, this will bring some relief to the sector in 2HFY11.
According to the World Bank initial estimates, agriculture, housing and infrastructure has witnessed the biggest blow, and until now more than US$1 billion (inclusive of the US$900m World Bank loan) have been pledged by different agencies. These reconstruction activities will help in some recovery in local demand.