Cement exports from Pakistan continued to show increasing trend, rising by a considerable 72 per cent YoY in 5 months FY09 amounting to 4.5Mt.
This increase has changed the sales composition, as exports now comprise 36 per cent of the total dispatches. Exports performance can be attributed to depreciating rupee, and global demand-supply gap. However, exports declined by four per cent MoM in November 2008.
Exports are expected to register decelerating growth, as the global economic slowdown deepens. On the supply front, the demand-supply gap in the international market is expected to narrow down further as other countries gear up with more capacity, thus reducing export demand, analyst said. "Declining freight charges are also eroding the edge Pakistan possessed due to geographical proximity," analysts believe. Moreover, the downward slide in local demand is also expected to prevail as a result of tightening fiscal policies, particularly after entry into the IMF SBA.
Local demand continued its downward slide, declining by 16 per cent YoY in 5 months FY09. However, it is noteworthy that the local dispatches registered a 7 percent increase. "Pressure is being exerted on local demand, primarily due to macro-economic slowdown, high interest rate environment, sky high cement prices, which leaped by 65 per cent YoY in 5 months FY09, currently hovering around an average retail price of Rs 367 per 50kg bag (Rs 7,340 per tonne) and a retention price of Rs 255 per 50 kg bag (Rs 5,109 per tonne), inflationary pressures and unfavorable economic conditions effecting commercial projects," Rommesa Mirza, analyst at Invest Capital said.
Local dispatches in North zone, constituting 83 per cent of the local demand in 5 months FY09, fell by 20 per cent YoY. In addition to the above reasons, the dispatches in the North zone declined because of unstable law and order situation, and winter season hindering construction activity.
In the short-term, the onset of winter is likely to aggravate the situation. These factors, coupled with the prevailing financial risks, have led to a rating downgrade by PACRA, of four cement companies (Pioneer cement company limited, maple leaf cement, Kohat Cement Company Limited and Dewan cement). However, GMs are still expected to get a breather, primarily due to fall in coal prices (61 percent FY09).
Capacity utilisation of the industry was slightly down by one percentage point, to settle at 77 per cent, while local capacity utilisation fell to 49 per cent down by 12 percentage points YoY, as the demand surge fails to match the levels of incremental rated capacity. Lucky prevailed as the market leader, with a share of 18 per cent, followed by DGKC (13 per cent). Lucky also makes it mark on the export front, with a share of 27 per cent, followed by Maple Leaf Cement (13 per cent) and DG Khan Cement (12 per cent).