Cement export showed an exceptional growth, crossing the mark of 1Mt per month and depicted a growth of 117.2 per cent YoY basis on the back of huge demand from Middle East and India.
While, the local sales during the month of Oct continued its downward trend, posting a decline of 13.7 per cent YoY mainly due to ever-increasing cost of other construction material.
According to data released by All Pakistan Cement Manufacturers Association (APCMA), cement dispatch numbers for Oct depict a growth of 13.7 per cent for the month on a YoY basis. Even though local demand remained in the red zone posting a decline of 13.7 per cent, exports showed impressive growth of 117.2 per cent YoY. On a cumulative basis, overall cement dispatches for 4MFY09 showed a mere growth of 3.7 per cent YoY with local sales contracting by 15.0 per cent YoY and exports rising by 72.6 per cent YoY.
Experts said that current liquidity crunch, in addition to deterioration in other macro-economic fundamentals and high inflation will negatively impact the local demand for cement.
Additionally, in a post-IMF funding scenario, the probability of a further cut in the local PSDP budgeted spend remains high while actual PSDP spend is likely to sit much lower (as has been the case in previous years).
Furthermore local manufacturers were able to benefit from margin expansion during 1QFY09 as local cement prices remained resilient at Rs370/bag even as coal prices continued to show a declining trend. Experts believe that local cement prices are likely to witness some weakness (PKR15-20/per bag) in the next few weeks as religious holidays set in prior to peak winter months. It is unlikely the prices will recover in the face of weak local demand. The local cement growth to GDP growth multiplier has averaged 2.3x during FY02-FY08.
It is likely that export sales to keep overall cement dispatches in the green, however, the manufactures are likely to see a slowdown in export growth towards the end of FY09E. Cumulative cement export numbers for Jul-Oct08 depict a growth of 72.6 per cent YoY with export sales touching a record high during the month of Oct08 (crossing the 1mn tonne per month mark). Experts expect that export growth will average at 40 per cent for FY09E versus FY08’s 142 per cent. The main reason for the slowdown is a higher base effect and lower regional demand as capacities come online towards the end of FY09E. Export growth of 40 per cent is expected to drive the overall dispatch growth of 5.0 per cent.
Analysts said that the SBP’s recent decision to increase interest rates by 200bps, the local dispatch will not show any improvement as the cost of construction soars. Furthermore, certain larger cement manufacturers such as DGKC and MLCF with highly leveraged balance sheets will remain hard hit by financing costs even as they continue to show strong growth in export sales, they said.