The Pakistan cement sector registered an increase of 47 per cent profit in 2007 following the soared cement dispatches as of the upbeat local demand and expanding export market.
Talking to The Nation the industry sources termed the increase to record cement dispatches in 2007 as the main reason for the performance of the cement companies.
Local dispatches rose by 16 per cent while exports depicted a growth of 157 per cent owing to rising construction activities in the country and cement shortage in the region.
However, sources said that positive investor sentiments were observed only during the first half (Jan-Jun) of 2007 in which sector’s market capitalisation rose by 70 per cent. Talking about depressed profitability in fiscal 2007 and 1Q08, they pointed it as boosting investor confidence in the cement sector to decline as the sector gave a negative return of 13 per cent during Jul-Dec 2007.
They said that reduction in cement prices amid a supply glut situation in the local market was the primary reason in reduced profitability of cement companies. Moreover, surge in coal/furnace-oil prices resulted in higher fuel costs for cement companies, hitting their profits negatively.
The industry sources pointed cement prices, which hold the key to the sector’s performance as profitability of companies was more sensitive to prices rather than volumetric sales. Companies also needed to increase prices to undo the effect of rising input costs. ‘If the companies are able to enter into some sort of a price arrangement, it would considerably improve cement sector’s profitability; they said.
They industry sources said that new export markets in India and Middle East, provide good opportunity to cement companies for using up their additional capacity and thus achieving better economies of scale.
Latest data released suggested that cement sales during first half (Jul-Dec) of fiscal 2008 depicted an increase of 23 per cent to stand at 13.8Mt, thanks to the expanding local demand and growing cement shortage in the region leading to higher exports. Export sales thus have shown a commendable increase of 141 per cent while local dispatches saw a rise of nine per cent during the period.
On the contrary, alone in the month of Dec 2007, total cement dispatches stood at 1.8mn tons versus 2.1Mt in Dec 2006, depicting a decline of 13 per cent whereas local sales decreased by 24 per cent to 1.4Mt while exports maintained positive growth of 83 percent to land at 386,000t.
They said that almost 60 per cent has gone through the sea route and the rest by rail of the total quantity imported. Moreover, average price of cement that was exported through rail route stood at US$72/ton (Indian Rs144/bag), while price of cement shipped through sea was recorded at US$68/ton (Indian Rs136/bag). With inclusion of cost of transportation from port or station, cement reaches a consumption site at Indian Rs165/bag, which is still significantly cheaper than Indian Rs235-250 per bag price for cement manufactured in India.
They said that the cement prices have risen slightly in second quarter of fiscal 2008, which have not matched increase in input costs. Moreover, with the arrival of winter season, local demand is expected to slow down due to reduction in working hours in North.