The devastating earthquake that has left over two million Pakistanis homeless is expected to trigger a huge demand for cement as the country begins its biggest ever reconstruction exercise. Share prices of cement firms are on the rise even as reports of damage continue to pour in. "It (the earthquake) is a blessing in disguise for the cement industry," said Arshad Arif, head of research department at KASB Group. "I think it will be a multibillion dollar rebuilding exercise over the next two to three years," he said. Shares of Lucky Cement, the country’s largest producer, have risen 7.1% over the past four days, closing Thursday at PKR60.90.
"I can’t give you a ballpark figure, but looking at the extent of damage, I can say that the demand will be huge," said Tariq Sehgal, chairman of the Pakistan Cement Manufacturers Association. "The rebuilding process is likely to boost cement demand by around two to three million tons each year over the next three years," said Tanvir Abid, head of research at Live Securities.
The 7.6-magnitude quake on Saturday razed entire villages, the city of Muzaffarabad - the capital of Pakistan-controlled Kashmir, and damaged infrastructure in the region. The disaster, in which over 35,000 people are believed to have been killed, has already resulted in the biggest relief operation in Pakistan’s 59-year history. According to UN estimates, some four million people have been affected, including two million who have lost their homes. On Tuesday, Prime Minister Shaukat Aziz said the country needs 2.5 million new homes.
Experts said the local cement industry is well equipped to cater to the demand as it is expanding capacity. "The industry is in the process of expansion. And total production capacity is estimated to cross 40Mt over the next two years," said the Pakistan Cement Manufacturers Association’s Sehgal. He said half the planned expansion will be complete in the next 14 to 15 months. "So, when the reconstruction activity gets into full swing, we will be able to meet the demand," he added.
At present, total production capacity at the 24 cement plants in the country is estimated at around 21Mta. The increased demand will give a further boost to profits of cement companies. The sector has been performing well for the last two years with rising sales tracking the growing economy.
According to a recent report from Invest Capital & Securities, a sample of 15 listed cement firms showed an overall 66% rise in net profit. The report said total the net profit of sample firms rose to PKR7.30 billion in the fiscal year ended June 30, compared with PKR4.40 billion in the previous year.