Pakistan cement industry facing challenges

Pakistan cement industry facing challenges
28 February 2019

A number of Pakistan cement companies have shown poor financial performance in 1HFY19, due to a combination of factors, including dwindling local demands and the rising cost of production. According to local media, the government has not only slashed Public Sector Development Programme (PSDP) spending, but private sector commercial and housing construction spending has also cooled, leading to lower cement sales, particularly in the northern zone.

For northern players that export to Afghanistan and India, volumes have fallen as both markets have become less receptive. For example, Afghanistan increased its take-off of Iranian product and cement imported from other countries. Moreover, it is implementing a programme to increased domestic production capacity. Political tensions between the two countries have not helped.

Relationships with India are also not progressing smoothly and are impacting Pakistani exports to its eastern neighbour. Following India's withdrawal of the Most Favoured Nation (MFN) status from Pakistan, reportedly, Pakistani trucks are stranded at the border to India unable to pass.

Meanwhile, input costs have risen. South African imported coal prices rose by 10 per cent on average between July and December 2018. Imports have also become more expensive due to Pakistani rupee depreciation of 14 per cent, while prices of other fuels as well as grid electricity has also risen.

Positive development
On the costs side, analysts have forecasted a downward trend for coal prices, due to a supply glut and depleting coal demand in China. This is positive news for cement manufacturers in Pakistan. Exports have fetched better prices due to rupee depreciation, but for northern producers, the shutdown of access to the Indian market may hurt the topline, especially if the domestic market does not recover. Any major development expenditure aside from PSDP allocations is unlikely.

Published under Cement News