Mixed outlook for Pakistan's cement sector

Mixed outlook for Pakistan's cement sector
24 April 2019

Positive programmes for Pakistan's housing developments and cement demand in April have been dampened by changes to bank and interest rate rises, as well as expected lower fiscal expenditure by the government.

Pakistan's Prime Minister, Imran Khan, has performed the ground-breaking of the first project of the Naya Pakistan Housing Programme. The cement industry has been waiting ambitiously for this moment, which will create cement demand.

However, the State Bank of Pakistan has raised the policy rate by 50bps to 10.75 per cent effective from 1 April 2019. The higher interest rate will ultimately raise production costs for the cement industry. The interest rate also started rising from 27 March 2017 (5.75 per cent) and reached 10.75 per cent on 1 April 2019. According to research house Al Habib Capital Market, the high interest rate risk would positively affect the banking sector while simultaneously being favourable for cash-rich companies such as exploration and production (E&P) companies, while reflecting negatively on leveraged firms such as those in cement sector and others.

The incumbent government is likely to present the Federal Budget 2019-20 in the last week of May 2019. It is possible that due to financial constraints, the government will not increase its allocation of the Public Sector Development Programme (PSDP) for 2019-20 and maintain it at around PKR675bn.

All Pakistan Cement Manufacturers’ Association (APCMA) has earlier pointed out that the cement industry has been under pressure this financial year as development expenditure was slashed by 40 per cent from last year. However, the industry was pinning hopes on an announcement of the programme to build 5m low-cost houses in next five years.

According to APCMA, no cross-border dispatch of cement to India was made in March 2019 and thus total export recorded a fall of over 20 per cent to India between July 2018 and March 2019. A local analyst said that halt in cement exports to India following escalating tensions on the border is negatively impacting exports by Pakistan's northern manufacturers and inducing pressure on cement prices in the northern region.

Published under Cement News

Tagged Under: Pakistan Exports Housing