PAKISTAN: Cement sector profits to firm going ahead

KARACHI: Cement sector profits are expected to continue in coming quarters on the back of a 16 per cent increase in cement prices, according to IGI Securities.

Retail prices of the commodity have shot up by 55 per cent in less than a year to levels of Rs335 per bag from levels of Rs225 per bag in January 2010 which bodes well for the sector, said IGI Securities analyst Sana Abdullah.

Cement prices in the local market started to surge after May following reports of a price consensus amongst industry players as the Competition Commission of Pakistan’s (CCP) ordinance lapsed in April, the analyst said in the company research report.

Overall cement growth could increase three to four per cent to 35.2 million tons in fiscal year 2011 aided by post-floods reconstruction activities, which are expected to gather pace during the second quarter of fiscal 2011 (October to December 2010).

Cement sales picked up 16 per cent to 2.92 million tons in October on a monthly basis whereas exports also increased by 52 per cent to 0.95 million tons.

However, export sales declined 19 per cent and local sales also dropped 11 per cent on a yearly basis.

Exports decline

Exports have declined 19 per cent during the first four months of fiscal 2011 on a yearly basis due to the disconnection of road links after floods in August to September, said Abdullah.

Afghanistan still remains the number one destination where 1.54 million tons of cement has been exported during the first four months of fiscal 2011, representing an increase of 15 per cent on a yearly basis.

Imports to East African markets have also increased, irking local makers in East Africa to push their governments to increase import duty on cement from existing 25 to 50 per cent to protect local makers. However, the regulatory bodies have been silent on the issue.

The landed cost of Pakistani cement is $94 per ton in East Africa while locally manufactured cement is available at $200 per ton.

Even if the duty is doubled, Pakistan will still be competitive with a price of $113 per ton, added Abdullah.

Moreover, cement exports continue to find new destinations like Sri Lanka and Malaysia since demand has failed to pick up in Middle East, said Abdullah. Cement from Saudi Arabia is preferred for countries like UAE and Bahrain as transportation cost is much lower, said Abdullah.