PAKISTAN: Cement sales likely to pick up further this year

Thanks to the uptick in domestic demand, cement sales have remained robust in line with expectations of the industry and analysts in fiscal year 2013-14 (FY14) as they have eclipsed the previous peak recorded in 2009-10.

With this, what is important to see is that the analysts are predicting even further pickup in sales in the new fiscal year in the face of growing construction activities as the government focuses its energies on building major dams and highways.

Overall, cement sales (domestic and overseas) jumped a healthy 2.51% in FY14, standing at 34.27 million tons compared to 33.43 million tons a year earlier.

“The increase of 2.5% in cement sales is a healthy growth and it will further rise in the next 12 months. I think demand will touch 35.5 million tons in 2014-15, recording a jump of 3.6%,” Saad Hashmi, analyst at Standard Capital Securities, told The Express Tribune.

“Only the recently inaugurated Dasu Dam is going to create a demand for one million tons of cement over the next five years,” he added.

On June 20, just before the close of the fiscal year on the 30th, the All Pakistan Cement Manufacturers Association (APCMA) – the lobbying group of all cement-makers in the country – expressed the hope that overall dispatches in FY14 were expected to remain at an “all-time high”.

Though sales hit a record high, they were just marginally higher than the previous peak touched in 2009-10. Sales in FY14 stood at 34.27 million tons compared to 34.24 million tons in FY10, up just 0.08%.

A gradual improvement in economy and growing construction activities, especially in the wake of higher allocation by the government for the Public Sector Development Programme, are the reasons behind the expected rise in cement demand over the next 12 months.

In FY14, the federal and provincial governments set aside over Rs1 trillion for development schemes with the Centre alone targeting to spend Rs525 billion.

The growing construction schemes are mainly visible in large cities. According to the Economic Survey of Pakistan 2013-14, the construction sector posted an exceptional growth of 11.3% in the fiscal year ending June 30, 2014 compared to a negative growth of 1.7% in FY13.

In the same way, analysts say, domestic cement demand, compared to overseas sales, will primarily support overall dispatches in the current fiscal year.

Based on local demand, prospects of the cement industry look better and this comes at a time when exports are dropping on the back of a sharp appreciation of the rupee against the dollar in the past six months.

Apart from growing appetite for cement, the local market is also offering improved profit margins to the companies in stark contrast to overseas markets where they face stiff competition from cheap Iranian and Chinese cement.

Another major reason why industry officials and analysts are upbeat is the increasing capacity utilisation in the industry over the years. It is touching 80%, a six-year high, something that the manufacturers had achieved in FY08.