AFGHANISTAN: Existing units' expansion plans pose risk of price war

Injection of additional capacity by way of expansion plans of existing units pose a risk of a price war within the industry. As per analysis of Yawar-uz-Zaman, head of Capital Market in Aba Ali Habib Securities, country already holds surplus capacity of 10 million tons that is 23 percent of its total capacity which could increase to 46.5 million tons. 

Untapped capacity couple with additional capacity arising from upcoming expansion plans would be a threat for industry price arrangement. As a result, profitability of small cement makers is expected to shrink after initiation of price war in the industry. As local demand in the country increased by a meagre CAGR of two percent in the last 5 years, cement price in the domestic market swelled up by 150 percent during the period under review. Consequently, sector gross profit margins have also improved to 33 percent from 19 percent in the same period. Going ahead, if distortion occurs in the industry's price arrangement, we foresee key players like (LPCL, LUCK, MLCF, FECTC, and FCCL) will have to face the margins contraction as their respective DOL are higher than other players. Hence, downgrade our outlook on sector from Positive to Neutral. 

Moreover, he said that DG Khan is one of the largest and leading cement producers, plan to increase its capacity to meet increased demand in the country through either expansion plans or acquisitions. As being intended to increase its capacity, DGKC sets eye on Lafarge buyout. However after takeover by Bestway, DGKC likely to pursue expansion plans in Hub, Balochistan. In the last 5 years DGKC plant has been utilising 96 percent of its capacity, with healthy cash flow and expected rise in cement demand in the country, company likely to continue its expansion plan of 2.6 million tons which is expected to be online in FY17. Currently, southern region of the country is equipped with 7-8 million tons of capacity where plants utilisation level is also higher than the other region. Moreover with export potential through sea, the regions also have strong demand potentials. 

Likewise DGKC, Cherat Cement also publicised to enhance its capacity to 2 to 2.5x million from 1.1 million tons (up 100 percent) last year. However, company's largest export market, ie Afghanistan discerns excess supply from the neighbouring Iranian cement market with comparative low price. Therefore, export to Afghanistan has declined 16 percent YoY in FY14, which pose less attraction for the company to go with its expansion plan. Currently, CHCC is exploiting 92 percent of its capacity with sales mix of local and export stand at 65:35 respectively. 

Zaman concluded that if DGKC go with its expansion in the southern region, it would take 1.5 to 2 years to bring its capacity online. Whereas, other strong players in the south market (LUCK and ACPL) might not seen the event positively. Therefore, industry price arrangement would be in doldrums in the upcoming years. Meanwhile, DGKC might issue right shares in the outgoing years to fund its expansion plan, which could restrict healthy dividend payout in FY15. Hence, downgrade our outlook on sector from Positive to Neutral. 

PAKISTAN: Cement exports increase by 7.6pc in January

The cement sale in local market rises by 1.9 per cent and the export increase by 7.6 per cent during the last month, Our Sources reported.

The cement sale in local market rises by 1.9 per cent and the export increase by 7.6 per cent during the last month, Our Sources reported.

Chairman of All Pakistan Cement Manufacturers Association (APCMA), Muhammad Ali Tabba said that sale of cement influenced much because of putting cement in third schedule of sales tax.

According to him the export of cement to Afghanistan was recorded at the lowest level as compare to the last six months.

"The main reason behind decline of cement import in Afghanistan is due to lack of development projects in their country and uncertain condition regarding the withdrawal of NATO forces", he added.

Chairman APMCA said that cement export to India can be increased by 3-5 million tones, if the some of their concerns resolved including non-tariff restrictions.

Muhammad Ali Tabba further suggested to increase banking facilities of both sides. He said that containers and trucks should be allowed till Amritsar.

PAKISTAN: Cement exports to Afghanistan in jeopardy

Cement exports have been on a rollercoaster ride. According to the latest cement dispatches released by All Pakistan Cement Manufacturing Association (APCMA) the export volumes continued to face stiff competition from Iranian cement in Afghanistan and dwindling demand from India. 

And with countdown to US withdrawal from Afghanistan on a roll, the export scenario is becoming even jittery; the eventual departure of NATO troops from the Afghan territory is being seen as a significant event for the cement export situation in the country. 

Industry insiders and analysts are foreseeing two possible scenarios: one which is likely to dismantle exports sales from the country is where Afghanistan falls back to 1990 post civil war period. This early 2000 scenario encompasses no construction activity in the region, and thus little or no demand for cement as Afghanistan faces uncertainties. Capacity in Afghanistan itself is under a million ton; this could significantly reduce cement imports by the country. 

A more comfortable scenario, at least for Pakistan, would be if Afghan government initiates recovery programme along with the international support. And, though Iranian cement will continue to hamper the export from Pakistan, the increased development activity in Afghanistan will definitely serve as a key component in the total cement exports of Pakistan; mind you, exports to Afghanistan make up around 50 percent of the total cement exports on average. 

While placing a bet on one of the two scenarios is difficult, a cut in exports to Afghanistan would mainly affect the northern cement players in Pakistan not only in terms of dispatches to the neighbouring country but also because of fewer prospects in other key markets due to new surplus capacities in the same. 

On the other hand, sea exports are expected to bloom as long as demand in South Africa, Sri Lanka and some parts of Middle East continue to see growth. 

As far as the likelihood of the two scenarios is concerned, a wait and watch approach is what experts choose as they remain clueless which way the wind would blow.

AFGHANISTAN: Afghanistan Minister Invites Indian Companies To Invest In The Mining And Cement Production

The Minister of Mines of Afghanistan, Mr. Waheedullah Shahrani called on the Union Minister of Mines & Development of North Eastern Region (DoNER), Shri B.K. Handique here today. During the meeting, he invited participation by Indian companies to the global tender floated by Afghanistan Government for allotment of mineral concessions. The tender is open till 2nd week of January, 2011.

Shri B.K. Handique expressed his pleasure on the progress made in the field of mining between the two countries since the two leaders met in June this year. He proposed that a ‘Memorandum of Understanding’ need to be entered by the two countries to give further fillip to the progress already made. Mr. Waheedullah Shaharani accepted the proposal and suggested a draft proposal of ‘MoU’ be sent to them for consideration. It was felt during the meeting that MoU can cover wide range of issues like investment, exploration and capacity building in the field of geo-sciences. 

The Afghanistan side also suggested consortium approach by Indian companies for investment in mineral sector. He said that Afghanistan is having sufficient mineral deposits of iron ore, copper, etc. Mr. Waheedullah Shaharani further informed that they have created a specialized Mines Protection Unit and this action should be a key driver for investment in his country. Mr. Waheedullah Shaharani, also requested to India to sponsor scholarships to Afghan nationals in the fields of geology and mining engineering. Mr. Waheedullah Shaharani also raised the point regarding requirement of cement in Afghanistan. He suggested that some Indian companies be persuaded to set up cement plant in his country as the raw materials like lime stone, coal etc. needed for manufacturing of cement is available in Afghanistan and entire production of cement can also be sold there itself. 

It was agreed that an official delegation from the Ministry of Mines comprising of representatives of GSI, IBM, MECL and HCL will visit Afghanistan in April, 2011 for fields visit and discussions. The Secretary, Ministry of Mines Shri S. Vijay Kumar suggested that Afghanistan may consider sending a delegation to FICCI sponsored Mining Exhibition at Bangalore to be held in February next year.