PAKISTAN: Fauji Cement’s earnings surge 67%

Fauji Cement (FCCL) announced a net profit of Rs2.77 billion in the first six months (Jul-Dec) of fiscal year 2015-16 (1HFY16), up a significant 67% compared to the same period of last fiscal year, according to a company notice sent to the Pakistan Stock Exchange (PSX).

Earnings per share (EPS) jumped to Rs2.09 compared to an EPS of Rs1.25 in the period under review.

In the second quarter, the company posted a net profit of Rs1.67 billion (EPS of Rs1.21), up 52% quarter on quarter from preceding quarter profit of Rs1.1 billion (EPS of Rs0.83).

The company also announced interim cash dividend of Rs1.75 per share (2QFY15: 1.00/share).

On Tuesday, PSX 100-Index closed on 31,673, down 254 points or 0.8% while Fauji Cement share closed at Rs39.66, down just 0.05%.

The company witnessed a 24% quarter on quarter rise in dispatches (751,000 tonnes in 2QFY16) owed to improved domestic/export demand (up 24% and 26%, respectively), coupled with stable cement prices in the north region of the country, resulting in a 27% sequential growth in turnover.

Gross margins expanded by 600 basis points during 2QFY16 to 48%, in contrast to 43% in 1QFY16 due to lower average coal prices which dipped 8.7% quarter on quarter in 2QFY16 along with contracting fuel costs amid dwindling oil prices. While 1HFY16 gross margins rose 11 percentage points to 46%.

The selling and distribution expenses escalated by 57% quarter on quarter to Rs58 million.

PAKISTAN: Cement export suffers massive decline in Jan

During the first half of current fiscal year country’s cement exports declined by a massive 25.68% to 3.01 Million Tons compared to 4.06 Million Tons during July to Dec., 2014. The North based mills registered decline of 25.09 percent as exports were restricted to 1.9 million tons in first six months of current fiscal compared to 2.54 million tons during same period last fiscal. The South based factories also suffered decline of 26.67% in exports as the quantities dropped to 1.11 Million Tons duly July to Dec of current fiscal compared to 1.52 Million Tons during same period of last fiscal. 

The industry despatched 3.44 million tons of cement in December 2015 compared with 3.11 million tons despatched in December 2014 showing growth of 10.53%. The local despatches were 2.98 million tons during December 2015 against 2.5 million tons during December 2014 depicting increase of 19.28%. The exports despatches showed decline by 25.39% as against 610,000 tons exports during December 2014, the industry exported 455,000 tons during December 2015.

The spokesman of All Pakistan Cement Manufacturers Association said that government has not been able to work with industry to arrest the decline in exports. He added that the Association has time and again drawn government’s attention towards illegal imports of under invoiced cement from Iran. The industry has urged that a proper vigilance and accountability system needs to be put in place to stop cement smuggling into the country.

Government should also impose 20% Regulatory Duty for import of cement in addition to custom duty in order to protect local industry.

PAKISTAN: CEMENT INDUSTRY – GRAVE ISSUES NEED TO BE ADDRESSED

During July to November 2015, cement industry has posted a growth of 15.64 percent in domestic sales compared with sales during same period of last fiscal year. Domestic despatches rose to 12.2 million tons during this period against 10.56 million tons during same period of last fiscal. Exports during July to November 2015 recorded a massive decline to 2.56 million tons from 3.45 million tons during last year i.e. by 25.73 percent. The overall situation during first five months of current fiscal year showed a growth of 5.46% compared to the same period of last fiscal year. Quantitatively the total despatches by cement industry were 14.77 million tons from July 15 to Nov. 15 against 14 million tons during corresponding period of last fiscal year.

Analyzing zone wise despatches, the north based cement mills despatched 10.17 million tons to domestic markets during July to November 2015 that was 14.6 percent higher than the despatches during same period of last fiscal. Exports from north however declined during this period to 1.63 million tons i.e. by 25.24 percent over last fiscal that were 2.18 million tons. In southern region, the cement mills experienced even more growth in domestic markets as against despatches of 1.69 million tons during July to November 2014, the domestic dispatches increased by 21.09 percent to 2.04 million tons. However there was a definite slump in exports that declined by 26.58 percent to 0.93 million tons from 1.26 million tons during the corresponding period last year.

The upward trend in domestic consumption of cement this fiscal continued in 5th straight month; at the same time exportscontinued to lose global markets. Cement dispatches to domestic markets during the month of November 2015 were 2.843 million tons compared with 2.369 million tons during same month last year showing an increase of 20%. Exports during November 2015 were 0.533 million tons against 0.66 million tons during November 2014 showing decline of 19%. Total despatches during November, 2015 were 3.376 million tons compared to 3.028 million tons during same month last year showing increase of 11.49 percent. The despatches in November were the highest in past five months.

APCMA spokesperson regretted that government planners are still lacking to check unregulated import of Iranian cement in the country at under invoiced rates. The same cement, he added, is finding its ways in the Afghan markets in which our share has been reduced by 20.63% during the first five months of current fiscal year. He said that we are still facing the dilemma of Iranian cement despite reaching to various decision makers to suspend imports of Iranian cement into Pakistan from Balochistan by road and railway due to under invoicing and the connivance of custom authorities. The locally producedcement is fast losing its market in the areas adjacent to the Iranian border and the coastal areas of Balochistan. The industry has suggested that a strategy should be in place to protect the local cement industry against smuggling of Iraniancement coming into the country. Government should also make it mandatory to get the quality certification of Irani cementby PSQCA otherwise it should not be allowed to enter in the country.

He added that due to high cost of doing business in Pakistan, Pakistani cement industry is losing competitiveness to other countries such as Iran, UAE and India and has appealed for reduction in energy costs, removal of GIDC imposed on gas,abolition of custom duty on coal and additional incentive of 5% on export of cement.

PAKISTAN: Industry for examining quality of iranian cement

Cement manufacturers have asked the Ministry of Commerce to stop the import of Iranian cement via land routes and allow supplies at set tariffs and duties after quality check at the Pakistan Standard Quality Control Authority (PSQCA).

In a letter written to Federal Commerce Secretary Muhammad Shehzad Arbab, All Pakistan Cement Manufacturers Association Chairman Muhammad Ali Tabba pointed out that despite bringing the matter to the notice of customs authorities, the smuggling of Iranian cement into Pakistan through land had continued unabated.

“The Iranian cement is of uncertain quality as it does not have the approval or standards marked by the PSQCA,” he said. “The import volume has been increasing and has now reached the alarming level at about 2,000 tons per day.”

Coming through Taftan, Post 250 and Mand customs check-posts, he said, the consignments were being allowed without payment of customs duty and other federal levies, in connivance with the customs authorities.

These officers allegedly collected duties for only a small volume while the bulk came without any statutory levies.

As a result, Tabba said, the market in areas adjacent to the Iranian border as well as coastal areas of Balochistan was flooded with cheap Iranian cement. In this situation, the domestically produced commodity is fast losing market.

PAKISTAN: Lucky Cement announces Rs2.97b profit, expansion plans

Lucky Cement – one of the largest cement makers in the country – made the most anticipated announcement in the cement sector on Thursday, saying that it will construct a green field plant that would have 2.3 million tons capacity in central Punjab.

The announcement was made via a company notice sent to the Karachi Stock Exchange (KSE).

The project cost is expected to be $200 million and it construction would begin in the first quarter of calendar year 2016, while operations are tipped to begin by the second quarter of 2018.

“The official announcement of a new plant is an important development for the cement sector, but it is not going to pose any threat of a price war between cement companies because this new plant would become operational in three years,” Sherman Securities analyst Saqib Hussain Khan told The Express Tribune.

He further said that with the current, continuous improvement in local cement consumption, companies are positioned comfortably with the present price mechanism in the market. “Better local cement sales have also offset the continuous decline in Pakistan’s cement exports.”

“Investors on KSE-100 Index preferred to trim their positions in the cement sector following Lucky’s announcement of expanding operations in the Punjab region,” said a Topline Securities note.

“The fundamentals of cement industry are so well placed, that the price war concerns in the market would diminish soon,” said analysts.

Speaking to The Express Tribune recently, Lucky Cement CEO Muhammad Ali Tabba said that China Pakistan Economic Corridor’s (CPEC) positive effects are already becoming apparent. “There is improved domestic cement consumption in Pakistan.”

The company is also optimistic about its volumetric growth in the current financial year,” the notice read.

Lucky posts profit of Rs2.97b in 1QFY16

Lucky Cement, along with its expansion plans, announced a net profit Rs2.97 billion in the first quarter (Jul-Sep) of fiscal year 2015-16, up 11.2% compared to Rs2.67 billion in the same period of last year, according to the company notice sent to KSE on Thursday. Earnings per share (EPS) jumped to Rs9.18 from an EPS of Rs8.25 in the period under review.

According to a JS Research report, the result was in-line with the EPS forecast of Rs8.92 for the quarter.

PAKISTAN: Attock Cement posts Rs470 million profit

Attock Cement – part of the Pharaon Group that has investments in diversified fields such as oil and gas, power generation and IT – has announced a net profit of Rs470 million in the first quarter (Jul-Sep) of fiscal year 2015-16, up just 2% compared to the profit it earned in the same period of the previous fiscal year.

Earnings per share (EPS) were up to Rs4.20 from Rs4.11 in the period under review.

“This was in line with our expectations of an EPS of Rs4.08 for the quarter,” Arif Habib Limited (AHL) analyst report said on Thursday.

The company registered a 10% year-on-year (YoY) decrease in net sales during the first quarter of fiscal year 2015-16 (1QFY16) mainly because of a 10% YoY dip in cement dispatches. The decline in dispatches is caused by 36% decline in cement exports otherwise its local dispatches expanded by 9% year on year, the report said.

The gross margins of Attock Cement jumped 500 basis points YoY to 35% in 1QFY16 amid 22% YoY lower coal prices that stood at $55.24 per ton during the period.

The selling or distribution expenses fell by 30% YoY to Rs190 million from Rs271 million because freight charges on export sales contracted.

The company recorded an effective tax rate of 34% during 1QFY16 which was 24% in 1QFY15.

PAKISTAN: In September, cement dispatches decline 6% in north, 16% in south

Total cement industry dispatches in the month of September 2015 have declined by 8% year on year to 2.9 million tons compared to 3.2 million tons in September 2014, according to provisional cement sales data.

InvestCap Research report on Monday said that cement dispatches have dropped by 6% year on year in north region while 16% year on year plunge was experienced in south region of the country.

Total cement dispatches in the month of September 2015 has declined by 5% compared to August 2015.

In local market, cement demand continue to grow owing to advancement in public and private sector construction projects and showed an annual growth of 2% year on year in September 2015 to 2.5 million tons as compared to 2.4 million tons in September 2014.

However, on the other hand, cement export market continued its downward trajectory and declined by mammoth 40% year on year touching 0.44 million tons in September 2015 compared to 0.73 million tons in September 2014.

Regional analysis of cement dispatched for the month of September 2015 revealed that northern region recorded an increase of 3% year on year in local dispatches to 2.05 million tons while exports plummet by 42% year on year to 0.28 million tons in the same period.

Whereas southern region experienced a declining situation as their local sales decreased by 4% year on year to 0.41 million tons while export volumes dropped by 35% year on year to 0.16 million tons in September 2015.

On three months cumulative basis, total industry dispatches rose by meagre 1% year on year to 8.22 million tons in first three months (Jul-Sep) of fiscal year 2016 from 8.16 million tons during the same period of last fiscal year.

While local market showed 11% year on year surge in dispatches that clocked at 6.75 million tons whereas export declined by 29% year on year to 2.06 million tons.

In near future, it is expected that overall industry dispatches will improve specifically in the local market owing to higher private and public sector construction projects and positive triggers from mega construction projects under the CPEC, the report added.

However, falling exports are alarming and it will continue its downward trajectory but this decline would be addressed by increase in local dispatches. The security situation has improved in the country which will also boost the private sector growth in construction sector.

PAKISTAN: Cement sales rise 10% on domestic demand in August

During the month of August, cement sales rose 10.24% despite a decline of over 31% in exports as domestic demand continued to rise in the wake of accelerated economic activities.

According to data released by the All Pakistan Cement Manufacturers Association, cement dispatches during August 2015 stood at 3.061 million tons, 10.24% higher than 2.776 million tons in the same month of previous fiscal year.

Domestic sales in the month were 2.494 million tons against 1.94 million tons in August 2014, showing a growth of 27.99%. According to the zone-wise breakdown, domestic dispatches in the north zone were 2.024 million tons and in the south zone were 0.470 million tons.

On a year-on-year basis, total sales in the domestic market in the first two months of the current fiscal year were 4.29 million tons compared to 3.67 million tons in the same period of previous year, showing a growth of 16.73%.

Exports, however, continued to disappoint. Exports from the north zone during August were 349,873 tons, while exports from the south zone amounted to 216,815 tons.

Against exports of 827,707 tons in August 2014, the shipments were restricted to only 566,689 tons in August this year, a decline of 31.54%.

In the first two months (July and August), exports to Afghanistan dropped 18.24% to 394,500 tons compared to 482,528 tons in the same period of 2014, while exports to India fell to 100,437 tons against 140,131 tons in the previous year, down more than 28%.

“Exports to Afghanistan are gradually drying due to inroads made by Iranian cement,” said a spokesman for the association. “Iranian cement is also penetrating Pakistani markets on the back of massive under-invoicing or mis-declaration.”

PAKISTAN: Cement sales tumble 33% due to Ramazan

Cement sales in the first month of 2015-16 fell 33% month-on-month (MoM) to 2.19 million tons, AHL Research reported on Friday.

According to preliminary figures, the plunge in overall sales came in the wake of a decline in domestic demand that dropped 36% MoM to 1.74 million tons while exports fell 17% to 499,000 tons.

Exports declined 27% MoM from the northern region, however, they increased 6% in the southern region. The drop was expected, albeit to a lesser extent, due to Ramazan when demand usually stood slow.

Other reasons behind the decline in sales included the low number of working days due to Eid holidays and a reduction in exports because of anti-dumping duty imposed by South Africa on Pakistani cement companies.

On a year-on-year (YoY) basis, total sales fell 11% in July, though demand rose 7% in the domestic market. However, exports dipped 24%.

In the northern region, local demand edged down 2% YoY during July to 1.47 million tons, while exports decreased 28% to 267,000 tons.

In the southern region, local and export sales recorded a decline of 24% and 19% YoY, respectively.

“Cement sales in August 2015 may remain depressed owing to floods, however, they will pick up going forward,” the research report added.

Weak coal

Steady cement prices (Rs519 per 50kg bag) along with weak coal prices ($57 per ton) have already pushed higher the gross margins of cement companies in the third quarter. A further increase in the margins is expected in the fourth quarter (April-June) results.

PAKISTAN: CEMENT CONSUMPTION REGISTERS 8PC GROWTH

Robust growth of 8.07 per cent in domestic cement consumption in the month of May 2015 was overshadowed by most depressing decline of 26.13 per cent in exports that resulted in an overall decline of 0.39 per cent in the cement despatches compared with May 2014.

A spokesman of the All Pakistan Cement Manufacturers Association said the cement industry in Pakistan was still operating below capacity despite almost 7.98 per cent growth in the domestic consumption during the first 11 months of this fiscal. He said overall decline in exports in the first 11 months of 2014-15 was 10.82 per cent that restricted the total growth in the industry to only 3.47 per cent.

The data released by APCMA reveals that cement industry despatched 25.492 million tons of cement for domestic market during July-May period of this fiscal against 23.608 million tons despatched during the corresponding period last year.

PAKISTAN: Dumping duty on Iranian cement sought

The All-Pakistan Cement Manufacturers Association (APCMA) has urged the government to either place Iranian cement in the negative list or clamp dumping charges to help the local industry regain its share.

Cement smuggling from Iran in Balochistan is causing substantial loss to the national exchequer. “The government has to take immediate steps to curb this menace,” said a spokesman for APCMA in a statement.

The average imports of Iranian cement into Balochistan from March 15 to April 16 stood at around 500-600 tonnes daily.

He said misdeclaration is rampant which is putting local industry in a difficult situation, whereby it pays taxes and duties under third schedule in strict compliance of rules and regulations while the imported and smuggled cement enjoys huge advantage.

Industry wants placement of cement in negative list

Two road trailers entered Pakistan via Taftan border on April 16, and while they were carrying 105 and 52 tonnes of cement, the tax was paid on 90 and 45 tonnes only, he said.

All this was being done with the collusion of dealers by the Customs department officials and transporters. The import quantity on the customs’ Goods Declaration Form was understated as well, he added.

On the contrary, the local industry pays approximately Rs2,000 per tonne to national exchequer in the form of excise duty and sales tax.

The illegal import of cement from Iran is detrimental to cement sector of the country and has further raised concerns of cement industry, as on one hand the idle capacity is increasing due to foreign imports and on the other, the prices in different markets are being badly affected due to tax evasions and misdeclarations, he said.

PAKISTAN: Cement dispatches increase 4%, read 25.65m tons

Cement dispatches increased 4% to 25.65 million tons in the first nine months (Jul-Mar) of fiscal year 2015 (9MFY15) compared to 24.78 million tons in the same period previous year, according to data released by the All Pakistan Cement Manufacturers Association (APCMA).

In March 2015, local cement dispatches jumped 5% year on year (YoY) to 2.44 million tons, against 2.32 million in March 2014. However, exports in March 2015 significantly dropped by 30% YoY to 0.44 million tons in comparison to 0.63 million tons in same period last year.

More growth was observed in local dispatches that increased by 8% year on year and settled at 20.22 million tons in 9MFY15 as compared to 18.76 million tons in same period last year.

However, cement exports plunged by 10% YoY and reached at 5.43 million tons in 9MFY15 from 6.02 million tons in 9MFY14.

A regional level analysis illustrated that north recorded a plunge of 6% YoY in March 2015 to 2.2 million tons while south depicted an increase of 12% to 0.65 million tons.

The north region exports in March 2015 massively declined by 40% YoY to 0.26 million tons compared to 0.44 million tons in March 2014. The southern area exports in March 2015 also plunged by 8% YoY to 0.17 million tons, compared to 0.19 million tons in March 2014.

The improvement in macroeconomic environment in the country is likely to fuel local demand of cement even further, InvestCap Research said on Tuesday.

Currently, the private sector housing schemes are the major driving factor in cement local demand. In addition, the government has so far released over Rs271 billion under the Public Sector Development Programme (PSDP) against the total allocation target of Rs525 billion for FY15.

It is anticipated that government would most likely miss its fiscal year target for PSDP as Rs254 billion remains unutilised. The government is likely to propose an increase in PSDP target for next fiscal year by 10% to Rs580 billion.

“We are still bullish on the cement sector because of lower coal prices and stable cement prices in the local market,” the report added.

PAKISTAN: Cement makers earning expand 40pc in H1 on construction boom

Backed by strong local demand and reduced input costs, cement manufacturers listed at the Karachi Stock Exchange (KSE) posted over 40 percent growth in their net earnings in the quarter ended December 31, a local brokerage house reported on Tuesday.

Other factors that helped companies post attractive earnings included decreased financial charges, increased other income, and lowered effective tax rate, said analyst Nabeel Khursheed at Topline Securities. “...cement manufacturers posted net margin of 24 percent, which is the highest in the last nine quarters,” he said.

The brokerage house studied profit and loss accounts of 14 companies which represented 94 percent market capitalisation of the sector at the bourse. There are total 19 listed cement manufacturers at the bourse.

The companies booked cumulative earning of Rs12.7 billion in the quarter as compared to Rs9 billion in the previous quarter ended September 30, Khursheed said.

Pioneer Cement, Dewan Cement, DG Khan Cement, Fauji Cement, and Maple Leaf Cement were the star-performers, depicting bottom-line growth of 150 percent, 99 percent, 93 percent, 77 percent, and 63 percent respectively.

Market leader Lucky Cement depicted bottom-line growth of 10 percent.

The brokerage houses did not consider the companies which either have not announced financial results for the quarter or incurred losses. Such companies include Dandot Cement, Flying Cement, and Lafarge Pakistan Cement.

Khursheed said with the start of mega construction projects, cement sector posted a growth of 10 percent in the quarter at Rs53.3 billion against Rs48.5 billion in the previous quarter.

“The prime growth driver remained 14 percent rise in local cement dispatches as it rose to seven million tonnes in 2QFY15 versus six million tonne in 1QFY15,” he said.

Exports however declined by 2.6 percent to two million tonnes versus 2.06 million tonnes in 1QFY15 due to lower dispatches to Afghanistan. “Going forward, higher disposable income, due to lower inflation, should help increase private expenditure on construction and housing as evident from mega housing schemes launched by Bahria, DHA, and UAE’s Emaar.”

Khursheed said declined international oil and coal prices have resulted in lower manufacturing cost for cement manufacturers as energy constitutes 55-60 percent of total cost of goods manufactured. As a result, sector’s gross profit margins improved by 240 basis points to 36 percent in 2QFY15. Moreover, reduction in the leverage of the cement sector translated into 24 percent reduction in financial charges to Rs854 million.

“With economic recovery in Pakistan, we expect average GDP to grow at 4.5-5.5 percent in the next three years, which can lift local cement sales by nine percent on average annually to reach 34.1 million tonnes per annum by fiscal year 2017 and exports to eight million tonnes per annum,” Khursheed added.

PAKISTAN: Billionaire Mansha Plans $300 Million Cement Plant

Billionaire Mian Muhammad Mansha’s D.G. Khan Cement Ltd., Pakistan’s third-largest maker of the construction material, plans to build an $300 million plant near Karachi as economic growth boosts demand.

“There will be a shortage domestically in three years if there is 10 percent growth in demand each year,” Chief Financial Officer Inayat Ullah Niazi said in an interview at the company’s headquarters in Lahore on Thursday. The company’s two cement plants have operated near full capacity in the past two years.

The company is building its first plant since 2007 to tap economic growth that Prime Minister Nawaz Sharif’s government forecasts will be the fastest in seven years, even as the nation grapples with an electricity supply crisis and terrorism. Pakistan’s output is projected to expand 4.3 percent in the year ending June 30 and 4.75 percent in the following fiscal year by the International Monetary Fund.

The new plant near Hub, a city west of Karachi, will produce about 2 to 2.5 million tons of cement a year, Niazi said. Construction is targeted for completion late in 2018. The plant will be financed 40 percent through internal cash and the rest through debt, Niazi said.

“Expansion means the company will enter the southern region of the country,” Tahir Abbas, an analyst at brokerage Arif Habib Ltd. said by phone in Karachi. “This will impact the entire industry and could start a price war.”

Earnings Forecast

D.G Khan shares rose 2.9 percent to 128.63 rupees in Karachi Thursday. The stock has gained 48 percent over the last year, compared with a 32 percent gain in the benchmark KSE100 Index.

Cement sales in Pakistan rose to a record 34.3 million tons in the year ended June 30, 2014, according to the cement manufacturers’ association. Sales are on track for another record this year.

D.G. Khan is spending $30 million to generate electricity from coal to run its plant in Punjab province to decrease reliance on natural gas. South Asia’s second-biggest economy is struggling to meet gas demand and plans to import liquified natural gas.

The company forecasts net income will rise 25 percent to 7.5 billion rupees ($74 million) in the year ending June 30, Niazi said. Domestic sales with higher margins than exports will contribute to the projected gain. Net income was a record 5.99 billion rupees in the last fiscal year.

PAKISTAN: Cement factory causing pollution

The people living in the vicinity of Kohat Cement Factory have complained that dust and fumes emitting from the factory kilns are causing serious diseases among them.

A jirga of local elders, in a statement issued here on Sunday, said that emissions from the two kilns of the factory had been causing serious health problems for the people.

They said that continuous blasts in the mountains near the factory had also caused cracks in the houses of local people but the factory administration was not ready to listen to their complaints and provide assistance for repair of the damaged house.

The elders said that the factory administration was made bound under an agreement that it would pay surface rent to the people on whose collective land the factory had been built, but no dues were paid to people since 1992.

The statement said that the agreement of providing 80 per cent jobs in the factory to local people as their due right was also being violated blatantly.

The jirga said that earlier the factory was run on electricity but later it switched to coal which polluted the air to dangerous levels.

PAKISTAN: With fall in input costs, cement prices come down

With a reduction in input costs especially petroleum and coal prices, the cement industry has started passing on the relief to the consumers by cutting prices in the range of Rs5 to Rs23.

Bestway Cement has reduced the price from Rs502 to Rs492 per bag, Dewan Cement has cut the rate from Rs510 to Rs490, Cherat Cement has brought the rate down from Rs500 to Rs495 and Lucky Cement has cut the price from Rs520 to Rs497.

According to market players, the new prices have been printed on cement bags of these companies while others who have huge stocks in the market have started giving discounts on their products.

In Khyber-Pakhtunkhwa too, the retail and wholesale prices of cement have come down from Rs485 to Rs472 per bag. In Rawalpindi, cement is being sold at Rs480 to Rs485 in the wholesale market.

According to industry players, the manufacturers must print the maximum retail price on cement bags, but it is creating problems in making a reduction immediately as stocks already supplied to the market have old prices printed on them.

However, the industry has appreciated the government for its efforts to reduce prices of different inputs especially the petroleum products which have a significant impact.

In line with the cement makers, if other industries make a similar reduction in prices, it will help the construction industry ease the burden of high material cost on the consumers.

PAKISTAN: Cement companies: Rate cut, high development spending spark interest

The recent reduction of 50 basis points in the benchmark interest rate and a sharp increase in the release of funds for the government’s development schemes have helped spark significant interest in cement companies on the Karachi Stock Exchange (KSE).

According to a research report issued by Shajar Capital on Monday, cement companies recorded a high trading volume last week (Monday-Friday) at an average of 47.1 million shares, up 41% from a week earlier.

The rise in activities on the KSE was the result of mixed recent developments for the cement sector, the report added.

The State Bank of Pakistan (SBP) has cut the benchmark interest rate to 9.5% from 10%, which bodes well for the cement industry, especially heavily leveraged companies like Maple Leaf Cement, Fauji Cement and DG Khan Cement. This indicates a positive impact on their earnings of 1.4%, 0.4% and 0.3% respectively for fiscal year 2014-15.

Furthermore, with another expected rate cut in the second half of the fiscal year, these companies could see a further profitability surge, the report said.

According to the country’s fiscal operations, in the first quarter (July to September) the federal government released only Rs39.5 billion under the Public Sector Development Programme (PSDP) out of the budgeted Rs525 billion (approximately 8%). However, the figure has shot up to Rs111 billion, approximately 21%, in November this year.

The increase in the disbursement of funds will further push up cement consumption and support its manufacturers.

Meanwhile, international coal prices have also not picked up despite the commencement of winter season, providing the cement companies an opportunity to save much on their fuel consumption in coming months.

Gas tariff hike

Although, according to news reports, Prime Minister Nawaz Sharif has rejected plans to raise the gas tariff, it seems to be the case of delaying the inevitable as the International Monetary Fund’s directives are straight forward regarding gas tariff. Apart from this, there has not been any significant progress pertaining to the collection of Gas Infrastructure Development Cess (GIDC).

“With the talk of gas price hike at the forefront, we believe the tariff rise to have an impact of Rs2, Rs0.37 and Rs0.21 on earnings per share of Lucky Cement, DG Khan and Maple Leaf respectively,” the report said

PAKISTAN: Corporate results: Fauji Cement’s earnings up 3%

Fauji Cement on Tuesday announced a net profit of Rs602 million during the first quarter (Jul-Sep) of fiscal year 2015, up just 3% year-on-year (YoY) compared to Rs582 million during the same period of the previous year.

Earnings per share (EPS) of the company increased to Rs0.45 from an EPS of Rs0.44 during the period under review. Earnings surged by 50% quarter on quarter because of an absence of preferred dividend, which was recorded at Rs273 million during the fourth quarter of fiscal year 2014 and a lower taxation rate of 32% (versus the 54% for fourth quarter of fiscal year 2014).

The earnings of the company were slightly lower than estimations of Rs0.48 per share because of a higher than anticipated exchange loss incurred during the period, Global Research reported on Tuesday. The company’s revenues increased by 8% YoY to Rs4.17 billion during the first quarter of fiscal year 2015 due to a 4% YoY increase in cement prices to Rs516 per a 50-kg bag and a 3% year on year increase in cement dispatches to 0.59 million tons.

Sequentially, revenues slid by 16% quarter-on-quarter (QoQ) because of a 14% quarter on quarter decline in cement off-take and a comparatively lower proportion of local dispatches.

The gross margins of the company declined by 1% YoY to 32% during the first quarter of fiscal year 2015 due to inflationary pressures. Sequentially, margins declined by 4% QoQ because of lower volumetric sales and a lower proportion of local dispatches.

PAKISTAN: Cement industry witnesses 9.85pc growth in local industry

During the first quarter of current fiscal year, the cement industry has posted a growth of 9.85 per cent in local sales compared with sales during first quarter of the last fiscal year. Exports, however, recorded a decline by 8.13 per cent compared with exports during the first quarter of last year. The overall situation during first quarter of current fiscal year showed 4.68 per cent growth compared to the same period of last fiscal year.

Cement despatches to domestic markets during the month of September 14 were 2.42 million tons compared with 2.12 million tons during same month last year showing an increase of 13.86 per cent. Exports during September 14 were 730,000 tons against 816,000 tons during September 13 showing decline of 10.6 per cent. Total despatches during September, 14 were 3.15 million tons compared to 2.94 million tons during same month last year showing increase of 7.08 per cent.

The cement industry that is already facing a lot of issues due to high duty/tax structure, impractical imposition of MRP-based sales tax, increasing import duties on coal, increasing power tariffs and axel load restrictions is now facing another grave issue related to smuggling of the commodity from Iran.

Domestic cement uptake in southern region is being seriously affected due to unregulated smuggling of cement from Iran. Statistics showed that against 10.8 per cent increase in domestic sales in northern region during the first quarter of current year, the domestic sales in southern region showed an increase of only 5.4 per cent.

A spokesman of APCMA pointed out that the despatches in the South should have been higher because the exports from this region during the first quarter of current fiscal year increased by a healthy 12.2 per cent to 782,000 tons against 697,000 tons during same period last year. On the contrary, exports from north declined by massive 17.3 per cent to 1.277 million tons during the first quarter against 1.545 million tons during same period last year. The spokesmen said such lopsided sales look puzzling at a time when the economic activities in the south have picked up appreciably. He said a deep analysis of the situation revealed that the consumption most probably had increased at par or higher than the northern region but the cheap Iranian cement smuggled without paying the duties and sales tax had penetrated into the southern market that is nearer to the Iranian border.

Still, he added, the local despatches growth in North was double than South because the Iranian cement factor had not impacted Northern region as much as the Southern region.

The spokesman of APCMA further mentioned that the association had drawn the attention of FBR towards the illegal import of cement from Iran. In a letter sent to the FBR, the APCMA has indicated that a serious irregularity is being committed by some importers who are importing Iranian cement under the brand names of Sistan, Khash, Mumtazan, Kirman, Ghain and selling it in the local market at much lower rates than the Pakistani brands by means of tax evasion. It has also been pointed out that the importers of Iranian cement are paying duties/taxes to the extent of 30 tons against the consignment of 60 tons, thus evading the duties/taxes by 50 per cent. This tax evasion is not only affecting the domestic market but also affecting the much needed government revenue.

The spokesman showed his apprehension that the local cement industry which was contributing Rs 2,000 per ton to the national exchequer in shape of indirect taxes would face severe issues if the threat of this illegal import of Iranian cement was not countered effectively by the government or relevant authorities.

“The local cement industry has been made to bear the burden of increase in the excise duty, high rates of electricity, continuous surge in the input costs, recent imposition of customs duty on coal import, and restrictions on trucks to load cement and coal according to the approved axle weight,” the spokesman added. This new threat of smuggling along with the above-mentioned issues would completely destroy the cement sector of the country in the near future; hence it is the responsibility of the government to save its local industries from such threats and curb smuggling.

PAKISTAN: Shadow over South African cement exports

With export avenues narrowing down for Pakistani cement, news about filing of an application against dumping in South Africa comes as rather discouraging. To recall, South Africa is the leading export destination for cement exports from Pakistan via sea. 

Amongst cement exporters from Pakistan, Lucky Cement Limited (KSE: LUCK) stands as the leading supplier of Portland cement to South Africa. LUCKs cement costs up to 18 percent less than the ex-factory price charged by PPC, one of the leading cement manufacturers in South Africa. 

Industrial reports indicate that LUCKs exports to South Africa stood at 0.6 million tons during FY14. This accounts for a 24 percent share in the company's total exports and a seven percent share in total industrial exports from Pakistan. During FY14, LUCKs market share in terms of exports was around 20 percent. 

Given these statistics, how would imposition of the duty, if it were to happen, affect LUCK, whose total market share in the cement sector currently stands at 30 percent. 

According to Sajjad Hussain, Research Analyst at BMA Capital, imposition of anti-dumping duty of 48 percent would nullify the entire price differential offered by LUCK compared to local players in South Africa. 

Every 10 percent decline in exports to the country could bring down LUCKs earnings by one percent, while in the advent of no exports to South Africa, earnings could be hit by as much as 10.3 percent, Hussain notes. The situation could be aggravated in case other African countries follow suit and impose similar duties on Pakistani cement, as capacity expansion is also underway in the region. 

On the other hand, Ali Amin, Research Analyst at KASB Securities, posits that LUCK is likely to turn up safe in the anti-dumping case since protection to the local industry would significantly reduce consumer surplus. Local industry in South Africa also raised cases against import of Pakistani cement earlier which were put down by the government for lack of evidence, he notes. 

However, LUCK itself has reportedly been in the process of establishing a plant in the Democratic Republic of Congo which will likely go online next year with a capacity of 1.2 million tons per year. One assumes that the plant would also be delivering to other emerging export destinations in the region, including Angola, Kenya and Madagascar. 

Regardless of the result of the anti-dumping case, LUCK seems to have a plan in place. But, does the Pakistani cement industry have one, particularly at a time when exports seem to be getting more challenging?