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Growth prospects for cement industry bright on int’l demand - LahoreEstate - 10-07-2009 08:37 AM
By Sajid Chaudhry
ISLAMABAD: Growth prospects for Pakistan’s cement industry are bright as the cement demand is set to increase in importing countries like India, Gulf Cooperation Council (GCC) countries, South Africa and Sri Lanka.
According to an analysis of the industry, cement export targets for 2009 and 2010 are set to be 9.99 million and 10 million tonnes, respectively. Currently, the export demand is expected to be from new inductee India along with other countries like Gulf Cooperation Council (GCC) countries, due to rising oil prices-led economic growth. More countries like South Africa, which is to build football stadiums for the World Cup and Sri Lanka, are also expected to approach Pakistani companies for cement imports.
Just when Pakistan is struggling to even maintain the 2007-2008 exports mark of around $19 billion, additions of the cement exports in the last two years is a good omen. Pakistan's total exports dropped to US$ 17.782 billion in 2008-2009. The latest information is that India will import more cement from Pakistan. So far 130,000 tonnes cement has been exported to the neighboring country.
In this backdrop, the cement industry exported 7.7 million tonnes in 2007-2008 earning around $308.129 million for the country. In 2008-2009, cement exports went up by 54.26 percent to $475.327 million. Cement exports thus ranked 10th in the major export list of Pakistan. What made the cement industry enter in the exports market in the last few years, the answer to this question can be a good case study of the privatization and liberalization of the cement sector.
Many grudge the profits made by the industry in good years. They do not count the years when the industry suffered because of low domestic demand. They also do not take into account the fact that while at average, cement prices have increased by 2.10 percent per annum in the last 17 years, an industry source explained.
The major markets opened by the intense marketing for the Pakistani cement sector include Middle East, Sri Lanka, South Africa, Egypt, India etc. India has registered a number of Pakistani cement manufacturers, a requirement to facilitate import of cement. Pakistan has already increased the frequency of trains from one to three in a week to carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India needs cement in bulk to meet its growing needs. The success of the sector depends on exports, its profitability from depressed local prices and cost appreciation. The exports for FY08 have already surpassed the last whole year's export of 3.19 million tonnes and are likely to reach to 6.67 million tonnes in 2008. The sharp decline in cement prices were due to domestic competition among producers has dampened the profitability of the industry.
Similarly, cement sector's contribution to the national exchequer in the form of taxes has shot up to Rs 30 billion. This sector has invested about Rs 100 billion in capacity expansion over the last four years. There are four foreign companies, three armed forces companies and 16 private companies listed in the stock exchanges. The industry is divided into two broad regions, the northern region and the southern region. The northern region has over 87 percent share in total cement dispatches while the units based in the southern region contributes 13 percent to the annual cement sales.
The main factors behind increase in demand of cement were: 60 percent higher Public Sector Development Projects (PSDP) allocation, seven percent GDP growth, increasing number of real estate development projects for commercial and residential use, developing export market and expected construction of mega dams.
As cement capacity is increasing to cater the rising domestic and regional demand, it started facing a tougher time because of price fall after the first quarter of FY06 due to increase in supply, energy prices started surging and higher expansion led to mounting finance and depreciation costs. Average cement prices were Rs 220 per bag as on April 27, 2008, as compared to Rs 315 per bag in 2006. This includes around Rs 80 taxes, freight, and dealers commission.
However, the cost and exports may be affected due to weakness of the US dollar causing coal, electricity charges and freight prices, comprising 65 to 70 percent of the cost. The PSDP allocation has been cut by Rs 75 billion and feared further cuts would curtail cement demand. Major capacities of countries like India and Iran are expected to come online by FY10 and onwards which are likely to convert these countries from dependent importers to potential exporters.
http://dailytimes.com.pk/default.asp?page=2009\10\07\story_7-10-2009_pg5_3