KARACHI, April 13: Export prices of cement have registered a phenomenal rise from $26-30 per ton at the start of financial year 2003, to $40-50 per ton, currently. In view of increasing prices and improved margins, cement companies are increasingly turning towards Afghanistan.
In March, exports to Afghanistan topped 163 thousand tons owing to the increasing momentum in construction activity, as war slowly gives way to peace in the neighbouring country.
Khalid Iqbal Siddiqui, analyst at InvestCap observed that the outflow to Iraq and Iran had also registered substantial rise. Improved prices are said to have enabled producers to obtain higher margins so that exports do not merely remain an option of spreading fixed costs over higher sales volume, but also more feasible in terms of glossier bottomline.
"We believe that at export prices of around $50 per ton, local producers will be earning an equal margin on exports as they do on local sales," says the InvestCap analyst.
Ali Sibtain, who follows the cement sector for Elixir Securities observed that domestic sale of cement had increased 8 per cent during March, compared to the same month last year, while exports had shot up by 203 per cent.
"Sales for the FY04 are expected to cross the 13 million tons per annum mark as utilization levels should remain around 100 per cent for 4QFY04," said the analyst. Market differed on who headed the ranks of exporters, albeit the choice had possibly to be narrowed down among Bestway, Cherat, Lucky and Kohat Cement Companies.
But some market researchers dismiss the idea that exports would keep growing at an immense pace. Says Humaira Zaheer of Capital One Equities: "We see too much of a hype on the export of cement to Afghanistan and Middle East countries these days and everyone is looking at one side of the coin, that is, exports to Afghanistan will increase and our local cement manufacturers will be exporting cement to the regional markets on a large scale and earn handsome profits."
The analyst contends that what was being ignored was the cement industry of the neighbouring countries especially Iran, which was the leading producer of cement in the Gulf region. Humaira, all but pours cold water on enthusiasts who dream of a bee-line of truckloads moving up the road to Afghanistan.
The analyst says that Pakistani cement producers were apt to face cut-throat competition with Iran's cement manufacturers, who were all set to offer better quality cement to Afghanistan at relatively cheaper prices (when compared to cement prices in Pakistan).
The analyst thought that it would be knotty for Pakistani exporters to capture the Afghan or Middle East cement market unless they trimmed down their production costs and bring down cement prices to a considerable extent.
Investors in cement shares are possibly looking forward to further incentives in the forthcoming budget for FY05. Cut in Central Excise Duty (CED) to a further 25 per cent, equivalent to Rs500 per ton could be one of the incentives.
Enthusiasts are floating around the suggestion that government might also cut down sales tax from 15 to 12 per cent, which could result in Rs 355 per ton increase in revenue of cement companies.
If and when that happens, it would remain to be seen whether the cut in taxes is absorbed by manufacturers to reduce costs or passed on to benefit the end users. But for the moment, cement manufacturers appear to be basking in the sunshine of glorious profits and rising stock values, not seen for many years in recent past.
