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January 4, 2006
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Wednesday
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Zilhaj 3, 1426
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Gas price hike not to hit cement industry
By Our Staff Reporter
KARACHI, Jan 3: The domestic cement industry will witness no negative impact on their margins because of the gas price hike for commercial consumers by 15.51 per cent announced on Saturday.
Lucky Cement executive director Abdur Razzak Thaplawala observed that the reason was that most of the cement plants were now operating on coal firing system. “Even those units that are using furnace oil for power production will not take a hit since the furnace oil prices were last revised downward by Rs800 per ton.”
Discussing the cement sector dynamics, Shagufta Irshad, analyst at KASB Securities, in a report on Monday stated that the contribution (profit) margins in the industry had touched all time high levels and that was likely to continue for at least the next six months, owing to better retention levels and stable coal prices.
“We expect cement companies to post a 75 per cent earnings growth year-on-year in FY06,” said the analyst. But he cautioned that the industry could face a glut situation in 2007-08, which would pose a serious threat to retention levels in 2007.
KASB has upgraded price objectives for its cement universe companies on the back of (1) increase in price forecast by 20-25 per cent from their initial forecast of 5-10 per cent and (2) increase in domestic demand growth forecast to 16 and 14 per cent for FY06 and FY07, from 15 and 12 per cent, respectively.
Tanvir Abid, head of research at Live Securities, in his report on Tuesday anticipated an overall industry sales growth for FY06 at 13-14 per cent. He said that the housing activities along with rehabilitations after the earthquake in the country were expected to take place at a fast pace, fuelling demand for cement. At the same time, the government was making hectic efforts to develop consensus on the construction of Kalabagh dam. He said that these prospects bode extremely favourably for domestic demand.
However, on a long-term basis, the industry might face an excess supply situation owing to forthcoming expansions, he added.
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