KARACHI, July 6: The latest data released on Thursday, shows cement sales in the financial year ended June 30, 2006 to have reached 18.4 million tons, which is the highest dispatches made by the cement industry in its history.
Sales during financial year ended June 30, 2006, represented growth of 12.6pc over 16.4pc million tons of sales in the previous year. Khurram Schehzad, sector analyst at InvestCap, observed that the growth was in line with expectations. Local demand grew 14.3pc over last year, while exports portrayed a marginal slip from 1.57 million tons in FY05 to 1.51 million tons, which translated into a negative growth of 4pc. “Cement producers found it more profitable to sell in the local market due to enormous demand, which fetched them high prices and secondly exports were restricted by the government to support its efforts to stabilise prices,” says Schehzad.
Local sales were boosted on the back of healthy demand and giant expansions by several companies. Executive director at Lucky Cement, A.R. Thaplawala told Dawn on Thursday that two of its four new lines (two in Pezu and two in Karachi) of 4,800 tons per day had already been commissioned, making the company the largest cement producer in the country. The third line at Karachi, said Thaplawala, was expected to roll out cement bags in the next 15 days.
The industry capacity utilisation during the year stood at 88pc. Atif Malik, analyst at JSCM, mentioned that increased local demand was on the back of rising construction activities in the country and the government focus towards infrastructure development. At the end of FY06, per capita cement consumption in Pakistan increased by 11pc to 117-kg compared to 106-kg in FY05.
Anwar Ahmed Khan, analyst at CapitalOne Equities, stated that during the year, production capacity of cement increased by 20.1pc to 20.94 million tons per annum as against the preceding year’s production capacity of 17.44 million tons. The outlook for cement sector was stated to be bright given the fact that the country was facing shortage of around 500,000 to 600,000 houses per year where concrete would be required for reconstruction of earthquake hit areas. Furthermore, the government’s focus on building mega dams and allocation of Rs415 billion under PSDP would add to demand growth.
Analyst Navin Ali at BMA Capital Management thought that cement imports were not an imminent threat to the local industry. Chinese imports had failed to conform to specifications. Current prevailing price of local cement is Rs280-300 per bag, which was approximately Rs10-20 per bag above the estimated final price of imported cement. However, given that the imported quantity represents merely 5pc of monthly cement consumption, the likely impact on local prices due to imports was expected to be too small.
The recent assessment of the Pakistan Standards and Quality Control Authority (PSQCA) had added another dimension to the story where the government now finds itself in a difficult situation, unable ethically to give a go-ahead signal to importing poor quality building material, especially given the earthquake in the Northern regions of Pakistan late last year, while under pressure to increase supply in order to keep a check on local cement prices.
According to reports, approximately 75,000 tons of Chinese cement is currently waiting for customs clearance due to quality concerns. Losses being incurred on account of demurrage, port charges and retention are estimated at around $5,000 per day.
Anwar points out that to check price hike in cement, the government has allocated Rs720 million in the budget for FY07 for providing freight subsidy at Rs60 per bag. This would be sufficient to import no more than 600,000 tons of cement. Can that make a big dent in the market that last year absorbed 18.4 million tons of concrete?
