KARACHI, Feb 1: As the figures come rolling out in a couple of days, the market is expecting to see substantial increase in sales of cement during January '05 over both the figures for the same month last year as well as the previous month (December '04).

The aggregate cement dispatches for January are expected to be announced in about a day or two. Abdul Rasheed, analyst at Jahangir Siddiqui Capital Markets Limited said that he expected total cement dispatches to be around 1.30 million tons during January 2005, which would compare well with dispatches of 1.14 million tons in the same month last year and 1.28 million tons in December '04.

Cement sector analysts are also betting on demand growth to stay put. Keeping in view the first 6-months' trend of demand growth, which stood at 21 per cent, the total cement sales were forecast to rise to 16 million tons in FY05. This would mean an increase of 18 per cent, compared to 13.6 million tons cement sales in FY04.

Also on the basis of current installed capacity of 17.6 million, capacity utilization was expected to average at around 90 per cent for the full year. The reason for the cement sector being bullish was the demand growth, which most analysts thought would remain positive, as a number of mega housing projects were in the initial stages.

Government was also increasingly focusing on infrastructure development projects including mega water reservoirs. "We expect cement sales to increase by CAGR of 8 per cent in next 5-years (FY06-10)", says Mr. Rasheed, adding that it was in line with the last 5-years' average annual growth of 8 per cent.

Cement sector of Pakistan has been performing quite well in the last two fiscal years (FY03 & FY04), thanks to double digit demand growth, increase in cement prices, reduction in duties and cost efficiencies.

Cement shares have, nonetheless, under performed the market by 22 per cent since the start of FY05, possibly on concerns of oversupply. But the analysts observed that in spite of new capacities, cement sector capacity utilization was not likely to go below 65 per cent, which was a level where a typical efficient plant could be run so as to produce decent returns.

That was because of rising demand (local and export), cartel benefit, lower interest rates and cost efficiencies. In order to capture the rising demand almost all the major cement companies have announced expansion plans. Lucky's 5 million tons expansion is largest in the industry.

Following that, DG Khan and Maple Leaf have also announced expansions of 2.6 tpd each. Attock, Bestway and Pioneer are also planning to expand. Most of the other players are also going for capacity optimizations.

All put together analysts visualise an additional 19 million tons capacity to come online in the next 5-years (FY06-FY10). Market watchers thought that in the near term at least, DG Khan Cement and Lucky Cement would dominate the cement industry, in terms of pricing power, due to their dominant market share.

By FY '10, these two companies were believed to be holding one-third of installed capacity of the country. "The seasonal hiccups in cement firms association (All Pakistan Cement Manufacturers' Association) will remain there, as happened in the past," says the sector analyst, adding that due to common benefit that accrues in varying degrees to all cement mills, the cartel-like situation was expected to remain intact and no major fall in cement prices, for an extended period, was expected.

"Despite rising inputs cost, cement companies are expected to post decent growth in profits during the next two years, i.e. FY05-06. This will be due to higher capacity utilization and rising cement prices," says the sector analyst.