KARACHI, Jan 17: Sri Lanka, Bangladesh and Vietnam are being looked up as new destinations for export of Pakistan’s cement and market watchers believe that of the 2-3 million tons of cement imported each year by those countries, Pakistan could wrest a big share, provided it managed to compete with the Indian and Chinese suppliers.

“On comparative basis, the cement quality produced by Pakistan is far better in the region due to which there is huge demand of the country’s cement in Bangladesh and Sri-Lanka,” says Sarwat Fatima, cement sector analyst at stock brokerage firm, KASB & Company.

Cement producers have been looking around for other countries, after their dream of overflowing exports to Afghanistan turned sour. When promises of huge amounts of dollars began to be made by powerful nations for the reconstruction of war-ravaged Afghanistan, cement companies in Pakistan began filling up bags, ready to transport to the neighbouring country.

During the year 2002, demand from domestic market declined by one per cent, but the capacity utilization increased from 57.6 per cent to 65 per cent due to exports to Afghanistan.

But with the shifting of scene of action to the Middle East, the Afghan reconstruction has either been shelved or put off for another day. Whatever exports were made, came to the lot of only a few cement mills, with Cherat Cement taking the major share.

The company was the biggest exporter to Afghanistan, which managed to export 62,000 tons, primarily due to its proximity to the Pakistan-Afghanistan border and, therefore, lower transportation costs.

The sale of Pakistani cement to Afghanistan faded further after it failed to compete with the cheaper supplies from Iran. The prices offered by Iranian exporters were much lower in comparison to Pakistani exporters costs of $27-32 per ton, due to their economies of scale.

“Due to this reason, only 140,000 tons of cement was exported to Afghanistan during January-August 2002,” says analyst at KASB.

Others such as Humaira Zaheer, who follows the cement sector for IP Securities, believe that with diminutive exports to Afghanistan, the prospects for cement companies would depend mainly upon the construction activities within the country:

Gwadar port and Karachi-Makran Coastal highway were the first steps towards restoring a respectable level of construction activities. Moreover, prospective dam projects could also contribute in curtailing demand/supply gap for cement in the country, IP analyst says.

The cement sector that had borne the curse of a loss of Rs2 billion during financial year 2000-01, emerged into the comfort of net income of Rs88 million during the financial year 2001-02, thanks mainly to large scale conversion from furnace oil to coal firing system.

The shift to coal enabled cement manufacturers to reduce cost of fuel utilized in the production process by 60-65 per cent and also improve sector’s margins, reduce debt burden and hence financial charges. The sector profit during FY2002 would have been higher but for the mammoth loss of Rs666m incurred by Dadabhoy Cement Company.

Market watchers foresee cement sector to progress on the basis of improved margins and business strategies adopted by those companies in the future. They contend that in an over-supplied market like Pakistan, where the manufacturers are forced to cut down their capacity utilization rates, the possibility of cement export was the possible silver lining, adding: “However, due to issues like timely rebate of sales tax, cement manufacturers are reluctant to export their products.”