Local sales of cement have started rising during this fiscal year on the back of a slight recovery in construction activities. But exports continue to decline due to non-tariff barriers in India and sluggish demand in Afghanistan.
According to the All Pakistan Cement Manufacturers Association (APCMA), cement dispatches from manufacturing plants to both local and foreign markets totalled 10.474 million tonnes in July-October 2012, against 10.436 million tonnes in the same period of last year. But domestic sales have compensated for the decline in exports.
Domestic sales are going up as the construction activity picks up pace, chiefly due to demand of cement for public sector projects including a few small dams, roads and bridges and also due to construction and renovation of housing units by individual households and construction companies.
One pointer to increased construction activity is phenomenal rise in profits of cement companies in the last fiscal year.
Construction sector was also seen in the forefront in the recent rally in stock exchange. Some cement companies reported over 30 per cent profit for FY12 and the construction sector accounted for more than 30 per cent of the total gain in trade volumes at KSE during the week that ended on November 2. Not only listed cement companies have offered good dividends but their shares are also becoming pricier day by day.
In FY12, cement sector also witnessed capacity addition of about three million tonnes per year after the commissioning of a new manufacturing plant of Fauji Cement Company Ltd. This, along with the reduction in excise duty on cement and initiation of some infrastructure projects in the public sector had resulted in three per cent rise in overall sales of cement besides pushing up the profitability of this sector by eight per cent. The trend is continuing in this fiscal year which also saw further reduction in excise duty on cement. In FY12 and FY13 the government has made a cumulative cut of Rs300 per tonne on excise duty, bringing it down to Rs400 per tonne from Rs700 in FY11.
Currently, cement sector’s capacity utilisation stands around 70 per cent and cement makers believe it can increase further if construction activity keeps expanding. In mid ’90s and in mid-2000s cement sector had recorded capacity utilisation of up to 90 per cent.
Realtors in Karachi say that prices of plots have been on the rise since the beginning of this year after remaining flat for several years in a row. “In posh localities like Defence and Clifton the price-hike has been higher than in other localities primarily because well-off people are shifting their residence from violence-hit areas. But in localities like Gulistan-e-Jauhar, Nazimabad and North Nazimabad, too, construction activity is expanding and new commercial and housing units are being built, both by professional builders as well as by households.”
“Big construction activity is now taking place in North Nazimabad and North Karachi where some new shopping malls are being built and people are either building new houses or renovating the old ones” insists a project manager of Saima Construction Company that is constructing new projects in these areas.
Besides, with the city government in Karachi more active, construction work has begun on flyovers and roads. In other cities most notably in Multan and Faisalabad huge construction projects are underway, both in infrastructure as well as in residential housing.
And in addition to all this, faster release of money meant for public sector development projects like small dams and bridges have also led to larger off-take of cement and other construction material besides creating a perception of revival of construction industry.
The Diamer Bhasha dam project has further reinforced this perception as cement industry people believe that if work on construction of this dam goes on as planned, it will create additional demand for eight to nine million tonnes over next seven to eight years.
Right now, construction companies, individual households and some NGOs are also busy in reconstruction of housing units that were damaged during the super floods of 2010.
“Whether it’s reality or perception or a mix of both, we really see increased activity in construction industry in near future,” says a former chairman of Karachi Stock Exchange. “That’s one reason you see cement stocks performing far better than in the past.”
Since activity in construction industry depends largely on overall economic growth, cement sector growth had remained subdued in the last few years in Pakistan. But with the economy now set to grow at 4.5 per cent during this fiscal year, construction industry is also likely to grow faster thereby pushing up domestic demand of cement.
But things are not so good on exports front. APCMA Chairman Aizaz Mansoor Sheikh complains that due to non-tariff barriers, Pakistan’s cement exports to India has plunged 37 per cent year-on-year to just 158,000 tonnes between July and October this year.
Exports to Afghanistan have also declined by more than nine per cent to 1.634 million tonnes during this period but, in this case the reasons, are different. “Growing political instability in Kabul ahead of withdrawal of foreign troops from the country has slowed down construction projects there,” says an official of DG Khan Cement.
Cement manufacturers say that exports of cement to foreign markets including South Africa and East Africa (but excluding India and Afghanistan) have been on the rise during this fiscal year but higher freight costs act as a dampener.
“We need to export large volumes of cement to India through land routes to remain cost effective,” says an official of the southern region of APCMA.
“But our government should stress upon the Indian authorities to remove non-tariff barriers like dilly-delaying in issuance of import certificates to Indian buyers.”
In FY11, Pakistan had exported a huge quantity of clinker to Bangladesh. But in the last fiscal year no such thing happened.
However, exporters are optimistic of growth in cement exports to Bangladesh and Sri Lanka. Sri Lanka has recently shown interest in importing Pakistani cement on a long-term basis.
“Bangladesh is going to undertake big infrastructure projects (including World Bank-funded Padma Bridge in Dhaka), that will create huge demand for
cement in future. If we work on it in advance we can get big export orders,” said an exporter with past experience of exporting clinker to that country. —Mohiuddin Aazim