By 30 June 2010, the end of the 2009/10 fiscal year, the total sales volume of the Pakistan cement industry stood at 34.2 million t, its highest ever figure. Its growth was respectable, at 9.3%, while the total sales volume of the preceding year was 31.2 million t. The local sales volume grew by a healthy 14.6%, and also achieved its highest ever figure in national history, at 23.5 million t. This growth occurred despite the fact that government expenditure on public sector development projects decreased during that period.
The FY10/11 figures, however, were in contrast to this period of growth, as there was a drop of 19% in the total dispatches of cement to 2.4 million t during August 2010, in comparison with the same stage of the previous year, according to figures distributed by the All Pakistan Cement Manufacturers Association (APCMA).
In June 2010, sales of cement in Pakistan were counted at 2.09 million t. By July 2010, however, a reduction of 16% in cement sales was recorded, with the figure standing at just 1.75 million t, according to data acquired by the APMCA. This does not go against previous trends, as cement sales typically decrease during the monsoon season in Pakistan, which occurs in July. This trend is further supported by the sales figures of July 2009, where sales decreased by 12%. In 2010, however, the decrease in cement sales has been more dramatic and can be explained by the increased rainfall and resultant floods that affected the region at the end of July.
Export figures also showed a decline, with a monthly reduction of 15% and a reduction of 31% y/y. There are two principal reasons for this decline. As far as the monthly figures are concerned, this was a result of the lack of an inland freight subsidy. The reduction in yearly figures was as a result of higher overall prices in the sector.
There was no recovery in August 2010, however, as a direct result of the flooding, and also due to the slowdown in the construction industry that usually occurs during the month of Ramadan. There is some expectation that sales may recover during the beginning of the 2011/12 financial year; this is due to the fact that extensive rebuilding will be necessary in regions that have suffered severe damage during the recent floods.
Prior to 2011, however, further decreases in cement dispatches are expected. In August 2010 for example, cement dispatches reduced by between 20 – 30%. As a knock-on effect of this decline, the sale price of cement during September and October is expected to see a reduction of about Rs.10 – 20 per bag. Prices should return to their original figures once rebuilding starts during the coming months, while the cement sales figures should be restored by the latter half of 2011.
Dispatch figures are expected to gradually recover, with some slight improvements in October, although dispatches will remain low in comparison to previous years’ figures. It is also not possible to determine what losses or damages have been inflicted on manufacturers in regions that have been affected by the floods, as reviews have not yet been carried out. This information is not expected to be available until after the Eid holidays.
There was a huge slowdown in the growth of cement exports in Pakistan during the first nine months of FY09/10, which can be explained by examining the slowdown in construction in the GCC. However, there was significant growth in the cement export figures to other African nations, and so many Pakistani cement manufacturing companies are actively targeting this market. However, this has spurred local cement manufacturers in Africa to try to impede sales of Pakistani cement in their countries.
A decrease in prices internationally has also contributed to the export slowdown, as has an increase in inland charges, which has discouraged cement manufacturers in northern Pakistan from exporting their wares. An inland freight subsidy has been supplied by the Pakistani government, but its effects have not yet been seen.
Affects of the flooding
The floods did not drastically affect the cement industry in Pakistan, but they have had a dramatic effect on demand for cement in Pakistan throughout the first two months of FY10/11. The manufacturing plants in general were not severely damaged, however, although some were close to the flooded regions. It is expected that cement sales will begin to recover in the second half of FY2010/11, although sales pressure has increased during August 2010 and there is price stress in the north. Prices are expected to hold for now and improve later in the current fiscal year.
As far as recovery is concerned, the cement industry tends to rely on growth in agriculture income, along with government spending on infrastructure. However in 2011, there will be no demand from these two important sectors. On the contrary, further fallout from the flooding will result in large demands on the government finances, while the majority of farmers in Pakistan will have limited funds due to the extensive destruction of crops and the resultant decrease in income.
As the floods occurred immediately before the month of Ramadan, the cement manufacturers within Pakistan had already built up a surplus in imports so as to have sufficient stocks built up at the ports within the country. Although the floods decimated the country’s communications, it is expected that rebuilding could begin within a few months, possibly in November or December.
As of now, the future prospects of the Pakistan cement industry are good. A manifold increase in cement exports to African nations and the Middle East should occur. Additionally, there is massive reconstruction taking place in both Iraq and Afghanistan, which should rely extensively on cement imports from Pakistan.
It is possible that the cement industry in Pakistan may undergo extensive growth in 2014, as a result of projected regional and local demand. In the last ten years, cement demand has risen to 33.2 million t, an increase of 235%. Production, however, has increased to 44.8 million t, leaving a surplus of 11.6 million t.
While extensive damage has been caused by the recent flooding, there is a definite need for planned and directed investment in infrastructure, transport and construction within Pakistan, especially if the nation is to achieve its ambition of a gross GDP growth of 6% within the coming five years. It is essential for the future development of industry in Pakistan that trade corridors, highways and dams be provided.
This article has been summarised. The full version can be found in the October issue of World Cement, available for subscribers to download by signing in here. Not a subscriber? Purchase a subscription here.
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