Cement finding confidence

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SOURCEBusiness Recorder
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Though cement demand is not catapulting, there are clear signs that market is becoming slightly more confident, and the demand trends seen last year are flipping-demand is moving from the south side to the north side. In the period July-Oct 19, domestic demand in the south has pummeled 31 percent against a growth in the north of 11 percent. On the other hand, both markets are experiencing sobering trends in exports. Clearly, a lot has changed since FY19 wrapped up. The question is how big a recovery can be expected?

Also Read: In Pakistan, Dandot Cement shuts down plant

Let’s look at exports first. Overall exports have grown by 16 percent but mostly because of a whopping 93 percent growth in clinker exports to overseas markets. This puts the ball in the court of southern players. Nearly 44 percent of total exports are in clinker today (last year this was 26 percent). Meanwhile, sea borne exports of cement have lost steam. Overseas markets are demanding more clinker than cement-which in dollar terms is 65 percent of the value of the cement product i.e. clinker is cheaper. Clinker growth is simply because domestic demand is simply not there. Meanwhile, up north, exports to India have completely shut down, and the Afghanistan exports growth of 34 percent is not making up for that lost market share.

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Is domestic demand catching up? There were hopes that when FY20 rolls in, the Naya Pakistan Housing Program will have kicked off some of the projects which would increase cement consumption. However, the projects remain in the pipeline. PSDP funds however, are being released for existing and pending projects. In the latest news, against a total budget allocation of Rs95 billion, the government has released Rs37 billion for CPEC development projects. This is bound to bring demand to the construction sectors.

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Market confidence has improved despite the recent CNIC requirement by the government that was scaring away many cement traders out of the market-a lot of whom remain in the shadows of informality. Planned projects are kicking off, according to sources while downward expectation of interest rate may also be a factor which would indicate economy moving toward stability. Though it seems more likely that dealers are thinking micro factors such as price movements. Any expectation of prices moving upwards-and in the north prices are often in flux-will lead to demand rise in the very short term. While the sector is finding confidence, the rebound in sales should be taken with a grain of salt. No way is the sector heading toward its glory days of 2016 and 2017, that’s for sure, specially with increased capacity and uncertain avenues for growth.

(This news/article originally appeared in Business Recorder on November 6th, 2019)

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