CPEC: Cement sales up 5.4pc to 40.9MT

KARACHI: Cement industry witnessed a 5.4 percent surge to 40.9 million tonnes in its sales during the last fiscal year of 2016/17 as local construction sector boomed to have broken its annual growth record of the past five years. 

Industry data on Wednesday showed that local cement sales rose 10.4 percent to 36.4 million tonnes during the last fiscal year, while exports sharply fell 22.8 percent to 4.5 million tonnes. 

Analyst Nabeel Khursheed at Topline Research attributed the double digit growth in local sales for the second year in a row to ongoing residential construction projects and infrastructure development under China-Pakistan Economic Corridor (CPEC).

Khursheed said the government released Rs715 billion under public sector development programme for FY17, 90 percent of the total allocation, “which bodes well for the construction sector.”

Industry’s annual capacity utilisation reached 89 percent, a rate that was last achieved in the fiscal year of 2005/06. The capacity utilisation stood at 85 percent in 2015/16.

Construction sector reported 9.1 percent growth in FY17, while annual growth for the last five years (FY12-16) growth averaged at 6.3 percent. Credit offtake in construction sector was up 40 percent to Rs129 billion in the last fiscal year over the previous year.

Stock analyst said exports fell short of expectation due to manufacturers’ increased focus to local market, tapering export to Afghanistan, which consumes 40 percent of Pakistan’s cement outflows, and competition from the Iranian substitute.

Sales from cement factories located in north region increased 10 percent in FY17 to 29.817 million tonnes, while cement makers based in south recorded 11 percent growth in sales to 6.594 million tonnes. 

Exports of north as well south cement mills decreased 16 percent to 2.889 million tonnes and 33 percent to 1.643 million tonnes, respectively. 

In June, cement sales remained flat at 3.354 million tonnes as compared to the same month a year earlier, while export fell 10 percent over May. 

“The decline in monthly sales figures is due to slowdown in construction activities during Ramazan coupled with the prolonged Eid holidays,” said Fatima Mohsin Ali, an analyst at Taurus Securities Ltd.

Generally, growing local demand gave a leeway to cement markers to increase prices and avert the pressure built due to high coal prices previously. 

“Players were able to pass on the impact of federal excise duty (FED) by increasing prices by additional Rs15-20/bag thanks to robust demand outlook,” Khursheed said. “We believe if demand remains strong, pricing arrangement will continue.”

Government raised FED on cement to Rs1.25/kg from Re1/kg in the budget announcement for the current fiscal year of 2017/18.

International coal prices averaged $76/tonne as compared to its peak of $91/ton in November 2016.

Market researchers said cement mills based in north region factored in FED impact by pushing up prices by Rs15 to 20/bag to Rs545 to 575/bag. Prices in southern region are still hovering between Rs560 and 585/bag. 

Ali expected an upward revision in cement prices by southern players too in the next one week, “settling in the range of Rs575 to 600/bag.”