KARACHI: The cement exports witnessed a growth of 70 percent in 1HFY09 to reach 5.05 million tonnes as total dispatches register an increase of 3 percent year-on-year (YoY) basis, with total sales amounting to 14.2 million tonnes.
This increase has changed the sales composition, as exports now comprise 35 percent of the total dispatches. Export performance can be attributed to depreciating rupee, and global demand-supply gap. However, exports declined by 39 percent Month-on-Month (MoM) in December 2008.
Exports are expected to register a decelerating growth, as the global economic slowdown deepens further reducing demand for housing and construction activities. The demand supply gap in the international market is expected to narrow down further as other countries gear up with more capacity, thus reducing export demand, experts said.
The local dispatches have fallen by 15 percent in first 6 months of FY09, however, the exports spiked by 70 percent. As per expectations, the economic slowdown, consistently high cement prices coupled with the ongoing winter season have translated into a decline in both local and export volumes by 21 and 39 percent (MoM), respectively.
The downslide of local demand continues as local sales register a 15 percent decline in 1HFY09.
"Pressure is being exerted on local demand, primarily due to macro-economic slowdown, high interest rates, sky high cement prices, which leaped by 65 percent during the said period. The local prices are currently hovering around an average retail price of Rs 355 per 50kg bag (Rs 7100 per tonne) and a retention price of Rs 255 per 50 kg bag (Rs 5,109 per tonne).
"Declining freight charges are also eroding the edge which Pakistan possessed due to geographical proximity," analyst added. Moreover, the downward slide in local demand is also expected to prevail as a result of cut in Public Sector Development Progarmme that is a major determinant of cement demand.
Studies have shown that cement demand is highly correlated with the growth rate of GDP. Recently, the ministry of finance has further downward revised the GDP growth target to 3.4 percent from 3.5 percent, which will further erode cement demand.
In addition to the above reasons, the dispatches in the said period also declined because of unstable law and order situation and winter season hindering construction activity. In the short-term, the onset of winter is likely to aggravate the situation. Citing reasons for decline in local sale, a market dealer said that usually sales remain low between November to February owing to a slowdown in construction activities all over the country.
Exports: On the export front higher demand was pouring in form India, which almost constitutes 8.5 percent of exports FY09, but the ongoing diplomatic tension between Pakistan and India could take its toll on the export. The Indian government has imposed 12 percent dutyt on cement import, which industry sources believe is an aim to discourage imports from Pakistan.
After India, Afghanistan accounts for 28 percent of the exports (36 percent in last year). "This is because the incremental exports have primarily been directed towards the cement thirsty UAE, the elaborate construction projects of which have yet to take a hit from the looming economic slowdown," an analyst said.
Source : Daily Times