Cement sales likely to post 8-year high growth of 14 percent in FY2018

KARACHI: Cement sales are expected to post eight-year high growth of 14 percent during the last fiscal year of 2017/18 as booming construction sector and increased public sector spending boosted demand of the commodity, a brokerage reported on Monday.

Local cement sales stood at 40.8 million tons in the last fiscal year, while its exports marginally rose 0.9 percent to 4.7 million tons, bringing the total cement dispatches 12.9 percent up to 45.5 million tons.

“Growth in local and export dispatches fared better… thanks to higher infrastructure demand from CPEC- (China-Pakistan Economic Corridor) related projects, real estate construction activities across Pakistan and increase in exports from Lucky Cement and Attock Cement new cement lines that came online in 2HFY18,” analyst Nabeel Khursheed at Topline Securities said in a report.

“Moreover, due to expected increase in competition in south region owing to upcoming capacities, players are tapping into new export markets that also supported export growth.”

Khursheed said construction sector reported nine percent growth in FY2018, which was in line with the last 5-year average growth rates.

“This was on the back of economic recovery and booming real estate sector. Credit to construction sector as of May 2018 stood at Rs156 billion, up 21 percent,” he added. “After being in the doldrums in 1HFY18 (witnessing average 16 percent year-on-year decline), exports recovered in the second half, recording stellar average growth of 37 percent thanks to higher exports from Lucky and Attock Cement’s new cement lines in the South region as well rupee devaluation.”

There are 24 cement manufacturers operating in the country with Lucky Cement Limited having the biggest production capacity of nearly five million tons. Bestway Cement, Maple Leaf Cement, Attock Cement Pakistan, Kohat Cement Company are also the major producers with two to four million tons of operational capacity.

Industry utilisation stood at 95 percent in FY2018 as compared to 87 percent in FY2017, 85 percent in FY2016, 78 percent in FY2015 and 75 percent in FY2014.

“The utilisation this year will be a 2.5 decade high. The highest utilisation of 92.7 percent was recorded in FY1996,” Khursheed said.

The analyst said pricing remained a big concern for the industry despite outstanding domestic consumption during the year. Cement industry shed 42 percent during the last fiscal year due to rising input cost and increase in production capacities.

“Producers’ ability to pass on any hike in input cost (higher coal prices and rising transportation cost due to increase in international oil prices) going forward will depend on growth in local demand,” he added.

Cement prices in northern region averaged Rs529/bag in FY2018 versus Rs534/bag in FY2017. Cement prices in the northern region started to decline as low as Rs496/bag on an average after August last year. But, prices posted a recovery after March when cement makers passed higher coal cost and impact of federal excise duty on to consumers. Khursheed said free-on-board ‘Richards Bay’ coal prices increased 20 percent to $93.6/ton in FY2018. It is currently hovering at around $104.25/ton.

“If coal prices remained at this level, manufacturers may find it difficult to pass on the cost owing to upcoming cement capacities.”

In June, cement sales are likely to fall 30 percent month-on-month and rise three percent year-on-year to 2.5 million tons due mainly to Ramazan and Eid holidays. Cement exports, however, are expected to decrease 10 percent month-on-month and increase 10 percent year-on-year.