Auto, steel continue to contract in eight months

KARACHI: Subdued consumer demand adversely hurt performances of auto, steel and petroleum sectors accounting for major contribution to the big industry as they continued to witness contraction during the first eight months of the current fiscal year.

Pakistan Bureau of Statistics’ (PBS) said production has significantly decreased in coke and petroleum products, pharmaceuticals, automobiles, iron and steel products and electronics in the July-February period of FY2020.

Analyst Mustafa Zamin at Taurus Securities said auto sector has been a laggard as a consequence of high interest rates and inflation. Though the central bank delivered 425 basis points cut in interest rate in a month, the damage has already been done due to stabilisation measures to contain demand in the recent past.

“During 8MFY2020, auto sector witnessed fall in production in all product categories,” Zamin said. “The major decline came in cars, tractors, bikes, which were down 45.7, 36, and 10.3 percent year-on-year, respectively.”

Production of petroleum also suffered with motor spirit, high-speed diesel and furnace oil declining 10.6, 14.5, and 14 percent, respectively, due to lower demand of petroleum products as a result of decline in auto sales. Steel production for 8MFY2020 was down 7.6 percent, attributable to sharp decline in construction activity due to the overall downturn in the economy.

“Furthermore, we believe the declining trend in steel and cement to continue due to the slowdown imposed on account of the coronavirus,” Zamin said. “The Impact of COVID-19 is yet to come.”

The government imposed lockdown late last month to curb spread of the coronavirus and the economic shutdown policy was more pronounced in the country’s industrial hub.

However, eight major sectors posted growth in manufacturing output during the 8MFY2020. However, for the heavyweights of the large scale manufacturing (LSM), petroleum, pharmaceutical, automobiles and steel production numbers continued to fall.

“This decline across the industries can be attributed to the slowdown in economy resulting in a lack of demand on account of monetary tightening during the 8MFY20 mainly,” Zamin said. “Meanwhile, we expect the overall LSM to worsen and to post significant decline in manufacturing output of the country due to the COVID-19-led lockdowns and production halts.”

Zamin expected LSM in March might record a decline of about 50 percent month-on-month, followed by 20 to 30 percent month-on-month decline in April, significantly causing overall contraction of the economy for FY2020. Growth already decelerated to 3.3 percent last fiscal year from 5.5 percent a year earlier. The State Bank of Pakistan projected GDP to contract by 1.5 percent during FY2020 as a result of the pandemic outbreak.

PBS data showed that LSM output for February was down 1.15 percent year-on-year and 0.9 percent month-on-month. Non-metallic minerals, fertilisers and iron and steel were the top performers with the increased output of 27.8, 18.7, 10.8 percent year-on-year, respectively, and wood products, petroleum products and automobile posted the major decline in output of 53.7, 36.3, and 27.2 percent year-on-year, respectively, in 8MFY2020. The LSM declined 3.03 percent year-on-year. Leather products, wood products and paper and board were up 10.5, 6, and 5.2 percent year-on-year, respectively.

­Output fell by 35, 13.6, and 7.9 percent for automobile, petroleum and electronics, respectively.

Fertiliser industry achieved record production numbers since September 2019. The fertiliser industry has had ample supply of gas, resulting in record production of 6.2 million tons in 2019. So has been the case in 1QCY2020 with urea production up 6.9 percent year-on-year, contributing to the six percent year-on-year change in output for the sector. Textile output barely managed to grow on a cumulative basis. The textile sector was up only 0.4 percent year-on-year, attributable to production needed to fulfill exports orders that were received pre-virus outbreak.

“Going forward, we assume the textile sector to post a decline in output due to closed operations amid the lockdowns, and delays or cancellation of export orders,” Zamin added. —