01-26-2009, 07:57 AM
By Nasir Jamal
THE multi-billion-rupee cement industry is in for a rough patch as the demand for the commodity continues to decline owing to sluggish construction activity in the domestic and regional markets-- both on the back of an all-pervasive economic contraction.
“If the construction activity does not pick up over the next six months, we might see some cement units closing down and others cutting their production. That will result in massive job loss and waste of huge investment in this sector as the industry tries to survive the persisting energy crunch and high credit cost,” Mr Rehmat Khan, chairman of the All Pakistan Cement Manufacturers Association (Apcma), warned while speaking to Dawn.
“Local demand for cement has depressed in the last several months because of reduction in public and private investment in construction and development projects. Exports are also plunging. Cash flow problems are mounting on falling sales,” Mr Khan argued.
After five years of steady and robust growth in sales at an annual average of 16 per cent to 2007 that saw production capacity grow phenomenally to 42 million tons a year, manufacturers are now trying to prepare themselves for years of slowing demand and diminishing sales.
The domestic sales showed negative growth of 16 per cent year-on-year in the first half of the current fiscal to December after growing four per cent in the second half of last year to June. The sector has a surplus capacity of 12 million tons as its total sales at home and abroad remained around 30 million tons last fiscal and fears even lower capacity utilisation in the coming months. Some analysts say it could lead to a price war in both domestic and export markets and jeopardise some manufacturers’ viability, leading to closure of uncompetitive units.
Most analysts say the inflationary pressures have substantially jacked up the cost of construction, which has resulted in the reduction in demand for cement. In addition, the government decision to cut development spending, down by 65 per cent in the first half of the current fiscal, as part of its strategy to improve fiscal imbalances, also caused cement sales to slump.
The growth in the cement exports has decelerated to just below 70 per cent from 140 per cent a year earlier, and still decreasing. Analysts expect exports to slow down significantly in the near to medium-term as the demand in the importing countries falls in the months to come and regional economies like Iran try to take their market share.
“Our exports to India, which has boosted its domestic production, have dried up owing to Indian decision to make cement imports from Pakistan expensive to protect its own manufacturers,” said Mr Khan. But he was hopeful that Pakistan would not lose the entire Gulf market to the economic downturn there. “I am positive that our cement will continue to be in demand in the Gulf, albeit in substantially reduced quantities,” he said.
A Karachi-based analyst in his recent note for the stock investors says, “the shrinking cement demand owing to liquidity crisis amidst global recession and the completion of pending expansions, the under supply situation of the region has started tapering off. Under these unfavourable circumstances, Pakistan’s cement exports are likely to take a major hit from the next financial year beginning July 1”.
Analysts believe that all the regional countries -- including some of Pakistan’s markets -- are “not only becoming capable to meet their internal demand but also likely to flood the region with huge cement supply. Besides, leading European companies are planning to park their excess capacity in this region as demand in Europe and the United States has also slumped due to the slow down in construction activities. This will probably result in a tough competition for Pakistani cement manufacturers in months to come.” That, they argue, could also bring international cement prices under pressure in the wake of a pricing war between the cement suppliers from different countries.
Pakistan began to export small quantities of cement in 2002 as reconstruction in the war-torn Afghanistan went underway. Cement exports peaked to 7.717 million ton -- showing a year-on-year growth of 142 per cent -- during the last fiscal to June 2008 as the manufacturers found a new market in India due to demand and supply gap in the wake of massive construction activity in that country. Flushed with petro dollars, the Gulf countries like the United Arab Emirates also saw huge construction activity, which also created a sustained demand for Pakistani cement and clinker.
Manufacturers are of the view that the government must kick-start construction activity by launching infrastructure projects promised in the Public Sector Development Programme (PSDP). “That will not only save the cement industry but also many downstream industries and thousands of jobs,” said Mr Khan. But few expect the government to do so because of the International Monetary Fund’s loan conditionalities.
http://www.dawn.com/2009/01/26/ebr18.htm
THE multi-billion-rupee cement industry is in for a rough patch as the demand for the commodity continues to decline owing to sluggish construction activity in the domestic and regional markets-- both on the back of an all-pervasive economic contraction.
“If the construction activity does not pick up over the next six months, we might see some cement units closing down and others cutting their production. That will result in massive job loss and waste of huge investment in this sector as the industry tries to survive the persisting energy crunch and high credit cost,” Mr Rehmat Khan, chairman of the All Pakistan Cement Manufacturers Association (Apcma), warned while speaking to Dawn.
“Local demand for cement has depressed in the last several months because of reduction in public and private investment in construction and development projects. Exports are also plunging. Cash flow problems are mounting on falling sales,” Mr Khan argued.
After five years of steady and robust growth in sales at an annual average of 16 per cent to 2007 that saw production capacity grow phenomenally to 42 million tons a year, manufacturers are now trying to prepare themselves for years of slowing demand and diminishing sales.
The domestic sales showed negative growth of 16 per cent year-on-year in the first half of the current fiscal to December after growing four per cent in the second half of last year to June. The sector has a surplus capacity of 12 million tons as its total sales at home and abroad remained around 30 million tons last fiscal and fears even lower capacity utilisation in the coming months. Some analysts say it could lead to a price war in both domestic and export markets and jeopardise some manufacturers’ viability, leading to closure of uncompetitive units.
Most analysts say the inflationary pressures have substantially jacked up the cost of construction, which has resulted in the reduction in demand for cement. In addition, the government decision to cut development spending, down by 65 per cent in the first half of the current fiscal, as part of its strategy to improve fiscal imbalances, also caused cement sales to slump.
The growth in the cement exports has decelerated to just below 70 per cent from 140 per cent a year earlier, and still decreasing. Analysts expect exports to slow down significantly in the near to medium-term as the demand in the importing countries falls in the months to come and regional economies like Iran try to take their market share.
“Our exports to India, which has boosted its domestic production, have dried up owing to Indian decision to make cement imports from Pakistan expensive to protect its own manufacturers,” said Mr Khan. But he was hopeful that Pakistan would not lose the entire Gulf market to the economic downturn there. “I am positive that our cement will continue to be in demand in the Gulf, albeit in substantially reduced quantities,” he said.
A Karachi-based analyst in his recent note for the stock investors says, “the shrinking cement demand owing to liquidity crisis amidst global recession and the completion of pending expansions, the under supply situation of the region has started tapering off. Under these unfavourable circumstances, Pakistan’s cement exports are likely to take a major hit from the next financial year beginning July 1”.
Analysts believe that all the regional countries -- including some of Pakistan’s markets -- are “not only becoming capable to meet their internal demand but also likely to flood the region with huge cement supply. Besides, leading European companies are planning to park their excess capacity in this region as demand in Europe and the United States has also slumped due to the slow down in construction activities. This will probably result in a tough competition for Pakistani cement manufacturers in months to come.” That, they argue, could also bring international cement prices under pressure in the wake of a pricing war between the cement suppliers from different countries.
Pakistan began to export small quantities of cement in 2002 as reconstruction in the war-torn Afghanistan went underway. Cement exports peaked to 7.717 million ton -- showing a year-on-year growth of 142 per cent -- during the last fiscal to June 2008 as the manufacturers found a new market in India due to demand and supply gap in the wake of massive construction activity in that country. Flushed with petro dollars, the Gulf countries like the United Arab Emirates also saw huge construction activity, which also created a sustained demand for Pakistani cement and clinker.
Manufacturers are of the view that the government must kick-start construction activity by launching infrastructure projects promised in the Public Sector Development Programme (PSDP). “That will not only save the cement industry but also many downstream industries and thousands of jobs,” said Mr Khan. But few expect the government to do so because of the International Monetary Fund’s loan conditionalities.
http://www.dawn.com/2009/01/26/ebr18.htm