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Transporters strike may impact cement industry

The local and export dispatches of cement industry in Pakistan are likely to face challenges due to ongoing protest of United Goods Transporters Alliance in Pakistan, which has entered in its fourth day. The strike would also hamper the supply of raw materials to factories.

As a result, the movement of general cargoes, including export of cement/clinker to and from Karachi Port and Port Qasim in Sindh province of Pakistan, would further slow in coming days, according to an official of transports representing body. Additional cargo supplies across the country came to a halt from Monday, when goods transporters suspended their operations in protest over a hefty increase in fines, difficulties in issuance/renewal of licence and axle load issue in the country. Imports (including coal) and exports would also be impacted if the strike is not withdrawn immediately.

The All Pakistan Tanker Association has reportedly also joined the fold of transporters alliance to press government.

The initial talks of United Goods Transporters Alliance in Pakistan with Sindh Governor, Imran Ismail, did not bear positive results and strike would continue, until demands are met, an official of transporters vows. However, an official of Karachi Port Trust said cargoes handling and arrival/sailing of vessel are going smoothly.

Pakistan’s State Bank observes decline in cement production in 1QFY19-20

The State Bank of Pakistan (SBP) has released its first quarterly report on the state of Pakistan’s economy for FY19-20, including the performance of the domestic cement sector.

According to the report, Pakistan’s macroeconomic stabilisation process picked up momentum with the initiation of the IMF’s Extended Fund Facility. The SBP continued to keep the monetary policy consistent with the medium-term inflation target, while consolidation efforts were visible on the fiscal front. Furthermore, a market-based exchange rate system was implemented, to which the interbank foreign exchange market adjusted relatively well. Notably, the government avoided deficit monetisation, including rollover of SBP debt and actively pursued documentation efforts.

The large-scale manufacturing sector witnessed a decline of 5.9 per cent in 1QFY19-20 YoY.  Achieving the real GDP growth target of four per cent appears unlikely.

Cement industry
The cement industry’s first-quarter output declined by 1.5 per cent YoY compared to marginal growth last year, as captured by LSM data. This outcome results mainly from subdued domestic demand although there are some signs of improvement since September FY19-20. On the other hand, exports of clinker helped offset a substantial portion of losses but were not enough to turn the overall output growth to positive in this quarter.

According to the All Pakistan Cement Manufacturers Association (APCMA), cement exports rose by 17.6 per cent in  1QFY20 compared to 30.8 per cent growth last year.

As exports to India declined, exports of the finished commodity to Afghanistan and clinker to mainly African countries rose sharply, to the benefit of local producers. In particular, exports of clinker, which grew 121.9 per cent over last year, provided a much-needed boost to a sector that has undertaken extensive capacity enhancement in the last few years and added over 20 per cent to the overall capacity in just the last two years.

Meanwhile, domestic cement sales remained dull as public and private spending on infrastructure and housing remained subdued. The high cost of construction deterred real estate developers. In addition, large-scale developers, who rely on bank borrowing to fund their operations, held back their investment owing to the increase in financing costs.

Fauji Cement Co announces Board of Directors member

Iran’s cement and clinker exports rise 22%

Iran exported 11.4Mt of cement and clinker to 37 countries in the first eight months of the Iranian year from 21 March 2019-21 November 2019. Exports during the period rose by 22 per cent, compared to the corresponding period a year ago, according to the Iranian Mines and Mining Industries Development and Renovation Organisation.

Afghanistan, Uzbekistan, Pakistan, Kazakhstan and Russia were the top destinations for cement and clinker exports and the top 10 countries accounted for 78 per cent of the exports from Iran.

Iran-US conflict may impact cement industry in Pakistan

According to a report from a local research house, following the alleged assassination of Iranian Commander Qassem Soleimani by a US drone attack, security concerns in the Middle East have escalated significantly. Iran and its allies have vowed to retaliate and there is a high possibility of a series of attacks from both sides in the coming months.

Nonetheless, analysts think the likelihood of an all-out war between Iran and the US with its Middle Eastern allies is thin, because it will likely extend to a wide range of countries, and there may be limited popular support for it in the US.

Thus, oil prices have shot up six per cent to US$70/bbl since the event unfolded. It is likely that they may remain high in the coming months, given potential supply disruptions in the Strait of Hormuz (near the coast of Iran and a major route for oil shipments out of the Middle East).

Impact on economy
Higher oil prices, if extended for more than a quarter, is a risk to Pakistan’s ongoing economic recovery, it is assumed. As such, amid cement industry price competition for greater market share by the recently expanded companies, higher oil prices is a severe cost pressure (hiking both energy and transportation costs) and would negatively impact the industry.

Pakistan reports mixed 6M dispatches in December

In the six months of July-December 2019, Pakistani cement plants in the northern region saw a rise in domestic dispatches, but export sales were subdued, according to All Pakistan Cement Manufacturers’ Association (APCMA). In the south the domestic off-take was poor, but exports delivered a positive performance. APCMA attributes this to the two-tier growth in the country’s economy.

In the 6MFY19-20 cement dispatches in the country increased 6.5 per cent to 24.751Mt when compared with 23.239Mt dispatched during the same period last year. Domestic consumption registered a rise of only 3.5 per cent to 20.373Mt from 19.677Mt in the same period last year, while exports surged by over 22 per cent to 4.377Mt from 3.561Mt in the year-ago period.

Out this total, the northern cement grinding units dispatched 17.406Mt cement to the local market in 6MFY19-20, registering a YoY increase of 11.7 per cent. Exports from the north reached only 1.42Mt, down 3.9 per cent YoY.

The southern region dispatched 2.967Mt of cement to the domestic market in the 6MFY19-20, representing a decline of 27.4 per cent when compared with the year-ago period. Exports from the south in the last six months almost matched the local consumption in that region. The exports were 2.957Mt, registering a considerable growth of 41.9 per cent.

December 2019
In December 2019 cement dispatches increased by 10.7 per cent YoY to 4.306Mt from 3.891Mt. Pakistani cement consumption increased by 7.2 per cent to 3.536Mt  in December 2019 from 3.3Mt in December 2018, while exports surged 30.4 per cent from 0.591Mt in December 2018 to 0.769Mt in December 2019.

During the last month of 2019, the cement mills based in northern Pakistan dispatched 3.172Mt, 11.2 per cent higher than 2.852Mt in December 2018. Domestic offtake increased from 2.62Mt in December 2018 to 2.96Mt last month, whereas exports fell from 0.227Mt in December 2018 to 0.207Mt in December 2019.

Southern-based cement mills dispatched 1.135Mt in December 2019, up 9.2 per cent from 1.039Mt in December 2018. Domestic consumption declined from 0.675Mt in December 2018 to 0.572Mt in December 2019. However, exports from the region increased to 0.563Mt in December 2019 from 0.364Mt in December 2018.

Government support needed
With cement dispatches estimated at just over 47Mt in 2019 and a capacity of 59.65Mta, the industry has considerable overcapacity, according to APCMA. This situation is expected not to trigger any investment and expansion in the industry and employment in the sector is set to gradually decrease. To support the sector, APCMA has suggested that the government needs to start work on the Public Sector Development Programme (PSDP) and announced housing projects to boost the contribution of the construction sector and provide job opportunities for skilled and unskilled labour.