The State Bank of Pakistan on Tuesday released its first quarterly report on the State of Pakistan’s economy for FY19. According to the report, the overall macroeconomic environment remained challenging during the first quarter of FY19 as suggested by the preliminary data. It pointed out that the 6.2 per cent target for real GDP growth seems unachievable with the policy focus now tilted towards macroeconomic stabilisation.
The cement sector’s output contracted by 1.4 per cent in 1QFY19 against a sizeable growth of 12.4 per cent during the same period last year. The decline came despite the fact that the sector’s capacity grew from 49.4Mta to 54.2Mta during the review period. A slowdown in cement dispatches in the midst of capacity enhancements led to a four per cent drop in capacity utilisation to 80 per cent in 1QFY19.
For the last few years, robust domestic demand had helped cement manufacturers increase their capacity utilisation significantly, thereby ensuring healthy margins for the cement industry. However, in 1QFY19, the domestic sales witnessed a decline of 0.4 per cent on a YoY basis, putting considerable pressure on the utilisation levels.
Encouragingly, however, exports grew remarkably, as they did in previous expansionary phases as well. In volume terms, the manufacturers exported 39.1 per cent more cement during 1QFY19, which was in stark contrast to the last year’s decline of 16.7 per cent.
Cement exports surged 58.6 per cent YoY to US$77.6m. With additional capacity coming online in the south in 2HFY18, firms in the region have been aggressively marketing to foreign buyers. That said, initial customs data as well as market intelligence suggests that clinkers, instead of finished (Portland) cement, drove the volume increase in exports in 1QFY19. Pakistani firms are said to be more price-competitive in clinker production instead of cement, and are exporting clinker to countries such as Bangladesh and Kenya.