Despite sluggish local demand, total dispatches of Pakistani cement are likely to post 3 percent YoY (Year over Year) growth in 7MFY19, mainly on the back of stellar growth in exports. Continuing with its past trend, exports will remain encouraging during Jan 2019 at over 60 percent annually on the back of higher clinker sales to regional countries. Due to lower local demand, South players are striving to export surplus inventory to avoid pricing pressure on domestic cement prices.
Cement exports surged 58.6 percent 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.
Experts said that due to weak macros and tightening monetary policy, local cement demand is likely to fall by up to 3 percent annually in FY19 while higher input costs will likely keep the pressure on profit of the cement industry.
However, local Pakistani cement dispatches are likely to register a 9 percent decline in January 2019 annually. On monthly basis, it is expected that volumes will fall by around 4 percent.
According to industry experts, the volumes will be lower mainly on the back of weak local dispatches as cold weather and slowdown in the economy continue to post a challenge to the local industry. Taking a cue from discussion with the industry, the decline in local sales can be as much as 15-20 percent YoY in Jan 2019. To note, Large Scale Manufacturing (LSM) numbers remained disappointing in 5MFY19 as the index was down 0.9 percent YoY.
Experts believe that slowdown in the economy (where it is expected FY19 GDP growth at 3-4 percent versus 5.8 percent in FY18) is likely to keep the pressure on the domestic side. Experts said that due to weak macros and tightening monetary policy, local cement demand is likely to fall by up to 3 percent annually in FY19 while higher input costs will likely keep the pressure on profit of the cement industry. To note, Dec 2018 quarterly results of cement producers have started coming in and as per initial impression, it is expected further contraction in gross margins (1QFY19 margins were at 24 percent).
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 percent target for real GDP growth seems unachievable with the policy focus now tilted towards macroeconomic stabilization.
The cement sector’s output contracted by 1.4 percent in 1QFY19 against a sizeable growth of 12.4 percent 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 percent drop in capacity utilization to 80 percent in 1QFY19.
Pakistan cement companies are scheduled to announce their financial results for the second quarter and six months of FY18-19 in coming months.
For the last few years, robust domestic demand had helped cement manufacturers increase their capacity utilization significantly, thereby ensuring healthy margins for the cement industry. However, in 1QFY19, the domestic sales witnessed a decline of 0.4 percent on a YoY basis, putting considerable pressure on the utilization levels.
Pakistan cement companies are scheduled to announce their financial results for the second quarter and six months of FY18-19 in coming months. Top cement companies are expected to post a growth of over two percent QoQ (Quarter on Quarter), or 37 percent YoY decline for 1HFY19.
According to a research report of IGI Finex Securities Ltd, based on provisional numbers, volumetric sales depict a modest four percent YoY growth during 1HFY19, primarily owing to healthy exports growth of 48 percent YoY, while local sales remained low, posting a decline of 1.5 percent YoY.
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