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Exports from Pakistan during 7MFY19 improve

The Pakistan cement industry is facing a domestic drop in cement demand, but export data for 7MFY19 show overseas sales have been strong. Experts believe that with domestic demand experiencing a dip, cement manufacturers have been selling off their surplus inventory to regional markets perhaps with a cut to their margins.
 
Pakistan’s cement industry received foreign exchange revenue of US$27.34m by exporting 655,317t of cement during the month of January 2019, compared to US$25.89m at 624,714t in the previous month and US$17.88m from 357,371t during January, 2018. This shows an increase of 5.6 per cent and 52.9 per cent in terms of value on MoM and YoY basis, respectively, according to the Pakistan Bureau of Statistics.
 
In terms of quantity, the exports saw a growth of 4.9 per cent in January 2019 on MoM and 83.4 per cent over January 2018 YoY basis during this period.
 
However, on cumulative basis, in the first seven months of FY18-19, export revenue rose 35.1 per cent to US$184.34m with Pakistan exporting 4.32Mt of cement, compared to US$136.47m from 2.718Mt in 7M2017/18 (July 2017-January 2018). In terms of Pakistani rupees, the growth stood at 66 per cent.
 
The breakdown of exports, according to All Pakistan Cement Manufacturers Association (APCMA), shows that export dispatches to Afghanistan and India continued to decline in the 7MFY18-19. Exports to Afghanistan fell by 21.7 per cent to 1.02Mt and volumes to India were down 4.6 per cent to 648,108t. However, seaborne exports increased by over 57.8 per cent to reach 1.201Mt of cement and 100 per cent 1.264Mt of clinker during this period.
 
Export to Afghanistan
According to experts and local media, it is also unfortunate that markets like Afghanistan, which took up more than 50 per cent share of Pakistan’s cement exports, are no longer as welcoming. In 7MFY19 they fell by 22 per cent YoY. That market is not only being flooded with more affordable Iranian cement, other regional players have also been eyeing it. Some may attribute the frequent closures at the borders and political tensions between the two countries to be a driving factor into Pakistan losing its market share, but the issue is more an economic one with other cement entering the market at a lower price. In addition, Afghanistan is finally diversifying its trade relations as well.
 
Port facility
However, the south is still performing better than the north in terms of exports. Southern players enjoy the advantage of proximity to the port which provides better export options (in terms of costs) as compared to cement producers in the north.Publish by Cemnet

PSX closes week on bearish note, sheds 400 points

  • Inflows of $1.6m during the week depicted muted foreign interest while average daily turnover stood at 125m, down 34.7pc WoW
  • Investors adviced to keep a close eye on the rising geopolitical tensions as any escalation could take a toll on the market

KARACHI: Continuing from the close of last week, the KSE 100 index started the week on a negative note and followed the trajectory right through, ending at 40,487 points, down -1pc.

Even the finance minister’s hint regarding the International Monetary Fund (IMF) bailout could not cheer the Pakistan Stock Exchange (PSX) investors as they preferred to book profits after the index posting an increase of 10pc in Jan.

Declining coal prices (down 11pc since the start of Dec 2018) invigorated euphoria among the cement stocks during the early part of the week, however, some selling was witnessed in the latter half as profit taking took effect.

Inflows of $1.6 million depicted muted foreign interest while the average daily turnover stood at 125 million, down 34.7pc WoW.

Key developments that impacted the market during the week included the government reportedly deciding to take up to $6 billion loan from the International Monetary Fund, Pakistan and Saudi Arabia likely to ink three major memorandums of understanding (MoUs) amounting to over $10 billion during the upcoming visit of Saudi crown prince, exports during the seven months of FY19 witnessing an increase of 2.24pc to $13.2 billion,  Moody’s Investors Services changing its outlook for the banking system in Pakistan to negative (B3 negative) from stable, and Taliban saying that their negotiators would meet US envoys for talks this month in Islamabad, and will also sit down with Prime Minister Imran Khan to discuss Afghanistan.

Key performers over the week included Cherat Cement Company Ltd (CHCC +5.36pc WoW), DG Khan Cement Company Limited (DGKCC +5.01pc), K-Electric Limited KEL (+2.35pc), KOT Addu Power Company Ltd (KAPCO +2.29pc) and Oil and Gas Development Company OGDC (+1.74pc).

On the other hand, laggards included Pak Suzuki Motor Company Limited (PSMC -7.02pc), Pakistan State Oil (PSO -7.02pc), Habib Bank Limited (HBL -3.29pc), Attock Petroleum Limited (APL -2.95pc) and Engro Foods Ltd (EFOODS -2.91pc).

Analysts believe that the upcoming visit of the Saudi crown prince is expected to keep the investors excited for the week as major investment deals are expected to be signed.

Moreover, they said the continuation of result season would also keep the activity uplifted in selected stocks, adding that some blue chips like PSO, UBL, MCB and ENGRO are expected to announce their results.

Nevertheless, the analysts advised the investors to keep a close eye on the rising geopolitical tensions as any escalation can take a toll on the market.

Published by Profit

Cement’s plan B

With domestic demand experiencing a dip, cement manufacturers have been selling off their surplus inventory to regional markets perhaps with a cut to their margins. This is not how it was supposed to be.

Only last fiscal year, the industry was enjoying the spoils of massive infrastructure development that was central to PML-N’s economic agenda. But much has changed since. The new government is pursuing stabilization efforts which have led to monetary tightening and currency depreciation. After cutting the PSDP expenditure, the releases have been slow. Private sector construction is not breaking any ceilings either. The sector is officially deep into its backup plan: exports.

Nearly half of the construction demand in Pakistan comes from mega development projects while the rest is covered by commercial and housing construction. With the restriction on non-filers to purchase properties of more than Rs4million, real estate activity is not as vibrant. Meanwhile, for a good few months into the fiscal year, high rise construction was banned by the highest court in Karachi. The southern zone however is still performing better than the north.

The former enjoys the advantage of proximity to the port which gives the players better exportability options (in terms of costs) as compared to the players in the north. The depreciating rupee may have facilitated exports at comparatively better margins, however, they remain at least $10 per ton lower than domestic sales given additional costs of transportation. Sea exports grew by over 200 percent in the seven months period, though it is important to note that nearly 65 percent of this is clinker exports. Firms are more prices competitive with clinker than with cement.

It is also unfortunate that markets like Afghanistan which took up more than 50 percent share of Pakistan’s cement exports are no longer as welcoming. In 7MFY19, they fell by 22 percent year on year. That market is not only being flooded with more affordable Iranian cement, other regional players have also been eyeing it. Some may attribute the frequent closures at the borders and political tensions between the two countries to be a driving factor into Pakistan losing its market share but it seems the issue with cement is economics. Other cement entering that market is simply cheaper and Afghanistan is finally diversifying its trade relations as well.

Many of the new expansions in the industry are online, others are on the way. At the current pace of domestic demand slowdown and rise in sea exports, the capacity utilization is expected to remain at 85 percent which is not all that bad. If exports continue to take up 15-20 percent share in total dispatches, domestic market will take care of the rest. The PSDP spending with foreign funding projects related to

CPEC highway and motorway and the bus rapid transit (BRT) are on track which may keep the demand for cement at an encouraging level. Though, the restriction on non-filers on the purchase of property may limit new constructions. On the other hand, if Khan’s ambitious housing plan can bring even half of the promised one million houses per year, it would add between 5-10 million tons of additional cement demand

In any case, it seems unlikely that any construction will start before FY20. This leaves the industry with its export-push plan which may prove favorable to the south players while keeping overall dispatches on the same level as last year. Though margins will take a massive beating all around, market leaders and mid-players alike

Copyright Business Recorder, 2019

Landfill mulls cement solution for plastic waste


Roseridge ponders waste-to-energy deal

A new plan in the works at St. Albert’s landfill could one day see the city’s plastic waste burned to help make cement.

Roseridge landfill manager Gerard Duffy told the Gazette this week the landfill is looking into a plan to send the Sturgeon County region’s plastic waste to an area cement plant to be burned as fuel.

Roseridge (which takes St. Albert’s trash) is seeking out new ways to handle its plastic waste due to China’s new rules on recycling, which has barred many forms of plastic waste from its shores, said Morinville Coun. Stephen Dafoe, who sits on the landfill’s board. The new rules have prompted recyclers to tighten up what they accept in curbside recycling programs and frustrated many residents.

“If people get too frustrated with recycling, they’ll just start throwing it in the garbage,” he said, and the more waste that goes to the landfill, the quicker it fills up.

Duffy said he was approached by a group last month that proposed to have the landfill shred its plastic waste and ship it to a local cement plant, which would use it to fire its kilns. This process could accept all forms of plastic, even currently unmarketable ones like plastic clamshells and thin films.

Duffy emphasized the proposal is in its very early stages, and he isn’t sure if it is even feasible. The big question is the fuel requirement – the cement plant wanted about 60,000 tonnes of plastic per year.

“Sixty thousand tonnes of plastic is quite a bit for Roseridge to come up with,” he said, and he has yet run the idea past area governments.

Duffy said he isn’t sure if this process would throw all plastics in the kiln or just the unmarketable ones. He hasn’t figured out the cost, but said it would likely be cheaper than recycling.

“The cost to recycle plastic just keeps going up,” he said.

“If we can put all the plastic in one drum and take care of it, it would definitely alleviate some pressure off our residents.”

Dafoe said the board would get an update on this proposal later this month and would consider it in detail come March.

Greener cement

Duffy said Lehigh Cement’s Delta, B.C., operation has a similar waste-to-energy setup to the one under consideration at Roseridge.

That plant takes in tens of thousands of tonnes of wood waste and non-recyclable plastic per year to replace coal burned during cement production, said Jasper van de Wetering, alternative resources and CO2 mitigation manager for Lehigh. This change was made in part in response to the province’s carbon tax.

The cement industry creates about eight per cent of global greenhouse gas emissions, reports Carbon Brief – more than any nation besides China and the U.S. About half of that comes from heating limestone to make clinker (an ingredient in cement), while some 40 per cent comes from the fuel used to make that heat. The rest is from mining and transportation fuel.

van de Wetering said alternative fuels like waste can cut a cement plant’s fuel-related carbon footprint by as much as half, depending on the mix and amount of waste used, and help municipalities keep waste out of the landfill. The chemical reactions in cement production also trap many of the pollutants released by burning plastic in the cement itself.

Lehigh hopes to get about 35 per cent of the heat at its cement plants from waste by 2030, van de Wetering said. Lafarge got a $10 million grant from the Alberta government this week to support waste-to-energy at its Exshaw cement plant.

“The issue is establishing that supply chain,” van de Wetering said – you need about 100,000 tonnes of mixed waste to meet half a cement plant’s heating needs, and it all has to be shredded to the right size. Having a landfill that could provide such waste would help.

Pakistani cement attracts investors on PSX

The shares of top Pakistan’s cement producers at Pakistan Stock Exchange (PSX) become attractive for international and local buyers on 5 February on anticipation of good results ahead.

The benchmark KSE100 Index started the week on a buoyant note, settling marginally above the key barrier of 41,600. The gains were mainly led by aggressive buying in cements with DG Khan Cement Ltd DGKC PA up five per cent, Maple Leaf Cement Factory Ltd (MLCF) up five per cent and Lucky Cement Limited LUCK PA up 4.7 per cent trading at their upper circuits on the back of the decline in international coal prices, says a report of Elixir Securities Pakistan.

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.

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.

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 Intermarket Securities, the slowdown in local cement dispatches has been in place since elections and appears to be gathering pace. This could be attributable to lower PSDP disbursements, a more challenging macroeconomic environment and legal challenges on major private sector construction projects.

The regional divergence is possibly due to some plants in the south understood to be selling in the south Punjab market (which falls under the northern region).

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.

Furthermore, in 7MFY19 local cement sales were down four percent YoY to 22.6Mt. Northern-based sales fell eight percent YoY to 17.8Mt while southern-based sales increased 17 percent YoY to 4.8Mt. The regional divergence is possibly due to some plants in the south understood to be selling in the south Punjab market (which falls under the northern region).

Capacities, especially in the south, also continue to be diverted towards exports, which have clocked in at 4.1Mt in 7MFY19, up 50 percent YoY. Overall industry utilization based on 7MFY19 sales is 81 percent (vs. 99 percent in the same period last year).

Bestway cement partners with Siemens Pakistan

Bestway, Pakistan’s largest cement manufacturer, partners with Siemens Pakistan for the implementation of SAP S4/ HANA. This collaboration will facilitate Bestway with the opportunity to focus on providing strategic differentiation and will also provide operational superiority over their competitors.

A signing ceremony was held in this regard which was attended by the top management of both the firms.