Cement manufacturers like other construction peers cannot wait for the Naya Pakistan Housing Plan (NPHP) to pan out, but until it does, existing demand has them beat. Official numbers from the All Pakistan Cement Manufacturers Association (APCMA) reveal that in 9MFY19, cement sector’s local dispatches fell by 6 percent year on year with net sales dropping by 1 percent due to a small cushion that exports are providing.
Far-flung markets in Africa however are being more receptive to Pakistani cement than next door neighbours Afghanistan and India, the latter of which is an especially difficult market to penetrate post-Pulwama with political tensions heightening. Evidently, in March there were zero exports to India and this has slowly become the new normal. The reduction in exports to Afghan/India combo, it is clear that players in the north are suffering far more than those factories near the port in the south. North players can export to farther away markets but at higher transportation costs.
While exports are saving the day, the actual credit goes to clinker exports that are 32 percent of total outgoing commodity. The sales mix is 85:10:5 for local cement and clinker exports. Clinker is more price competitive in foreign markets so it makes up for the gap in exports coming forth from Pakistan’s primary cement export markets, but on the revenue side, since they fetch lower prices (about $32-35 per ton) compared to cement exports (about $50-55 per ton) as well as local sales (about $93-97 per ton), this new sales mix is not the most optimum at the moment.
Having said that, with majority still going to domestic markets, it is not a dire scenario and the sector is still operating at nearly 85 percent capacity. However, the margins that cement manufacturers will get will be just lower owing to comparably lower revenue per ton. One upside is the stable international coal prices. If cement makers can somehow manage their inventory to escape the exchange rate effect, their margins have a better chance. Domestic demand will remain tame.
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