The total cement dispatches for the first five months of FY06 stood at 7.23 million tons, a growth of 10.6 percent over 6.53 million tons in the same period last year, showing that new construction activity has maintained the pace set a year ago. Local sales grew by 12.2 percent to stand at 6.58 million tons whereas exports registered a decline of 3.3 percent.
In November 2005 alone, total dispatches stood at 1.19 million tons. This depicted a growth of around 7.8 percent YoY. However, on a MoM basis, dispatches in November 2005 registered a decline of 23.5 percent when compared to 1.56 million tons in October 2005. This decline is seasonal as usually cement sales normally take a dip during this period. Moreover, this time around, these got augmented with the early arrival of the winter season and lower construction activities in the country amid Eid holidays and earthquake in Pakistan leading to shortage of labours. Our full year forecast for cement dispatches remain at 18.5 million tons for the full FY06. This means an increase of 13 percent, compared to 16.4 million tons cement sales in FY05.
The outlook for demand growth remains positive as a number of mega housing projects are in their initial stages whereas the government has also started a lot of infrastructure development projects and might even go for mega water reservoirs projects in the future. This would keep demand upbeat. Earthquake in northern areas will further strengthen demand growth.
We expect a per year addition of around 0.5 million tons demand for cement just due to the earthquake and its rehabilitations. Overall we expect cement sales to increase by a CAGR of 9 percent in the next four years (FY07-10).
Atif Malik, research analyst from Jahangir Siddiqui Capital Markets Ltd, said the supply side, since almost all the major cement companies are currently undergoing their expansion plans in order to capture the rising demand, we expect an additional 19.7 million tons capacity to come online in the next three years (FY07-09).
Majority of these would be through new plants or new line expansions. Out of these three years, FY07 and FY08 would be two years when huge chunk of new capacities would start materialising. Overall, we don't expect cement sector capacity utilisation to go below 59 percent.
THE FOLLOWING TABLE ILLUSTRATES OUR FUTURE DEMAND AND SUPPLY ESTIMATE FOR THE CEMENT INDUSTRY:
In the future, we think, Lucky and DG Khan will dominate the cement industry, in terms of pricing power due to their dominant market share. By FY10, these two companies will account for one-fourth of total installed capacity of the country.
The seasonal hiccups in cement firms association will remain there, as happened in the past. However, due to cumulative benefit, the cartel-like situation is expected to remain there and no major fall, for an extended period in cement prices is expected.
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FY06E FY07F FY08F FY09F FY10F
Installed Capacity (Average) 21.0 28.5 38.3 39.3 39.3
Total Demand (local + export) 18.7 20.8 22.7 24.7 26.9
Capacity Utilisation 89% 73% 59% 63% 69%
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