Cement sales in April declined by 8.5 percent, to 1.28 million tons from 1.4 million tons of March, because of higher steel and property prices.
Abduallah Amin, research analyst from AKD Securities, said that construction industry is currently hampered by high property prices complemented by the already peaked steel prices.
Although lately both these markets (property and steel) have witnessed a slight correction, but the damage had already been done. The market is anticipating further fall in property prices and thus new projects might take some time to materialise.
The second factor that affected the domestic cement sales in April was the shift of labour force to the agriculture sector.
The labour force primarily consists of rural population who return to hometowns and villages during the wheat harvesting season. Hence, the last ten days of April were also affected by the unavailability of labour force.
Cement sales in the export market slipped by 36,643 tons, a 22 percent decline compared with March numbers.
The decline should be not a source of worry as the export market is small in size (relative to the domestic market), and due to shortage of cement in Iran Pakistan manufacturers are also getting inquires from there as well.
Khalid Iqbal Siddiqui, research analyst from Investcapital Securities, said that April cement dispatches of 1.28 million tons were slightly higher than expectations and therefore "we maintain our 'Positive' stance on the sector".
The recent sales numbers are also far better than market expectations.
As cement sales slightly tapered off during April (after record 1.4 million tons sales in March) due to seasonal factors, local cement quota during April declined to as low as 60 percent.
However, 100 percent quota for the first 10 days of the month kept average capacity utilisation at 81 percent (90 percent inclusive of exports).
During the first 10 months (Jul-April FY04) period capacity utilization has remained at 72 percent (79 percent with exports).
Reduction of cement sales in April as compared to March was normal and this time again it was due to recent rains in the northern regions which had subdued construction activity.
Moreover, there has also been shortage of labour in construction sector due to seasonal labour demand from agriculture sector.
Going forward, local cement quota is expected to remain 70-80 percent for the remaining two months of FY04.
Looking at monthly sales, total cement dispatches during April 2004 had increased by 32 percent to 1.279 million tons compared to 970,000 tons during similar month last year. Local cement dispatches during April increased by 26 percent to 1.154 million tons compared to similar period last year.
Cement exports during the month of April were 125,000 tons compared to 53,000 tons similar period last year.
Total cement dispatches during Jul-April FY04 increased by 16 percent to 11.1 million tons. Local cement consumption during this period was up by 10 percent to 10.2 million tons. During the first 10-months of FY04, exports increased by 192 percent to 907,000 tons.
Keeping in view the rising demand, Khalid says he expects cement dispatches to reach his revised target of 13.5 million tons for FY04.
"We also expect some incentives for the sector in the upcoming budget. Our top picks in the sector are Maple Leaf & Lucky. Also, we recommend buy on dips for DG cement."