The inauguration of Dasu dam has reinforced optimism in the local cement industry, which has been banking on the continuous increase in local demand owing to mega construction projects.
Dasu dam – one of the mega dam projects – is expected to increase cement demand in the country by 1 million tons per annum for the next five years.
Prime Minister Nawaz Sharif on Wednesday inaugurated the mega project of 4,320MW that will be completed in two phases with an estimated total outlay of about $4.8 billion with a foreign financing share of $3.7 billion.
Analysts say the construction of big dams like Dasu and Basha will supplement the already improving cement demand in the country. “Dasu dam will add an additional 1 million tons in annual cement demand, which will be significant for the local industries,” BMA Capital analyst Sajjad Hussain told The Express Tribune. “It will increase the already escalating cement demand in the country.”
The launch of the project comes amid already announced projects including Karachi-Lahore motorway and the low-cost housing schemes indicating government’s resolve to utilise the entire Rs525 billion allocated for Public Sector Development Program (PSDP) in budget 2015, the report added.
“The launch of Dasu dam is important for the cement industry in northern region of the country. Other major infrastructure projects that are expected to start soon will further increase cement demand and it may jump 5% in fiscal year 2015,” Standard Capital Securities analyst Saad Hashmi said.
Since Dasu dam is located in the north, the cement for the project will most likely be procured from the factories located in nearby region. Cement companies like Maple Leaf, Fecto, Bestway, Cherat, DG Khan, Fauji are most likely to benefit from the dam construction.
There was a visible enthusiasm in the officials of companies located in the region. “Since Dasu and other big dams are all going to be built in the northern region, these dams will have significant impact on the cement sales in the southern region of the country,” a chief executive of a cement company.
According to cement industry officials, the recent increase in Gas Infrastructure Development Cess (GIDC) on captive power plants from 100 mmbtu to 150 mmbtu and the imposition of 1% duty on imported coal are going to hurt industry’s profitability.
However, since the industry is continuously witnessing growth in local cement sales, it can easily pass on this increase to the consumers and hence recent budgetary measures are not going to affect the profitability of the industry. “The imposition of 1% duty on imported coal will not weaken the profits of the industry as the higher cement demand has already put manufacturers in the position where they can dictate prices,” Hashmi said.
The construction of Dasu dam is likely to attract further interest of investors in the cement sector that is already under the limelight owing to possible acquisitions and expansions talks, BMA Capital research report on Thursday said.
Published in The Express Tribune, June 27th, 2014.