KARACHI: Everybody says the China-Pakistan Economic Corridor (CPEC) will be a game changer for the economy of Pakistan. But for the cement industry, its impact is already visible in the continuously growing domestic cement sales.
“I think CPEC’s impact is quite visible in growing cement demand in the country. CPEC’s contribution is definitely there because we have never seen such double-digit growth in monthly cement sales,” Lucky Cement Chief Executive Officer (CEO) Muhammad Ali Tabba told The Express Tribune.
The Lucky Cement chief said that CPEC’s impact on cement industry is more than just the positive sentiments about it.
The beaming confidence of the cement industry comes from the latest domestic cement sales. For instance, according to latest cement sales figures, domestic sales jumped by a phenomenal 16.89% to 4.29 million tonnes during July and August 2015 as compared to 3.67 million tonnes in the same period last year.
It is not just about the first two months of current fiscal year. The situation is continuously improving as the industry posted highest-ever sales of 35.40 million tonnes in fiscal year ending on June 2015, up 3.27% compared to 34.28 million tonnes, according to All Pakistan Cement Manufacturer Association (APCMA).
Other than the CPEC, Tabba added, the impact of improving security situation in the country is also contributing strongly in the cement demand.
“The security situation has improved which has helped boost the private sector growth in construction sector. Big housing projects in large cities, especially Karachi, are coming up that were on hold for the last several years,” he said.
Speaking on the coal prices, he said, international coal prices are record low but its positive impact on the cement industry is somewhat nullified by the imposition of Gas Infrastructure Development Cess (GIDC).
This week, international coal prices tumbles to 8-year low which has been a big positive for the cement industry of Pakistan because coal makes up over 50% of the total cost of cement manufacturing.
The 5-year average coal price is $86 per ton but it has now down to $49.65 per ton. According to a recent Global Research report, the recent low in coal prices will translate into even higher margins for the cement sector during the second half (Jan-Jun 2016) of fiscal year 2015-16 (FY15-16).
While commenting on the profitability of the cement industry, Tabba said that overall cement industry is in a very good shape. “The cement demand is growing and cement prices are stable. It is all positive for the industry,” he added.
Topline Securities in its recent report said that the cement industry will remain strong in fiscal year 2015-16 because of higher government development spending, initiation of projects under the CPEC, favourable macroeconomic situation and 42-year low interest rate in the country.
“Everything is going in favour of the cement industry except the continuous decline in cement exports. However, overall I do not think there is any threat to the positive trajectory of cement industry in coming years,” JS Research analyst Faizan Ahmed commented.
In the near future, price war among the cement companies is also out of question, he added.
Ahmed said that the good thing for the cement companies is that many of them are working on cost reduction especially by installing waste heat recovering (WHR) power plants.
THE WRITER IS A STAFF CORRESPONDENT
Published in The Express Tribune, October 5th, 2015.