Thursday, March 26, 2009
Wednesday, 25 March 2009
Cement exports are growing and the present momentum will likely be maintained in coming months, says Lucky Cement Chief Executive Officer M Ali Tabba. However, analysts’ opinions are contrary to that projection, who said that though margins of many cement companies had recovered, cement demand would remain under pressure both in domestic and export markets.
Lucky Cement, the country’s largest manufacturer and exporter of cement, has recently started production from its new line with a capacity of 1.25 metric tons per annum, taking the company’s total capacity to 7.75 metric tons.
“It is an assumption that cement exports will decline in coming months, but what we see is that exports have been maintained and we are also hopeful for the future,” said M Ali Tabba.However, cement companies, which have been expanding their production capacities, are now encountering difficulties owing to high interest rates and low demand.
M Rehan Khan of First Capital Equities said local cement companies had successfully met regional demand “but now owing to slowdown in economic activities in countries dependent on oil revenues, cement exports are under pressure.”
This year, he added, margins of cement companies had recovered to over 30 per cent from 15 per cent due to better market prices. A lot of cement companies went for expansion last year, and “these will benefit in coming months owing to the likelihood of a cut in benchmark interest rates.”
Increased cement prices in the local market coupled with better export prices due to depreciation of Pak rupee against US dollar had helped the commodity’s exports.Officials of cement companies said that demand in the Gulf region would remain buoyant owing to huge housing requirements in many regional countries.
The cement companies’ cost of sales has increased owing to a rise in production cost. The cost rose despite a decline in international coal prices as old coal stocks purchased at higher prices were being consumed.
Cement companies use imported coal, which has a major share in the production cost. Fortunately, coal prices have come down from over $190 per tonne to around $130 per tonne in the last couple of months, which will help cement companies reduce production cost.
Though coal prices in the international market have declined considerably, their positive effect would be felt in the months to come because generally cement companies place import orders four months in advance.
Regional countries are trying to improve cement production in a bid to increase their share in exports. Besides, leading European cement companies are planning to park their excess capacity in this region as demand in Europe and the US has dropped sharply due to slowdown in construction activities.
This will probably result in a tough competition for Pakistani cement manufacturers because international cement prices are now under pressure in the wake of a price war between cement suppliers.
Cement demand owing to liquidity crisis amid global recession and completion of pending expansions has started tapering off. Under these unfavourable circumstances, Pak cement exports are likely to take a major hit in fiscal year 2010.
Source: The News