AKD Quotidian about — Cement Volumes: A Mixed Bag!

Karachi:  As per the latest data released by the All Pakistan Cement Manufacturer Association (APCMA), cement dispatches have depicted a mixed performance over 8MFY12, with total sales increasing by 3.5%YoY to stand at 2045mn tons.

According to AKD Securities, while local sales continued with their healthy trend, increasing by 7.4%YoY in cumulative 8MFY12, exports have continued with the year’s declining trend, falling by 5.6%YoY during the review period. Feb’12 export figures are particularly ominous, declining by 20.2%YoY to stand at 566.6k tons. At the same time, while the much vaunted Afghanistan exports have registered an increase of 6.7%YoY in 8MFY12, Feb’12 figures have been particularly subdued, declining by 27.7%YoY to -270k tons. With product price increases and cost saving benefits already priced in by the market, listed cement sector performance within the KSE is likely to be dictated by local off-take and any further increase in prices, where AKD Securities believes another round of price hike is likely in FY12. This year could also be the year when M and A activity within the sector come to the fore, with manufacturers keen to focus on cost reductions and synergies.


Cement Dispatches (8MFY12)
(mntons)   8MFY12 8MFY11  YoY   Feb’12 Feb’11     YoY
Local  14.83  13.82    74%   194      179    84%
North   12.03   11.36   5.9%    1.54    1.40  10.5%
South    2.81   2.46  142%  0.40   0.39   0.9%
Export     562   5.95   -5.6%  057    071 -20.2%
North   4.05  4.11 -1.4%    0.39  0.55    -29.8%
South   0.18  0.16 13.4% 0.18   0.16    13.4%
Source: APCMA and AKD Research


Local off-take keeping the momentum! Local off-take has been shouldering the growth momentum in 8MFY12, with dispatches up 7.4%YoY to stand at 14.8mn tons. As per the norm, volume concentration is again within the Northern region of the country with dispatches standing at 12.0mn tons (up 5.9%YoY). Volumes in the Southern region stood at 2.8mn tons (up 14.2%YoY). In Feb’12 alone, local off-take was up a healthy 8.4%YoY with the North and South regions contributing 10.6% and 0.9% to the growth, respectively. Going forward, despite AKD Securities’ expectation of another round of price increase, AKD Securities expects off-take to remain strong within the country. Currently, ex-factory cement price stand at ~PKR337-PKR378 per bag (retail: PKR425/bag).

Exports – Worrying times ahead? While local sales have been on a continuous upward trajectory, exports have been a cause of much worry. Already in 8MFY12, exports are down by 5.6%YoY to stand at 5.6mn tons. Particularly ominous are Feb’12 exports which have fallen by a steep 20.2% to stand at just 566.7k tons. In this regard, even the much vaunted Afghan cement exports have failed to materialize with off-take in Feb’12 falling by 27.6%YoY. That said, full year Afghan volumes still remain decent, registering at 3.01 million tons – up 6.7%YoY. Continuing with the export front, Saudi Arabia has also recently opened its doors to cement import. AKD Securities remains cautiously optimistic en this development, given that Pakistan will be directly competing with UAE (which borders Saudia) for export volumes to the Kingdom. In this regard, as per AKD Securities’ recent conversation with one of the local manufacturers, Pakistan has recently exported cement to Ethopia which again is closer to the UAE, however, no bids were received from the country (UAE). Given this scenario, Pakistan manufacturers have not ruled auto possibility at exports to KSA.

Potential for M and A? FY12 could be the year when M and A activity within the sector pick up. Given manufactures’ increased focus on cost savings and synergies, AKD Securities believes a strong possibility exists for companies with strong group backing such as LUCK, DGKC, Fauji et al to acquire loss/ low profit making manufactures such as DCL, LPCL etc. This, along  with how the volume and price scenario plays out, is likely to dictate sector performance at the KSE in the short to medium term.

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