The latest cement despatches are out and the figures show that there was a 19.22% fall in the overall despatches. Last year, despatches were 4.3 million tonnes for the period which fell to 3.26 million tonnes for the latest year. It comes in a sequence of lackluster performances where January saw a fall of 14.8% as well.
The representatives from the All Pakistan Cement Manufacturers Association (APCMA) have stated that the recent performance comes at the heel of general elections where demand was seen to be low. In the coming months, the association is optimistic as they feel demand will pick up again once the new government announces development programs and infrastructure development which can stimulate the sector.
As previously reported, the sector is suffering in recent years due to a plethora of issues that have accumulated over a period of time. The sector went through a spree of expansions and development in order to increase their capacities foreseeing their demand to be sustainable in the future. Due to the economic downturn and the pandemic, the demand never materialized. If the demand had stayed at past levels, the expansion would have been justified, however, as demand fell, the expansion turned into a problem for the sector.
In addition to that, the manufacturers had carried out expansion by taking loans in order to fund their capacity expansion and as interest rates increased, the loans became more and more expensive impacting the profitability and bottom line of the companies.
This news is another blow to the manufacturers who are looking to get out of the hole they seemed to have dug for themselves. Even though the sector is seen to have the highest gross margins, low revenues and higher costs will eat away at any profits they could have looked to retain in the near future.
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In terms of the breakdown, domestic sales decreased by 20.3% from last year clocking in at 2.86 million tonnes compared to 3.59 million tonnes last year. Similarly, exports also decreased from 0.445 million tonnes to 0.396 tonnes for the same period.
In terms of the sales for the year, the sales have seen only a 4% decline for the 8 months of FY 2024 where 26 million tonnes were sold compared to 27.2 million tonnes for the 8 months of FY 2023.
One bright spot is the fact that exports for the 8 months of FY 2024 saw export despatches grow by 73% to 4.5 million tonnes which had only been 2.6 million tonnes for the 8 months of FY 2023. This meant that total despatches for the 8 months actually jumped by 2% going from 29.8 million tonnes to 30.5 million tonnes.
One of the saving grace in this situation that can help the manufacturers is the fact that they can look to export more as the local demand is low for the time being. This has also seen some issues as foreign sales seem to be less viable compounded by the transportation challenges stemming from the axle load regime that has been implemented.
In terms of the period going forward, analysts feel that March will see similar performance as the one seen this month. Saleem Sami, Investment Analyst at Providus Capital, states that “Despatches will more or less remain in a similar position for at least next month due to Ramdan and low base effect.”
The base effect is based on the total depatches of March 23 which were only around 3.36 million tons.
He further adds that “It can be expected that March despatches will be in the range of 2 to 3 million tonnes in March 2024 as well. However, this effect might ease off in May and June of 2024 due to two main reasons. Generally high construction activity in the near future and government direction might become more clear in terms of development spending.”
The economic conditions are expected to get better in terms of lower inflation and falling interest rates which are seen as a near possibility as economic indicators are showing promising signs.
The next month is going to be vital to see how the despatches perform based on the optimism seen in the sector as elections have taken place and the month of March will provide a much clearer picture in terms of where the sector is heading going forward.
