Inside Financial Markets

Cement’s capacity utilization reaches 101 percent

Cement despatches reached a historic high level in March 2017 touching almost 4 million tons with capacity utilization crossing 101 percent on the strength of robust domestic demand though exports declined by 60 percent compared with exports executed in March 2016.

A spokesman of All Pakistan Cement Manufacturers Association said the ever increasing domestic market has vindicated the manufacturers thrust on adding new capacities. He said Pakistan needs sustained infrastructure activities for at least a decade to close the infrastructure gap with competing economies.

The cement industry is playing its due role to get the momentum going and in March 2017 the industry despatched 3.964 million tons of cement against 3.583 million tons despatched during the corresponding month of last year. The statistics released by the APCMA reveal that the cement despatches during the first nine months of this fiscal stood at 30.304 million tons which is the highest ever despatches recorded in the first nine months of a fiscal.

The figure could have been much higher had the smuggling and under invoicing of cement been curbed. In the first nine months of this fiscal, the industry despatched 30.304 million tons cement showing an overall growth of 6.90 percent over the corresponding period of last fiscal. During this period, the domestic consumption increased by 10.90 percent but exports declined by 14.83 percent. It is worth noting that the domestic cement consumption during July-March period of this fiscal increased by 10.26 percent in the North and by 13.81 percent in the Southern part of the country.

In contrast, the exports from North declined by only 10.07 percent compared with a decline of 13.81 percent in the South. This should be a matter of concern for the authorities because in the past the South-based mills being nearer to sea were leading cement exporters. The capacity utilization during the first nine months of current fiscal is 87.1 percent.

The spokesman of APCMA said the domestic producers are coping with the challenges of unethical exports on the strength of their excellent quality. He said substandard cement created distraction but could not suppress the demand of high quality Pakistani cement.

This cement, he added, is much preferred over Indian cement in Indian Punjab but unfortunately our planners have not succeeded in pursuing the Indians to remove the tariff and non-tariff barriers.

He said high duties on cement are increasing the cost of the commodity and hurting the consumers. If duties are reduced, the manufacturers could pass on the benefit to the consumers and lower cement cost may give rise to construction activities, creating more jobs for the skilled and unskilled labour.

The domestic despatches in March 2017 were 23 percent higher than the despatches in March 2016. The exports in contrast declined by a whopping 60.39 percent. This massive decline in exports reduced the despatches growth in March 17 to only 10.63 percent. In the first nine months of this fiscal, the domestic dispatches increased by 10.90 percent while the exports registered a decline of 14.83 percent.

Mills based in Northern parts of the country despatched 3.058 million tons cement in March 17 for domestic consumption while those located in the South despatched 0.695 million tons of cement during the same period. He said during the same months the exports from North were only 0.141 million tons and from South 0.071 million tons.

The spokesman said that clinker and cement are being manufactured locally and is abundantly available in Pakistan. It is surprising to note that the list of locally manufactured goods as notified by the Federal Board of Revenue vide Custom General Order No 11 of 2007 dated August 28, 2007, does not include cement. Secondly, the import of clinker and cement is liable to 10% and 20 percent of custom duty. Due to cheap energy cost in neighbouring countries, low-grade quality cement is being dumped in the Pakistani market.

He urged to increase the customs duty on import of clinker and cement from 10 percent & 20 percent to 35 percent in order to support the local manufacturers and imports of cement should not be allowed until exporter have registered themselves with Pakistan Standards and Quality Control Authority (PSQCA).

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)