Pakistan's Cement Export - Potential, Trends and Problems 01 (Half)

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Global Commodity Research Section (Cement)
Introduction
The Vision Research is part of The Vision Corporation, acting as commercial research and Analysis Company, specialized in research and analysis of international trade and shipping of commodities. With the expertise in global trading and shipping of commodities, extensive and professional team of researchers and analysts, The Vision Research had gained prestigious position among the global and regional commodity trading houses, institutes and Journals. Currently, it is actively serving with its commercial research and analysis business for global organizations and governments. It also prepares and publishes research reports for free education and information for individuals, students and faculties through its channels on internet. The Vision Research team has studied and is studying cement market of Mozambique for since 2008, aiming to boast cement market exploration opportunities and possibilities to increase its presence into global cement trade research. It conducted visits to various markets and regions of Mozambique, including Maputo, Nampula, Safola and Pemba regions for its study, meetings, discussions and interviews of Executives of current and future cement manufacturers, Investors, importers and traders of cement in Mozambique. First report of its study is being published about Cimentos De Nacala with further updates, coming in following months for the criticism and study of faculties, students, trading and research institutes as well as commercial organizations. Comments and feedback is requested by return with thanks in advance. For topic specific research and analysis reports, please feel free to contact us through our commercial agent at below details. With Profound Regards,
Syed Haroon Haider Gilani C.E.O.

B 302, Falaknaz Towers, Wireless Gate, Shahrah E Faisal, 75230, Karachi, Pakistan Ph: +92 21 34684336| Fax: +92 21 34684337 Email: info@thevisioncorporation.biz| URL: www.thevisioncorporation.biz
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THE VISION Research
Ph: +92 21 34684336 Fax: +92 21 34784337 Email: research@thevisioncorporation.biz
Pakistan's cement export Potential, Trends and Problems

Our recent research revealed that by the end of FY09, Pakistan had installed capacity of 44.8 million tons (35.9 million tons in North and 8.9 million tons in South) of cement production while it produced about 33.2 million tons of cement during FY09. Almost 8 million tons of cement production capacity is closed during FY 09 due to lower demand in domestic and international market and increased losses due to the prices being under pressure during FY09. According to a recent research conducted by Topline Securities (Pvt) Ltd, "The actual capacity that can be utilized today is 40-41mn tons because there are few capacities that due to old technology are not feasible to operate with current (profit) margins".
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During the period of June 09 to June 10, Pakistan cement sector has dispatched almost 23 million tons to domestic market while dispatches to International market remained at about 10.50 million tons totaling the exportable potential of 15 million tons with Pakistan's cement industry for FY 10. Cement exports from Pakistan has been increasing gradually since FY 01 but current fiscal year has posted negative growth in terms of volumes first time in last decade (See the Chart 1.0).
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Chart 1.0: Cement & Clinker Exports from Pakistan during 2001 2008 (Source: APCMA).
To understand the causes of this decline and the future trends for the exports, we have conducted a thorough study, discussions and exchange of information with Pakistan's government, cement industry officials, experts, analysts and traders across the country during the months of May and June 2010. These efforts revealed that due to the economic meltdown in International market during 2008 09, particularly hitting Gulf Cooperation Council's (GCC) dollar exchanges, bank operations, real estate development, tourism, oil production, and public and private income areas, pushed both the demand and supply for construction materials downwards. Although cement exports to Iraq has seen a growth of 6% on Y-O-Y basis during FY but as the GCC has been main focused market for Pakistan's cement exports since 2007, its impact on cement exports is significant. During FY09 demand for the cement in the region declined around 95%. Mr. Muhammad Ali Tabba, CEO, of Lucky Cement Limited, The largest manufacturer of cement from Pakistan in a meeting, with The Vision Corporation, reasoned the decline in the export during FY09, "being Gulf Markets are all self sufficient. They are not importing anything from Pakistan. GCC was a major market (for Pakistani cement) and once upon a time when only Lucky (Cement Ltd.) was exporting around One million tons (annually) to GCC". Mr. Tabba is of the view that the growth in exports in not seemed hopeful for FY10 but it will be enough if the current level of exports can be maintained. Indian declined demand for imported cement has also played significant role in the lower exports from Pakistan. Demand of cement in India fell 2 3% due to consistent demand from government-sponsored rural infrastructure projects and lower capacity additions during FY09. During 2010 11, Indian cement industry is expected to add 50 million tons of capacity and another 35 million tons during 2011 12. Talking about the demand, key players in demand of cement in India are Real Estate Sector, Infrastructure and Industrial projects. During FY 2003 07, cement demand in India has grown at a CAGR of 8.37% higher than the CAGR of 4.84% of supply. The situation leads the opportunity for Pakistani cement industry to export its surplus cement to Indian market in 2007. Indian Cement Industry also responded vertically to the opportunity of growth and during last three years, Indian cement industry's growth is recorded at CAGR of 10%. It
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converted India being the importer of cement into the exporter of cement during FY 09. Indian industry has overcome the demand & supply gap (See the chart 2.0), leaving little space for imported cement, hence we see a further negative progress for Pakistan's cement Industry in terms of export to India. Supply - Demand Scenario Current FY 0910 242 196 5 41 Expect ed FY 1011 288 215 5 68 Expect ed FY 1112 304 236 6 62
Installed Capacity Consumption Export Surplus
Chart 2.0: India Cement Industry Analysis Demand / Supply Scenario. (Source: Lotus Global Equities).
Our research team concluded that import of cement in Sudan has started to adapt the new import prices due to decline of Euro against Dollar. Although, unexpectedly local cement is priced at $8 per 50 kg bag, less than the landed cost of imported cement from Pakistan. It was in reverse order by the end of May 2010. The change in prices is reasoned behind the domestic cement industrys efforts to compete the imported cement with increased supply and lower prices in Sudanese markets. Export potential and trend in export from Pakistan during FY10 is projected with mixed opinion from Pakistan's cement industry players. Lucky Cement Limited and Attock Cement Limited are off the opinion that more demand will come from Iraq and Sri Lanka in the coming months while no other potential market is seen during the next year. They are of the view that some further decline in demand by India and from Sudan will be covered by this increased demand from Iraq and Sri Lanka that will enable cement industry to maintain the export level of 10 to 11 million tons in FY10.
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Trends in major markets for Pakistani Cement
Pakistan's Cement Industry leaders in export and production are eying Iraq, Sri Lanka, Afghanistan and some East & South African countries as potential and regular importers of cement from Pakistan during FY10. We have prepared a brief about these markets to understand the trends and potential for our readers. Iraq Cement Market Currently Cement industry of Iraq is producing about 7 million tons of cement annually while the demand is double than the production. Several UAE developers showed interest in reconstruction projects in Iraq back in 2007 - 08. As the financial crisis crashed the property and real estate developers of UAE down, their interests in Iraq also faded out. In 2010, some companies seemed interested in development of infrastructure projects in Iraq and they are looking to overcome the problems in Iraq, including funding of projects as it is very hard to raise funds locally for project finance, leaving the only option to rely on external finance, land ownership for mortgages etc. So far, most of the construction projects are reported to be dominated by Jordanian companies in Iraq. It is currently difficult to estimate the accurate figures about the demand for cement in Iraq; production figures are probably reasonably accurate, however the total import figures since the second Gulf War, the consequent occupation and the rehabilitation of infrastructure are very likely to be inaccurate. The borders of Iraq remain extremely porous, and customs statistics, where these are collected are imperfect. The following paragraphs estimate total current demand from counter trading partners and domestic production and other sources as cited. According to Provincial Reconstruction Team Leader Mr. Paul O' Friel and special correspondent Nigel Atkin the total annual demand of cement in Iraq is 30 Million tons while the domestic industry was producing around 3 Million Ton annually in 2008 - 09. Current designed capacity for the Iraqi cement industry is estimated at some 16.9 million tonnes per annum, in 2004, with a further 2.6 million tonnes in the Northern region administered by the Kurdish Regional Government (KRG). However actual production in the non-KRG area was estimated at some 2.5 million tonnes in 2004, or less, dependent upon source, some 3 million tonnes in 2008 and 7 million tons in 2010.
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The domestic demand for cement has risen with the rehabilitation of the country. However the domestic supply has not kept pace with the increases in demand and the price of cement has therefore been elastic with prices in 2003 quoted at USD 20 per ton and reportedly rising to USD 120.00 per ton in 2005. However, the quoted price for October 2006 was USD 46.00, bagged. Currently it is standing at USD 120 125 as reported by our sources in Iraq.
South & Far East Asian Cement Market

Among the top Asian markets for Pakistan cement is Sri Lanka which is seen a market with potential of about 1 million tons of cement import by Lucky Cement Limited of Pakistan in a recent meeting with The Vision Corporation. Sri Lanka Demand of cement in Sri Lanka is expected to grow with 7% aimed to reconstructions of war-torn areas in particular while the resettlement & rehabilitation of displaced Tamils in other areas will increase the demand of cement in general. Beginning of 2010, posted growth of 12.5% in imports of cement with imports reached at 486,000 tons from previous year. Philippines We consider The Philippines as potential market for cement from Pakistan where demand and supply gap is widening since late 2009. My research noted that Republic of Philippines is dominated by Lafarge, Holcim and Cemex with Lafarge having capacity of 8.522 Million Tons, Holcim 5.435 Mn Tons and Cemex with 5.07 million tons. It makes their market share, 38%, 25% and 23% respectively. Rest of the share remains with small companies including Northern Cement Corporation (5%), Goodfound Cement Corporation (2%), Pacific Cement Co. Inc. (2%) and Taiheyo Cement Philippines Inc. (5%). According to the Mr. ERNESTO M. ORDOEZ, President, Cement Manufacturers Association of the Philippines, Cement demand in Republic of Philippines jumped from 1.6% in 2008 to 9.5% in 2009. From the imports side, Although Republic of Philippines has been growing negatively in imports of cement since 2000 but current surge in demand that continues in 2010 shows possibilities for Pakistani cement to enter into the market directly or indirectly. Below graphs show the picture of cement import and export of The Philippines.
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Year Quanti ty (Metric Tons) 2000 1,579,02 7 2001 2,233,18 0 2002 337,60 0 2003 9,700 2004 12,705 2005 116,302 2006 243,69 5 2007 302,00 3 2008 113,301 2009 1,000
For complete Report and Download, please visit the official website of The Vision Research or click the link below: http://thevisionresearch.com/2011/07/22/pakistans-cement-export-%E2%80%93-potentialtrends-and-problems/

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THE VISION

Syed Haroon Haider Gilani C.E.O.

THE VISION Research

Ph: +92 21 34684336 Fax: +92 21 34784337 Email: research@thevisioncorporation.biz