Cement Offtake declines 9% YoY in FY11

Local offtake bounces back in Jun-11 though declines 9% YoY in FY11: Local offtake for FY11 was down 7% YoY to 22mn tons (in-line with our expectation) due to devastating floods and weak macroeconomic situation. Recovery in local dispatches gathered steam during June-11(up 8% MoM) after falling 8% MoM during April and May. We expect FY12 local dispatches to rise by 5% YoY due to low base of FY11.

Dispatches growth sharper in the southern region: FY11 volume growth in the south region sharply contrasts that in the north, with south region domestic sales posting a hefty increase of 20% YoY compared to a decline of 11% YoY in the north. Disparity in growth was primarily due to uptick in post flood reconstruction efforts in rural Sindh coupled with an uptick in sub-urban development.

Export dispatches remain gruesome: June-11 export dispatches fell 6% YoY due to lower retention prices in the export markets and slack construction activities coupled with oversupply of cement in the GCC region. FY11 export dispatches were 4% above our expectation of 9mn tons.  We expect export dispatches to increase by 2% YoY in FY12.

Local offtake bounces back in Jun-11 though declines 7% YoY in FY11

Recovery in local  dispatches gathered steam during June-11(up 8% MoM) primarily led by 10% MoM uptick in north offtake due to reduction in cement prices by PKR10/bag-a result of lower government levies on cement prices in FY12 budget. Local volumes had fallen 8% MoM during April and May due to rising cement prices which had hampered cement demand. Local offtake for FY11 was down 7% YoY to 22mn tons (in-line with our expectation) due to devastating floods and weak macroeconomic situation. We expect FY12 local dispatches to rise by 5% YoY due to low base of FY11.

Dispatches growth sharper in the south region

FY11 volume growth in the south region sharply contrasts that in the north, with south region domestic sales posting a hefty increase of 20% YoY compared to a decline of 11% YoY in the north. Disparity in growth was primarily due to uptick in post flood reconstruction efforts in rural Sindh coupled with an uptick in sub-urban development.  Furthermore, as we had pointed out earlier that due to the evaporation of price differential between north and south, northern players had stopped dumping cement during FY11 in the south region, also contributed towards extraordinary growth in the south region.

Export dispatches remain gruesome

June-11 export dispatches fell 6% YoY (3% MoM) due to lower retention prices in the export markets and slack construction activities coupled with oversupply of cement in the GCC region. Depressed GCC demand is evident from a 28% YoY decline in exports through sea route. However, with Afghanistan constituting 50% of cement exports, the impact of a weak Middle East market was partially mitigated by strong exports to Afghanistan (up 17% YoY). Consequently, FY11 export dispatches were 4% above our expectation of 9mn tons.  We expect export dispatches to increase by 2% YoY in FY12 on the back of strong demand from Afghanistan and Africa.

Economic & Political News

Forex reserves hit all-time high of USD18.25bn

Pakistan’s foreign exchange reserves reached an all-time high of USD18.25bn in the week ending on July 2, following inflows of more than USD400mn that included loans from multilateral donors, a central bank official said on Thursday.

Byco set to become leader in oil refining business

Byco is all set to become the leader in oil refining business in the country as its upcoming refinery of 120,000 barrel per day (bpd) capacity is likely to commence commissioning process during last quarter of 2011. At present, Byco has a smaller refinery having a capacity of 36,000 bpd. With the commissioning of new refinery, the total refining capacity would reach up to 156,000 bpd making it the single largest oil refining complex in Pakistan. Byco has, so far, invested over USD750mn in this refining and infrastructure project. The capacity of this new refinery could be further enhanced by 20%, if required

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