TC Mar-Apr 2021 Issue

TRADE CHRONICLE
associated with the auto sector
would remain negligible, and
‘localization levels’ remain
restricted to the number of parts
in a vehicle and not cost. This
must be taken care of to stop
the foreign exchange drain and
lowering the cost of production.
It is good that the government is
offering Electric Vehicle Policy
- Game Changer for the Sector
Globally automobile sector is
in a transformation phase from
hydrocarbon-based vehicles to
environmentally friendly vehicles
(hybrid and electric), and the
primary purpose of this policy
is to reduce carbon emission
to save the environment. On
the other hand, promoting
environmental-friendly vehicles
is expected to play a vital role
in curtailing oil imports (oil is
the largest import commodity
in Pakistan), increasing
foreign direct investment in
the automobile sector, new
employment opportunities,
increased awareness to save the
environment, the potential to lift
automobile sector by manifold,
and will improve the overall
socio-economic situation in the
country.
Editorial Comments
Pakistan’s cement industry expands its capacity
The Pakistan cement industry is
growing steadily on the back of
continued local demands backed
by government focus on the
construction industry and private
sector demand post-construction
amnesty and tax relief. The cement
manufacturers meet local needs
and export surplus quantity of
cement and clinker to Bangladesh,
Sri Lanka, Afghanistan, and other
overseas markets to increase its
utilization level and get valued
foreign exchange. The industry in
terms of profit has had a better year
from every perspective: demand,
retention prices, production costs
or financial costs. Gross margins
have re-entered the double-digit
zone while profit margins turned
green from a decided red this time
last year.
The related industries such as
Steel, PVC, Glass, Aluminum are
also benefitting parallel to the
cement industry. In the future, we
expect Pakistan International Bulk
Terminal (PIBTL) at Port Qasim
to achieve a utilization level of
over 95% in the next two years,
given the increased demand from
cement and power players. It is
no surprise for stakeholders that
most of the cement players have
announced an early expansion to
enhance their handling capacity
by c18.0Mn tons, given the upbeat
demand from the cement industry
in coming years.
A cursory looks at data released
by the Federal Bureau of Statistics
(FBS) for the July 2020-March
2021 and July 2020-February 2021
periods show diversified export
and local production trends.
Export volumes increased during
this period, but revenues remained
flat in dollar terms, reflecting a
weaker price market for cement
and clinker. However, local
output increased on intense local
demands, and extended capacity
came online last year.
As of June 2020, twenty-five
cement manufacturers from fifty
production lines have a production
capacity of 65.870 million tons of
clinker and 69.164 million tons of
cement in Pakistan.
According to a local research
house, another expansion in the
cement industry is in the pipeline,
which would jack up capacity by
18 million tons over the next two
years as demand expectations
come to a head. The credit
goes to central bank policy cut
from 13.25 percent to 7 percent
allowed financing costs to shrink
considerably as well — especially
for companies that were heavily
leveraged. Several companies
(DGKC, Kohat, Lucky, Maple Leaf,
Fauji and others) have announced
brownfield and greenfield
expansion projects, mainly in
Punjab. They are availing reduced
mark-ups under SBP’s Temporary
Economic Relief Facility (TERF)
that came in March last year. Other
companies may follow, which may
be a prime time to do so as Kibor
is still low, and capacity utilization
may peak soon, experts believe.
It is good to note that the federal
government has timely released
Rs500.94 billion (77.1 percent),
including Rs82 billion foreign
aid for various ongoing and new
development projects under
the Public Sector Development
Programme (PSDP) 2020-21
against the budgeted allocation
of Rs650 billion. We hope that the
government would also release the
balance amount out of funding for
the current fiscal year and allocate
sufficient financing on account of
PSDP in the next federal budget to
consolidate the cement industry
expansion program.
All Pakistan Cement Manufacturers
Association (APCMA) has raised
some concerns that power and
coal prices are consistently
increasing. Cement is an energyintensive
product and the industry
is finding it hard to operate due
to the continuous rise in major
input cost elements. The sector is
not demanding any special favour
but wants to be treated at par with
five exporting sectors. Besides,
import levies on coal have to be
rationalized as it is the primary
input of the cement sector; these
are valid concerns and should
be addressed. Last, we suggest
there should be a mechanism to
check and balance on the quality
and prices of cement and it should
be reachable for consumers to
sustain the growth in the cement
industry.
TRADE CHRONICLE - Mar - Apr - 2021 - Page # 7