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Cement sector’s capacity may expand

Staff Report

KARACHI: With all the expansions coming online left right and centre, investors are confused about how much total supply of cement will be there in the market. According to calculations of cement sector analysts total capacity of the industry at the end of fiscal year 2006 would be around 21.5 million tons as compared to 17.9 million tons at the end of fiscal year 2005.

Analysts said with the rising gross margins of the cement sector and positive vibes about consumption of cement in the earthquake-hit areas, the cement sector has started to perform really well. Now the question that arises here is that is there any more room for upside left in these scrips?

Against this supply of 21.5 million tons, it is expected that the local demand will reach 17 million tons, whereas exports are likely to show a growth of 8 percent in the full year and total 1.7 million tons taking the total demand to around 18.7 million tons. This will mean a local capacity utilisation of 79 percent and a total utilisation of 87 percent. It seems that with the capacities coming online, the lowest capacity utilisation to hit the industry would be 61 percent, for local sales in fiscal year 2009, when the total capacity utilisation is expected to amount to 69 percent.

With the emerging higher demand and increased production scenario Lucky Cement is expected to be a key player of the industry. Lucky being the largest cement manufacturer now will benefit the most from this situation. It is expected that its second expansion in Karachi will come fully online in the second half of fiscal year 2007. The first has already come online. It is likely that Lucky’s capacity would total 2.7 million tons at the end of fiscal year 2006.

With this supply side situation of Lucky the company is expected to manage a production of around 2.5 million tons of cement in fiscal year 2006 and 4.1 million tons in fiscal year 2007 fully benefiting from its expansion.

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