Subsequent to the partial removal of lockdown by Federal and Provincial governments in Pakistan, several cement companies have announced reopening of their plants. Prime Minister Imran Khan announced a special package for construction industry two weeks back giving it status of a sector. The cabinet approved tax ordinance for the construction industry giving special tax breaks to builders and land developers.
The construction package is expected to benefit not only the builders and land developers but also all related industry including cement, steel, hardware, and labor.
Cement Industry during COVID-19
The cement industry faced huge challenges after January’ 20 when lockdowns across the globe affected not only the domestic supply but also exports. The Federal Bureau of Statistics revealed that cement industry earned export revenues of $210 million in 9-month period, an increase of 12.4% from previous year export revenue ($194 million). However, March onwards, a major decline in export value (-32%) occurred as Afghanistan, India and Sri Lanka applied strict lockdowns on borders. The decline in quantity of exports (-32.6%) caused major dent to previously earned revenues.
Regional sales disparity for cement due to construction halt
The halt of construction mainly in Punjab and Sindh affected cement sales adversely during February and March while sales of clinker and cement continued to the northern region both for exports and construction of projects under CPEC. Due to coronavirus, the project of Naya Pakistan Housing Scheme has also been delayed. The scheme of Naya Pakistan was expected to generate demand for cement by an additional 10 million tons. Moreover, the scheme was projected to uplift South sales for cement industry which faced negative growth in sales since July 2019.
Cement Plants Temporarily suspended Operations
Pakistan Stock Exchange (PSX) received several notifications in March regarding temporary suspension of operations in cement companies. Attock Cement, DG Khan Cement, Askari Cement, and Maple Leaf Cement shut down several of their plants during the month while Fauji Cement reported its first quarterly loss of Rs. 210 million in eight years. The losses incurred by cement companies mainly owed to reduced demand of cement, intense competition in industry and high prices of coal which is a major energy source for cement plants.
Construction Package by Federal Cabinet
Federal government has been working hard to save the economy from major blows as expected in the aftermath of Covid-19.
Low demand in construction has plummeted cement industry around the globe and in Pakistan as exports constitute a major source of its revenues. Keeping in view the economic and employment loss in Pakistan, Prime Minister Imran Khan announced lifting lockdown for construction industry while giving it an official status of a sector. An ordinance was passed to provide tax break to investors in construction industry and several other sectors excluding cement and steel.
The decision has been hailed by analysts and economists in Pakistan who foresee a major relief for construction industry. The decision will also benefit 70 other allied industries for construction including cement, steel, energy, paints, chemicals, sanitary etc. Dr. Nadeem-ul-Haque, Vice Chancellor of Pakistan Institute of Development Economics (PIDE) asserted that the policy will promote competition and market liberalization in the construction industry. It will also generate new employment opportunities.
Chairman of All Pakistan Cement Manufacturers Association Azam Farooqui, appreciated PM’s Construction Industry Ordinance. Mr Farooqui said that cement industry will be an indirect beneficiary of this policy. Cement industry is expected to reopen completely as builders and developers have started advertising their new projects in South region as well.
A Rebound in cement sales after lift in lockdown
Last week observed a fast recovery in sales of cement and clinker as government eases lockdown in all provinces except Sindh. Attock Cement recorded a 75% resumption in cement sales after ease in lockdown. The demand for cement in Pakistan is extremely low compared to the region. The regional demand exceeds 700 kgs per capita while Pakistan’s demand is 170 kgs per capita. It is expected that the activity in construction industry due to construction package can slowly revive the demand for cement. It can positively affect cement sector in long term.
Cement Industry to Reopen with Strict SOPs for COVID-19
A number of builders and developers have started working on new projects. However, the government is finalizing preparation of SOPs for operating under partial lockdown. The spread of coronavirus in Pakistan is still in its peak phase. It is critical for all construction related industries to ensure safety and strict observance of procedures for workers.
Several cement companies have opened up their plants that were suspended last month due to lockdown. Askari cement, Maple Leaf, DG Khan, Attock cement, Fauji Cement have announced opening of their plants. The companies are prepared with their respective Health, Safety and Environment departments to tackle the challenge of COVID-19.
Some of the steps include thermal screening process, disinfectant sprays, physical distance between employees and reduced visitors to plant residencies and their facilities.