Just like any other economy, COVID 19 has also put lot of stress on already fragile Pakistan Economy. With a country wide lock down of 15 days as declared by the provincial governments, the movement of all the goods, except food items, have been severely affected. Most of the industrial units across Sindh and Punjab are now in shut down phase and it seems that this period would continue till at least 12th April 2020. Cement sector is no exception, as out of 25 plants across country 11 plants are at complete shutdown / closure phase and remaining 14 plants are in partial shutdown phase.
The overall country wide local volumetric sales per day has been dropped down from 160,000 tons per day to only 35,000 tons per day. In value terms this is the loss of US $ 8.6 million per day.
The Government’s loss in terms of lower collection on account of taxes from cement sector alone is almost US $ 2.7 million per day. These are the direct losses which both the sector and economy will have to bear so long as the shutdown continues.
In terms of indirect losses, after the post COVID 19, the country’s cement sector will face the traditional lower season of volumes due to holy month of Ramadhan, Eid holidays and monsoon season which will be extended till July – August 2020. This coupled with lower activities in post COVID 19 economic challenges the sector may face a daunting task of recovery.
Since most of the cement plants have completed their expansions in last 6-18 months through debt financing therefore the burden of higher interest charges, cash flow issues owing to repayment of huge debt liabilities and recent almost 7% devaluation would also have a huge negative impact on the profitability of the company as the crucial cost parameters would have severe negative impact on the overall costing of the product.
It is anticipated that the industry with the collective debt burden of US $ 1.5 billion and with surplus capacity of approximately 30 million tones would face the biggest challenge of recovery both in terms of volumes and profitability in next 12-18 months as the GDP growth of the country may reduce to around 2-2.5% in next 12-18 months in post COVID 19 scenario.
On export fronts two of the key export markets of Pakistani cements are also facing lock down situation i.e. Sri Lanka and Bangladesh. Both these markets account for almost 80% of total exports of cement from Pakistan, therefore, parking of additional quantities would pose a bigger threat to the sector.
However, the massive reduction in global oil prices may provide much needed relief to the Government of Pakistan as the huge favorable fiscal space has been created which may give the economic managers of the country an opportunity to provide relief to the industrial and commercial sectors of Pakistan in terms of reduction in interest rates, and lowering of diesel prices. The Government has recently announced a stimulus economic package to the export based sectors and is also expected to announce few more incentives to move economy forward in these dark times.
ATTOCK CEMENT PAKISTAN LTD