>India Cement Industry (CITI)

Implications From Conference Call With Pakistan's Lucky Cement

■ Conference call with Pakistan's Lucky Cement — We hosted a conference call with Mr. M.A Tabba, CEO of Lucky Cement, one of Pakistan's largest cement companies by capacity, to get a better sense of export trends. India and Pakistan have some common export markets. Mr. Tabba's comments about cement supply-demand dynamics, pricing trends and export potential suggested that there would be keener competition in export markets, export realizations could fall 15-20% and cement exports from Pakistan to India could dry up in FY10. His views were largely in line with ours.

■ Changing trends in cement export markets — Mr Tabba expects Pakistan cement exports to be 10m tonnes in FY09-10 − 30% by land to Afghanistan and 70% by sea to the Middle East and Africa. India is no longer a viable export market for Pakistan due to low domestic prices and the drop in the Indian rupee. Demand growth for cement exporters is expected to come from Iraq (reconstruction), South Africa (ahead of the Soccer World Cup) and Africa (rising per-capita income in commodity-intensive economies), compensating for likely declines in Oman, Qatar, Abu Dhabi and Dubai.

■ Weak outlook for export pricing — The biggest worry is cement pricing in export markets. Exports are likely to face stiff price competition once new capacities are commissioned in Saudi Arabia, Iran and India. The industry expects the average export price for FY09 to be US$50-55/t and forecasts a decline to US$42-47/t in FY10. Lower prices would adversely impact large cement exporters in India, such as UltraTech Cement and Ambuja Cements.

■ Pakistan has cement surplus — At 38m tonnes of capacity and domestic demand at ~20m tonnes, Pakistan has large surplus for exports. We expect a surplus in India as well due to the completion of several large projects in CY09. As exports may not be a viable route to deflect oversupply, it would add further pressure on domestic prices in India.

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