LAHORE - The fiscal 2008-2009 is being marked as a challenging year for cement manufacturers as the sector would face the rising costs and a slow down in demand with exports growing by 50 per cent during the period. The cement sales showed strong growth of 24pc as exports registered a growth of 147pc over the period and played a key role while local sales remaining subdued with 6 percent growth with regional capacity expansions yet to come online, local cement manufacturers remain in a strong position to capitalize on export sales over fiscal 2009. They said that rising input costs, particularly coal and a high interest rate scenario are likely to keep pressure on the bottom line. However, increasing exports should help the manufacturers pass on the impact. According to the latest numbers issued by the All Pakistan Cement Pakistan Association (APCMA), cement dispatches for Jun 2008 summed up to 2.77 million tons and a shift in trend from local to export sales is evident. Around 67 percent of total dispatches were local sales while the remaining 33percent are attributed to exports with a significant increase over last year; in Jun 2007 exports accounted for about 18percent of total dispatches. Cement sales for fiscal 2008 registered at 30.11mn tons with exports contributing approximately 26percent compared to 13percent in fiscal 2007. Talking about exports sales, which may boost margins, the industry sources said that cement manufacturers spent most of last year building relationships with foreign clients and applying for quality certificates. The exports sales are expected to increase further during fiscal 2009. There is expectations that higher exports would help in boosting margins following the dual effect of reducing excess supply in the local market which will help prevent a price war and economies of scale. Once regional capacities come online, export growth is expected to slow down especially in India and the Middle East. However, local manufacturers are also exploring other potential markets such as Sri Lanka, Africa and Europe to offload their surplus capacities. Local demand is also expected to pick up once political and economic uncertainty clears. Coal prices more than doubled during fiscal 2008, hovering around USD176/ton (FO.B South Africa); freight charges are approximately $ 20-$ 25 per tonne. They said that prices are unlikely to return to historical levels in the near term given the boom in global commodity prices. Nevertheless, coal prices are not expected to increase at the exorbitant levels witnessed during fiscal 2008. With cement prices over Rs. 320 per bag and unlikely to come off, the margins for the cement manufacturers are expected to improve on a yearend basis in the fiscal. Most of the manufacturers have also started considering local coal though over 90percent is still imported. Furthermore, companies are looking into waste management programs, which are expected to come online during fiscal 2009 and may help reduce energy costs by approximately 20percent. With the SBP continuing its tight monetary policy, interest rate charges are expected to remain high for the highly leveraged cement sector, hence putting a drag on earnings. Moreover, a weak rupee has also ruled out foreign currency hedging has a viable option. However, owing to the regional shortage, manufacturers remain confident of passing on the increased cost to the consumer.