Morning Call about Large Scale Manufacturing

Karachi: The Large-Scale Manufacturing (LSM) posted a rise of 1.14% YoY for the period FY11; while for the month of Jun’11 it contracted by 2.95%YoY.

According to Arif Habib Limited, as per the data revealed by the Federal Bureau of Statistics (FBS); sub indices, except for Ministry of Industries, registered a rise of 3.56% YoY, both Provincial Bureau of Statistics (BOS) and Oil Companies Advisory Committee (OCAC) recorded a YoY decline of 2.09% and 2.27%, respectively for FY11.

Underlying factors for subpar growth in LSM

The growth in LSM can be attributed to a number of factors. Industries based on agricultural output flourished during the year on the back of favourable movements in global commodity prices which improved the overall margins of domestic producers and thus increasing farmer’s income. In addition to this country’s overall export demand remained well strong against total Imports which cumulatively helped in jacking up the total current account surplus to USD 437mn(Revised).

Industrial production up by 3.56% YoY; led by agri-based industries

The industrial production posted a growth of 3.56% YoY for FY11. This growth Arif Habib Limited believes is mainly on the back of agricultural based industries. High global commodity prices led to growth in cotton based manufacturing’s (production for cotton yarn +5.46% and cotton cloth +0.17% YoY), while improved sugarcane yields (production +32.62% YoY) and wheat harvest (wheat grain and milling production +8.57% YoY) cumulatively jacked up the MoI index to 206.8 against 199.68, a +3.56% YoY. Moreover higher commodity prices also stimulated the domestic demand for fertilizers where Phosphate-based fertilizer (FFBL DAP production was up by 4.1% during FY11) registered a growth of 3.73% YoY, as against Nitrogen-based fertilizers whose production remained sluggish owing to gas-curtailment. In the similar back-drop strong rural incomes continued to fuel demand, triggered through rising commodity prices, saw the overall automobile production surge during FY11 (production for Jeep & cars, LCV, Motor-cycles up by 10%, 23% and 18% YoY respectively).


Indices for June-July

  FY11 FY10 % Chg
OCAC  143.65 146.99 -2.27%
Ministry of Industries 206.80 199.69 3.56%
Provincial BOS 224.10 228.88 -2.09%
Total 208.25 205.89 1.14%
Indices for June  
Jun’11 Jun’10 % Chg  
OCAC 142.00 133.41 6.44%
Ministry of Industries 196.52 188.34 4.34%
Provincial BOS 239.78 274.53 -12.66%
Total 207.36 213.67  -2.95%
Source: FBS      


Oil production down by 2.27% YoY for FY11, while MoM demand picks up

The oil production index (OCAC) was down by 2.27% YoY during FY11. This Arif Habib Limited believes is on the back of production halt mainly owing to dampened demand during the flood, production halt at refineries (including PARCO the largest refinery in the country), pertaining circular debt issue and maintenance schedules. In terms of individual products the High Speed Diesel (HSD) alongwith Naptha was up by 2.8% and 17% YoY respectively. Meanwhile production of Furnace Oil, Motor Spirit was down considerably by 3.05% and 7.52% YoY respectively. However for the month of Jun’11 the production of oil products picked up due to improvement in overall industry supplies and major refineries coming online after the maintenance halt.


Arif Habib Limited believes going forward continued energy shortages, high input and interest costs will likely to result in sluggish LSM growth in FY12. As against FY11 with the cotton prices normalizing over the horizon Arif Habib Limited thinks the textile sector growth given will likely take the bent downward despite high cotton expected output. While credit tightness in private sector owing to high interest rates will be reciprocated in overall industrial production performance. On account of aforementioned, Arif Habib Limited believes that the government is likely to miss out its estimated target of 2.0% during FY12 for overall LSM growth.

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