The Large Scale Manufacturing (LSM) index recorded an impressive month-on-month growth of 6.34 percent in March 2016 – that’s the highest month-on-month growth in the past four years. This more-than-average growth helped the nine-month LSM numbers rise by 4.70 percent for 9MFY16 compared to 2.79 percent in the same period last year.
A closer look at the figures reveals major contributors to the solid rise in LSM; these were auto, cement, chemical, fertilizer and cooking oil, whose increases in production can be attributed to some policy developments, and falling commodity prices that helped to increase the demand in these sectors.
For the auto sector, the increase can be attributed to government initiatives such as the Apna Rozgar scheme that required delivery of 50,000 vehicles during Dec 2014 to Feb 2016 to unemployed youth. Moreover, overall economic growth led to rising in purchasing power, registering an increase in auto sales.
The cement and chemical sectors witnessed positive growth due to increased Public Sector Development Program (PSDP) utilization as well as ongoing infrastructure project constructions under CPEC. Fertiliser growth also saw robust growth with an increase of 16 percent registered during 9MFY16, particularly due to improved gas availability by the imported LNG.
The sugar sector was seen to improve with a better crushing season helping the industry recover from its dismal performance last year. The industry still faces a supply glut situation coupled with low international prices resulting in low export volume.
Cooking oil production saw a significant rise due to stockpiling by firms in order to meet the anticipated increase in demand during Ramadan next month. Better profitability margins are also a reason for the increase in production with overall cooking oil production registering an almost 8.5 percent year-on-year increase in 9MFY16.
Sectors that dragged the LSM, in particular, were iron and steel as well as petroleum products. Falling steel prices resulted cut in production of pig iron and billets marking a 7.5 percent decrease for the sector during 9MFY16. As compared to March 2015 monthly increase in March 2016 saw a much slower gain in production of petroleum products due to volatile oil prices.
First published: May 24, 2016.
