LSMI production is down 3.8% year-on-year

KARACHI:

Large-Scale Manufacturing Industries (LSMI) output fell 3.8% year-on-year (y-o-y) in November 2024, highlighting persistent challenges in key sectors such as high energy costs and weak consumer demand. On a month-on-month (MoM) basis, output also declined by 1.2%, indicating subdued industrial activity amid economic headwinds.

The drop in the LSMI was mainly due to significant contractions in key sectors such as furniture (-53.3%), coke and oil (-16.2%) and other manufacturing (-13.3%), according to data of the Pakistan Bureau of Statistics (PBS). ).

In the first five months of 2015, the LSMI recorded a cumulative decline of 1.3% year-on-year, with 11 of 22 sectors showing negative growth, including machinery, non-metallic minerals and chemicals. However, some sectors saw significant growth, including automobiles (+89%), other transport equipment (+42.8%) and tobacco (+22.6%), supported by a recovery in demand and stable production costs .

“The numbers are down due to seasonal effects,” said Maaz Azam, head of research at Optimus Capital Management.

JS Global reported that the LSMI has posted negative growth in four of the past six months. Production in November 2024 also fell by 1.2% MoM. After a prolonged contraction from February 2023 to July 2023, largely due to high energy costs and weak demand, the large-scale sector began to stabilize and recover from August 2023.

“In recent months there has been a decline in LSMI growth, indicating that challenges persist,” JS Global added.

Although easing measures supported the recovery, growth is expected to remain subdued in the near term. For 5M 2025, output fell 1.2% year-on-year, reflecting ongoing pressures.

Taurus Securities pointed out that the 1.19% drop in the LSMI in November was due to contractions in furniture (-53%), coke and oil (-16%) and other manufacturing (-13%). In contrast, the top performing sectors included automobiles (+89%), other transport equipment (+43%), tobacco (+23%) and beverages (+11%). Cumulatively, the 5MFY25 LSMI fell 1.25% YoY.

Sectoral knowledge: textile sector

Textile production rose modestly by 1% year-on-year in November 2024, driven by higher output in yarn (+8.75%), fabrics (+0.78%) and towels (+15.46%), supported by from the strong export demand during the winter season. However, textile production declined by 1.53% MoM due to reduced production in toweling towels (-7.38%), woolen yarn and carpets (-3.2%), woolen and worsted fabrics (-14.89% ) and woolen blankets (-20.49%).

Textile exports for the first half of FY25 (1HFY25) rose about 10% to $9.09 billion, against $8.29 billion in the same period last year.

Automotive sector

Car production fell 7% year-on-year in November 2024, with declines in jeeps and cars (-6%) and light commercial vehicles (LCVs) (-5%). However, year-on-year, the industry saw significant growth, with LCVs, Jeeps and cars growing by 2.5x, 1.2x and 76%, respectively. The growth was attributed to lower cost of production, stable duties, reduced taxes, relaxation of CKD import restrictions (completely abolished) and recovery in consumer demand.

In 5M 2005, passenger car and LCV production grew by 48% and 2x YoY, respectively, supported by interest rate cuts and stable prices that boosted purchasing power.

Food, cement sectors

The food sector saw 15% MoM production growth in November 2024, driven by bakery products, vegetable ghee and wheat and rice milling.

However, cement production fell 5% year-on-year to around 3.4 million tonnes, compared to 3.5 million tonnes in October 2024. For 5M 2025, cement production fell 1% year-on-year due to of reduced manufacturing activity, higher federal excise taxes (FED) and increased taxes. Output is expected to pick up in 2HFY25, supported by seasonal demand from March to June.

Oil sector

Oil production rose 17% MoM in November 2024, driven by higher production of naphtha (+69%), fuel oil (+34%) and high-speed diesel (HSD) (+21%). Despite this increase, oil production fell by 2.4% year-on-year in the 5 months of 2025 due to lower demand.

Looking ahead, oil production is expected to increase, supported by a 10% MoM increase in sales volumes, particularly in motor distillate (MS) and HSD. However, sales of furnace oil (FO) fell 17% year-on-year, reflecting reduced demand from power generation companies. Taurus Securities expects a rebound in LSMI due to an increase in aggregate demand, lower inflation and an expected reduction in interest rates to 12% by the end of 25 years. However, growth may remain subdued due to high taxation. Increased private sector credit could provide additional support.

AHL reports indicate that LSMI production may recover gradually due to improving macroeconomic indicators.