KARACHI - Federal Bureau of Statistics (FBS) has reported further decline of 14 per cent in the production of Large Scale Manufacturing (LSM) in April 2009, The Nation learnt. In March, the Bureau reported a decline of 20pc. Lower exports, slowing demand and frequent power breakdowns seem to be the major reasons for the dismal production numbers. Moreover, high interest rates and worsening law and order situation has seriously dented business confidence. With the release of the April numbers, decline in LSM production has reached 8.24pc in ten months (July-Apr) FY09 with car production (-49pc), sugar (-32pc), oil (-9pc) and vegetable ghee (-5pc) major contribution to this decline. Auto production (4pc weight in LSM) after declining 52pc YoY in March 2009 fell 53pc YoY in April. As a result of the April figures, cumulative decline during 10MFY09 arrived at 49pc. Experts believe high car financing rates and overall macroeconomic weakness has been the major issues behind decline in auto production. The worst seems to be over for auto production. Economists expect 300bps cut in policy rate by December 2009 which will definitely stimulate auto sales in the coming months. Moreover, OCAC index (7pc weight in LSM) showed 9pc YoY decline in the month of April 2009 (also down 9pc during 10MFY09). Both diesel (HSD) and furnace oil (FO), which together account for 58pc of the total production, saw their output fell by 6.3pc (16.6pc only in April) and 8.3pc (3.5pc in April 2009) respectively in 10MFY09. Similarly, non-energy products including naphtha and base oils also showed considerable decline in production. Major reason behind this production fall is the liquidity shortage amid prolonged inter corporate circular debt- thereby affecting refinery utilization. With the resolution of circular debt (expected during next few months), production numbers are likely to improve going forward. Meanwhile, the apparent weakness of the heavy weight (33pc weight in LSM) textile sector is also reflected by LSM statistics. Flat production of cotton yarn (-0.1pc) and cotton cloth (-0.2pc) segments in 10MFY09 does reflect the ongoing concerns of the sector. Given global recessionary woes and the competitiveness issues, analysts at JS research expect textile exports to remain subdued which in turn would keep textile production at bay. In contrast to auto and oil sectors, production numbers of the fertilizer sector (4.5pc LSM weight) remained relatively strong (up 27pc in April 2009). Thanks to lower input prices DAP production posted a handsome increase of 58pc in April which propelled phosphate production to a growth of 49pc. Moreover, despite more than 20pc increase in urea prices during FY09, better support prices and continued demand supply gap ensure nitrogen fertilizer production remained steady in 10MFY09. Going forward, given continued focus on the agriculture sector reflected by continuation of high support prices, fertilizer offtake particularly DAP is expected to post 40pc growth in FY10. Moreover, with additional capacities coming online 2010, urea production is also expected to witness a major jump in FY11. Furthermore, cement production (LSM weight 5.5pc) in April 2009 depicted an increase of 4.9pc YoY, a significant reversal from the previous months figure where production declined by 6.5pc. Cumulative cement production is up 5.6pc YoY during 10MFY09 largely due to robust demand from the Middle East region and Afghanistan. It is believed, record Public Sector Development Programme (PSDP) allocation of Rs621b with substantial portion in infrastructure development (52pc) would stir local demand. However export growth is likely to dampen as capacities in the Middle East come online next year.