Pakistan records 13%YoY decline in local cement sale

After witnessing an impressive June 2021 local cement dispatches of 4.7 million tons (up 22%YoY), seasonality has taken a toll on local dispatches for July 2021 down by 13%YoY and 26%MoM respectively. The slowdown was induced by Eid, exacerbated by heavy monsoon in the Northern region.

Region wise, South fared relatively better with an increase of 7%YoY partially due to low base as relatively strict lockdown restrictions compared to North last year impacted sales, and lower supply to the region from North based players in the recent period.

To recall, earlier due to low demand, some North based players used to supply cement to Southern region as well. However, with increased utilization, it has substantially decreased. On the other hand, North witnessed a decline of 15%YoY and 25%QoQ as widespread monsoon arrived on the top of Eid holidays, slowing down construction activity.

Exports also suffered a setback, declining by 28%YoY and 31% QoQ in July 2021, reported at 0.5 million tons. Overall, for 7MCY21, total cement dispatches recorded at 32.62 million tons, up 18%YoY. Whereas local cement sales stood out with a growth of 19%YoY, with growth in exports at 14%YoY.

Coal prices causing trouble

Coal prices remained on upward trajectory, currently traded at US$132/ton against an average of US$120.6/ton for July 2021 while CYTD, it has increased by 49%. Local cement players are expected to feel the pressure on margins for 4QFY21 with gross margins likely to decline.

Taking advantage of high utilization, reported at 81% for 7MCY21, local players have started to pass-on the increase in costs with latest increase of Rs15/bag taking the total increase in prices in Northern region to Rs55/bag in last 2 months, with prices now hovering around Rs660/bag. Moving forward, demand for coal is expected to remain high in near term with high power generation demand from Europe, Japan while supply side issues continue to persist where China’s ongoing trade spat with Australia has further fueled the rally in coal prices. Among local players, MLCF emerges to be the least exposed cement manufacturer to high coal prices with third line capable of running up to 80-90% on pet coke.

Outlook

Increasing coal prices have kept the cement scrips under pressure. However, post result season, analysts expect the sector to come back into limelight as manufacturers increase prices, as high demand continues to provide the requisite pricing power. Among local manufacturers, LUCK enjoys attraction, being one of the lowest cost producers. The additional flavor is added to the mix by a diversified portfolio which includes exposure to booming automobile sector in the name of Lucky Motors Corporation. Lucky Electric Power Plant is also expected to commission in 1QFY22.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.