Cement Sector: Review and Outlook.

Byline: SHABBIR KAZMI

Cement dispatches for the month of April were reported at 3.54 million tons, down 30%MoM, mainly due to shortened working hours and slowdown in construction activity during the month of Ramadan coupled with rising construction cost amid inflation, and cut in public sector development expenditure restricting growth in demand. Accordingly, local dispatches were registered at 3.37 million tons, down 29%MoM, while exports were reported at 0.16 million tons, down 47%MoM mainly due to: 1) all-time high freight costs and 2) low retentions in the export markets restricting exporters. Therefore, cement the manufacturers preferred to sell domestically where they enjoy greater pricing power.

Industry Review

Local cement dispatches posted a disappointing performance for April 2022, declining by 17YoY and 29%MoM. Both the regions, North and South, witnessed similar fortunes where local dispatches in North declined by 17YoY and 27%MoM to 2.8 million tons while dispatches in South decreased by 18YoY and 37%MoM to 0.6 million tons. The decline can be attributed to various reasons in our opinion where foremost is the overall macro-economic climate and resultant slowing down of economy which naturally resulted in slowdown in construction.

The situation will be exacerbated with skyrocketing cement prices, increasing by PKR128/bag in last 2 months in North to PKR860/bag. However, another reason could be producers cutting down production to maintain pricing power while also rationing coal supplies in the process.

Exports also witnessed a similar fate, declining by 82%YoY and 68%MoM to 0.2 million tons. Low prices of exports coupled with increasing coal prices have made exports infeasible, as per our understanding and the same has been witnessed. Overall, local cement dispatches for 10MFY22 stand at 39.5 million tons, down 1.8%YoY while exports have decreased by 34.1%YoY to 5.0 million tons, taking overall dispatches to 44.5 million tons, down 6.9%YoY.

Coal price resume upward march: After touching a high of USD460/ton, coal prices cooled down and hovered around US$250/ton for a while in search of equilibrium. However, the recent ban by Europe on coal imports from Russia has provided new impetus to prices and they have once again crossed USD300/ton.

Ban by Europe will increase competition in the seaborne market as Europe is expected to move towards regions like Indonesia to fulfill its demand of high calorific value coal. Even though local...