JS Securities Limited - JS Research.

Karachi -- November 14, 2022 (PPI-OT)

Falling coal price could offset brunt of slow cement demand

As per the latest data, cement dispatches for Oct-2022 stood at 4.2mn tons (-19% YoY), taking cumulative dispatches for 4MFY23 to 13.9mn tons, down 23% YoY, over slow-down in construction activities and impact of floods.

On the other hand, declining trend in international coal prices has been a positive for the sector as coal is the major raw material for cement manufacturers, which is expected to offset impact from dull demand. The Richard Bay coal price quote has declined by ~50% to ~US$185/ton from its high of c. US$360/ton in early September 2022.

In our view, the cement sector will likely stay on radar in coming months over sharp declining trend in coal. Unfavourable repercussions due to ongoing capacity additions by cement manufacturers, however, remains a key concern.

Dull dispatches in Oct-2022

Cement dispatches in Oct-2022 clocked in at 4.2mn tons, vs. 5.2mn tons in the corresponding period last year, reporting a decrease of 19% YoY. Dispatches were flat on a MoM basis. Consequently, cumulative dispatches for 4MFY23 clocked in at 13.9mn tons, depicting a decline of 23% YoY due to slow-down in construction activities and aftermath of floods. Local dispatches for the Northern region clocked in at 3.1mn tons for the month of Oct-2022, depicting a decline of 18% YoY. Whereas, exports from the region improved and grew by 79% on a YoY basis. Local dispatches for the Southern region clocked in at 746k tons during the month, an 3% YoY decrease. Cement exports, which constitute a major chunk of total dispatches from the region, have declined significantly in the last couple of months, witnessing a drop of 57% YoY in Oct-2022. A table with provisional company-wise numbers is shared in the end.

Likely to be offset by ongoing coal price plunge

On the cost side, cement manufacturers are expected to perform better than what was anticipated at the start of FY23, amid recent Richard Bay coal price plunge, more than counterweighing impact of depressed cement demand. The said quote has dropped by ~50% to ~US$185/ton from its high of c. US$360/ton in early Sep-2022. The price drop is likely due to the dull demand in Europe for the commodity, where coal-fired power plants' stockpiles are practically full and are expected to last through the end of winter season.

The cement industry has historically met most of its coal...