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AKD Securities Limited – AKD Daily (August 03, 2022)

Karachi, August 03, 2022 (PPI-OT): Pakistan Cement: Cement dispatches plummeted 48%YoY in Jul’22

Local cement dispatches posted negative growth for Jul’22, declining by 48/62% YoY/MoM. Region-wise North and South witnessed a huge decline in local dispatches. Northern region sales declined by 44/61% YoY/MoM to 1.61mn tons while dispatches in the South decreased by 52/69% YoY/MoM to 0.27mn tons.

Exports also witnessed a similar fate, declining by 66/45% YoY/MoM to 0.15mn tons in Jul’22. Low prices of exports coupled with increasing coal prices have made exports unattractive, in our opinion.

Richards Bay coal prices have contracted slightly by 5.1%MoM in Jul’22, currently hovering around US$323/ton compared to FYTD/CYTD avg. of US$341/285/ton. Moreover, China’s approval of new coal-fired power plants to hedge against soaring alternative energy costs and the UK Govt. speeding up its permitting process for coal-fired power plants could keep coal prices high in the 2HCY22.

On the other hand, local manufacturers have increased prices by PkR40-60/bag in Jul’22 as they look to pass on the increase in input costs however, we believe, that a further price hike will be difficult. As cement demand is likely to go down by 6-8% in FY23 and capacity expansion by north-based players could result in price wars, hence, limiting the pass-on ability of local players.

High coal prices coupled with PkR depreciation and rising fuel costs have kept the cement sector under pressure. Moreover, declining construction demand, monetary tightening, and a fragile macroeconomic condition are likely to keep the sector’s outlook gloomy.