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AKD Securities Limited – AKD Daily (December 05, 2022)

Karachi, December 05, 2022 (PPI-OT): Pakistan Cement: Cement dispatches continue cyclical trend

Northern region sales to the domestic market clocked in at 3.16mn tons in the month, posting a decline of 8.8%YoY while remaining flat on a MoM basis. On the flipside, local cement sales in the South posted a gain of 6.6%YoY to 0.70mn tons in Nov’22. On a sequential basis, South sales were down by 6.7%MoM.

Exports from the North posted an increase of 1.5%YoY in 5MFY23 to 0.5mn tons, while Southern region exports declined by 56.5% in 5MFY23 to 1.0mn tons compared to 2.3mn tons SPLY.

Local construction sector was expected to remain under pressure even before the floods hit parts of the country. With that in mind, the cement dispatches have recovered from the impact of the floods as major rehabilitation drives uplifted cement dispatches in the two prior months (Sep-Oct’22 average of 4.3mn tons, compared to 2.7mn tons averaged in Jul-Aug’22).

Prices of Richards Bay coal have contracted significantly in the mid of Oct’22 with increase in the last of the month, currently hovering at around US$248/ton compared to FYTD/CYTD avg. of US$292/280/ton.

High coal prices coupled with PkR depreciation and rising fuel costs have kept the cement sector under pressure. The surprise hike of 100bps from the SBP has put further burden on the sector, as several companies increased leveraging in order to fund capacity expansions.

Therefore, we continue to advocate for LUCK and MLCF with the companies having low leverage on their balance sheets in an increasing interest rate environment along with significant cost efficiencies.