October 6, 2021 (MLN): Roaring coal prices amid global energy crunch have trapped the cement sector domestically that can be seen through the plummeted numbers of the recently issued data of cement despatches for the month of September’21.
During the month, cement despatches tumbled by 12.17% to stand at 4.589 million tons (MTs) against 5.225 MTs despatched during the same month of FY21.
Cement manufacturers are raising concerns about the lower dispatches and ongoing upsurge in input cost as coal FOB prices have reached over $210 per ton during September’21, compared to September’20.
Domestic cement despatches by the industry during the month stood at 4.018 MTs compared to 4.095 MTs in September’20, showing a reduction of 1.88%. Exports despatches suffered a massive decline of 49.45% as the volumes reduced from 1.131 MTs in September’20 to 0.572 MTs in September’21, as per data released by All Pakistan Cement Manufacturers Association (APCMA).
The current situation is attributed to a slowdown in domestic demand given the significant increase in construction material cost, lower exports in the north region amid the change of government in Afghanistan, and a decline in south region exports due to higher freight charges and a decline in realized export prices.
The mix of local demand in total dispatches increased by 9.2ppt YoY to 87.5% in Sep’21 due to a rebound in north region domestic demand given early PSDP disbursement. Furthermore, industry capacity utilization decreased increased by 11.0ppt YoY while the same has been declined by 4.4ppt MoM to 79.4% in Sep’21. Moreover, the region-wise comparison shows utilization level in north reduced by 5.6% YoY and increased 6.3% MoM in Sep’21 to 80.1% with the local weight of 96.9% in Sep’21, inched up 4.4ppt YoY.
While, utilization level in the south region declined to 76.8% with the local weight of 55.2% in Sep’21, moved up by 14.8% YoY, a report by Foundation Securities stated.
The local Industry has absorbed the partial impact of an increase in coal prices to all-time high level of $220 per ton. The average coal prices increase by 174% YoY to $158 per ton in Sep’21 and in response to that cement players have been only able to increase domestic prices by 21% YoY to Rs678 per bag in Sep’21.
It is important to note that companies have been able to pass on the majority impact of a surge in energy and other overhead costs due to lower than expected growth in demand and increased government oversight. Furthermore, coal prices to remain at elevated levels till 4QFY22 due to lower inventory in China/India, freezing of coal export licenses in Indonesia and supply chain issues post-COVID outbreak, and bad weather conditions.
The report further noted that the local cement companies would benefit from favorable government policies, continuous increase in consumer housing finance (up 39.8% YoY to Rs111.7bn in Aug’21) amid lower interest rates, and increased demand from the public sector due to early disbursement of PSDP.
In days to come, construction activities would slow down due to the winter season but there will be robust demand in the medium-term for cement along with high pricing power considering the major housing scheme across the major cities, improving construction dynamics, lower interest rate regime lifts the overall demand, a report by Darson Securities highlighted.
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