KARACHI: The cement industry in Pakistan witnessed a slowdown in demand and dispatches in July 2023, as the construction activities were affected by the uncertain economic and political situation, high inflation, and high financing costs.
According to the data released by the All Pakistan Cement Manufacturers Association (APCMA), the total cement dispatches for the month of July 2023 were reported at 3.2mn tons, showing a decrease of 21% MoM, but an increase of 8% YoY, due to a low base effect.
The domestic cement consumption in July 2023 was recorded at 2.6mn tons, down by 24% MoM and up by 5% YoY. The exports also declined by 4% MoM to 0.6mn tons, but increased by 25% YoY. The decline in exports was mainly due to lower demand from Afghanistan and India, which are the major export destinations for Pakistani cement.
On the positive side, the cement industry benefited from the falling coal prices and elevated cement prices compared to last year, which improved the gross margins for the cement companies. The Richard Bay coal prices, which are used as a benchmark for international coal prices, dropped by 46% since Dec-2022, owing to dull global demand and better supply. The Richard Bay coal now costs less than Afghan coal used by cement manufacturers, but the benefit of the same on costs and margins can be fully availed if import restrictions are eased on a sustained basis.
However, the cost advantage of coal was partially offset by the depreciation of PKR and the uptick in international coal prices in July 2023, which were fuelled by a notable rise in gas prices and concerns about possible strikes at major global LNG export facilities. Moreover, any further increase in power or gas tariffs may limit the benefit for some players.
According to JS Global research, the long-term prospects for the cement industry remain intact, as the government’s focus on infrastructure development and housing schemes is expected to boost the demand for cement in the coming years. The research house has an Overweight stance on the sector and recommends MLCF and FCCL as its top picks, given their timely expansions that have the potential to capture higher market shares. It also highlights PIOC for its cost optimization focus and KOHC due to lower leveraged balance sheet among preferred picks.
The cement industry is one of the key sectors of Pakistan’s economy, contributing significantly to the GDP growth and employment generation. The industry has a total installed capacity of over 60 million tons per annum and caters to both domestic and export markets. The industry is also one of the major consumers of energy and coal in the country.