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coronavirus
Coronavirus
VERY HIGH
Source: covid.gov.pk
Pakistan Deaths
29,137
1524hr
Pakistan Cases
1,386,348
5,19624hr
Sindh
531,008
Punjab
467,698
Balochistan
34,032
Islamabad
120,813
KPK
186,537

The outgoing quarter, the first of this fiscal year, has been rather rewarding for the cement industry despite many odds stacked against it. Cumulatively, the industry landed at a remarkable earnings growth of 133 percent, all thanks to substantially improved retention, timely decision making in terms of procurement of inputs and fuels, a tight leash on overheads, reduced debt burden and shored-up non-business income (read: “Cement: Camouflaging risks”, Nov 3, 2021).

Despite losing a lot of clinker sales overseas, Lucky remains king operating with its wings spread across the north and south zone markets. The company saw a drop in total volumetric dispatches in 1Q but boasted highest revenue and earnings within the industry. With global freight rates surging over the past year —brought on by covid-related supply chain snags — cement and clinker importers were unwilling to raise prices in line with global commodity price increases having to face 4-5x times higher freight costs. This resulted in market switching for most clinker exporters (Attock, Power, Thatta, DG Khan) as these markets became unfeasible onto domestic markets, that have also seemingly lost their lustre compared to last year.

South players are certainly struggling more though. Prices in the domestic markets in the south are not growing by as much as those in the north zone. In fact, the gap between north and south zone prices is fast closing (read: Cement prices: Tug-of-war, Oct 11, 2021). Meanwhile, south players also have higher overheads, are unable to export that much, with domestic demand in the south zone remaining uninspired.

Up north, the situation was more favourable. Reliance on exporting markets had already been reducing gradually as the Indian market up and disappeared and Afghanistan also began to show lethargy with Iran zealously serving that market at cheaper prices. Now with the political situation in Afghanistan coming to a head, north players lent all focus on the demand originating from hydropower and other infrastructure projects here at home, that are concentrated in the north of the country. Compared to the south, housing and construction demand within the private sector as well as the public sector has been more robust in the north. As a result, cement makers were able to raise prices slowly but surely making up for the high costs they were incurring due to expensive fuel. Revenue per ton sold for these companies is outstanding (see table), which lies in stark contrast to the negative sales growth that was happening during the period for most cement players.

Industry margins going up to 25 percent was also because cement manufacturers were able to procure coal domestically as well as from the Afghan market, bypassing the dramatic near-tripling of coal prices during the quarter year on year from South Africa. International coal prices are far too expensive to absorb and the recalibration had to be done to local coal despite it not being of ideal quality. This too is not in ample supply. Though, coal inventories are warehoused for the next quarter, cement millers will be waiting for coal prices globally to come down and the global supply to restore as well since China’s overwhelming demand for coal has left the rest of the world in shortages. Coal supply dynamics and its prices will play a dominant role in cement margins from Q3.

Though, cement players have raised prices on Nov-1 once again, this frequent increase in prices is not a sustainable strategy. Cement prices can only be raised by so much. What the resulting financial standing of the industry will come down to is domestic demand. In Q1, average monthly cement sales stood at 4.3 million tons, lower than monthly sales last year that far exceeded 5 million tons — monthly average for the 12-month period last year was 4.7 million tons. The difference is not too much, but the dependence on domestic demand has certainly increased — from 80 percent to 88 percent in 1QFY22. This makes the industry susceptible to fluctuations in local demand that is always expected. Though there is an undisputable demand coming from public infrastructure projects, private sector demand despite government’s massive efforts to boost construction — from tax waivers to mark-up subsidies on housing — tends to be erratic.

Whereas SBP’s housing finance numbers show massive improvement, there is no way of ascertaining true housing demand from just that data alone (more on that later). The industry needs a lot of planning — capabilities of which it is certainly not short of — but it also needs a bit of luck.

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Mudassir khan Nov 05, 2021 11:45pm
Factory say direct lana ho to kia method h
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Ubaid Ullah Nov 06, 2021 03:30am
Order krne ka kia tariqa ha
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