According AKD Securities, cement dispatches for August 2024 were reported at 3.37 million tons, posting a 26%YoY decline, largely attributed to a slowdown in construction activity, exacerbated by heavy monsoon rains.
Cement dispatches for the month totaled 3.37 million tons, posting a 26%YoY decline. Domestic offtakes fell by 28% annually to 2.75 million tons, with North and South regions experiencing declines of 25% and 40%YoY, respectively. The said reduction is largely attributed to a slowdown in construction activity, exacerbated by heavy monsoon rains and compounded by negligible public sector spending.
Likewise, exports also witnessed a contraction of 16%YoY; with South exports decreased by 28%YoY, while North exports rose by 25%YoY. The decline in south exports was primarily due to harsh weather conditions affecting transportation. Notably, offtakes increased by 12% monthly, driven by low base of previous month, which was impacted by nationwide protests from retailers, including cement dealers, over increased withholding tax. Overall, 2MFY25 sales volumes declined by 18%YoY to 6.38 million tons, largely due to weak local sales.
Average daily domestic sales during the month under review was reported at 88,000 tons as compared to FY24 average of 105,000 tons. Consequently, industry’s utilization dropped to 48%, from 66% for the same period last year. Utilization in North decreased to 43%, while utilization in South declined to 57% due to decreased exports.
Recent change in the royalty rates by Punjab, which tripled the cost of limestone for cement manufacturers, has resulted in regional players increasing cement prices to minimize the impact on their bottomline.
Reportedly, average cement prices in Punjab have risen by PKR40/bag in the previous month, following the increase in royalty rates, to PKR1,530/bag.
Similarly, prices in KPK province increased by PKR37/bag to PKR1,522/bag, despite no change in their royalty rates. This price increase is expected to benefit players in the KPK region, including LUCK, FCCL, BWCL, KOHC, and CHCC, unless royalty rates are adjusted in KPK as well.
Prices in the south are expected to remain sticky due to lower demand, but a drop in POL prices could narrow the PKR126/bag price gap between regions due to reduction in transportation costs.
The brokerage house expects local cement demand to dampen in FY25 as local construction activity is anticipated to remain subdued due to the substantial increase in cement prices, coupled with a likely reduction in the revised Federal PSDP budget of PKR1.1 trillion due to fiscal constraints.
However, declining steel prices and the construction Scheme of ‘Apni Chhat Apna Ghar’ in Punjab, could provide some support for demand.
Meanwhile, exports are expected to outperform the previous year, subsequently total cement offtakes are anticipated to remain flat on an annual basis.
Nevertheless, the brokerage house maintains a positive outlook for the sector owing to healthier earnings supported by stable margins, coupled with continued monetary easing.
Additionally, higher-leveraged players could also remain in limelight amid ongoing monetary easing. However, the likely risks includes: 1) price indiscipline on declining capacity utilization, 2) increase in input prices and 3) drop in exports.