Pakistan Cement Sales up in Nov

News Report

Pakistan’s cement sales in Nov-2021 are likely to reach 4.7-5.1mn tons, up 6-10% YoY.

However, the sales of cement are likely to decline by 4-8% MoM.

Local sales of cement are likely to grow by 9-13% YoY amid increased construction activity and economic recovery post-COVID-19. However, exports are estimated to drop by 4-8% YoY because of higher freight costs.

Local sales are estimated to decline by 7-11% MoM.

Average daily sales in the North and South regions are hovering at 114-118k tons/day and 40-44k tons/day, respectively. This is likely due to the start of the winter season and higher cement prices.

Exports, however, are likely to increase by 15-19% MoM largely due to low base.

In 5MFY22, total sales of cement are estimated to clock in at around 23 million tons, similar to last year’s. Local sales are likely to grow by 2-4% YoY, Topline Research said in a report.

Industry’s capacity utilization based on local sales is expected to reach ~72% in Nov-2021, whereas in the North region the utilization is estimated to be 78%. However, the overall capacity utilization (including exports) is likely to reach 85%.

Looking at the total sales in 5MFY22, capacity utilization is expected to clock in at 80%, whereas based on local sales the same is likely to be around 70%.

Cement retail prices in Nov-2021 averaged at Rs734/bag in North, with an increase of  4% from Oct-2021. In the South, retail prices also increased by Rs29/bag MoM on an average in Nov-2021 to Rs749/bag.

Excluding August, this is the first time in FY22TD that local monthly sales are showing improvement on a YoY basis.

This is despite higher cement prices.

Local demand growth of 36%YoY in August 2021 was due to low-base effect as heavy rainfall, Eid-ulAzha, and Ashura holiday depressed demand during August 2020.

Thus, local demand is displaying resilience, thanks to declining international coal prices, which are dispersing concerns of the construction industry regarding further cement price hikes of the same magnitude witnessed in the past few months (FYTD increase of Rs100/bag).

On the other hand, exports are expected to continue their recent monthly trend of double-digit contraction, declining by 24%YoY to around 0.6mn tons during November.

 On a sequential basis, industry volumes are likely to decline by around 11%MoM in November. Local dispatchers are estimated to contract by 12% month on monthly basis (MoM), while exports are also estimated to post a slight decline of 5%MoM.

The decline in sequential sales in the domestic market is due to the onset of the winter season along with pre-buying last month in anticipation of a possible hike in cement prices.

Construction activities under Naya Pakistan Housing Scheme coupled with strong government initiatives and PSDP allocation pushed cement consumption up

The cement sector posted a growth of 12.73 percent in June 2021 compared to June 2020. Total Cement despatches during June 2021 were 5.211 million tons against 4.623 million tons despatched during the same month of last fiscal year.

According to the data released by APCMA, local cement despatches in the month of June 2021 increased to 4.668 million tons against 3.834 million tons despatched in June 2020, showing an increase of 21.74 percent. Exports dropped by 31.12 percent to 542,622 tons in June 2021 compared to 787,842 tons exported in June 2020.

Region-wise, domestic cement despatches in the north during June 2021 increased by 14.06 percent to 3.859 million tons from 3.384 million tons in June 2020. Exports from the north massively increased by 337.89 percent to 201,540 tons in June 2021 from 46,025 tons in June 2020.

In the south region, domestic cement despatches increased by 79.35 percent to 808,490 tons during June 2021 from 450,792 tons in June 2020. Exports from the south however decreased by 54.02 percent to 341,082 tons in June 2021 from 741,817 tons in June 2020.

The cement sector witnessed robust growth during financial year 2020~21 as the total cement despatches of the country grew by 20.12 percent to 57.433 million tons from 47.812 million tons during FY 2019-20.

The start of construction activities under the Naya Pakistan Housing Scheme and good PSDP spending helped the cement sector to witness a record-breaking growth during the financial year ended on 30th June 2021.

During the financial year 2020~21, local cement despatches witnessed an increase of 20.40 percent to 48.119 million tons from 39.965 million tons during the last financial year 2019-20. Exports also increased from 7.847 million tons during the financial year 2019-20 to 9.314 million tons during the financial year 2020~21, showing a growth of 18.69 percent.

Region-wise, in the north region, local cement despatches increased by 18.22 percent to 40.582 million tons during July 20 to June 21 period from 34.328 million tons despatched during July 19 to June 20 period. Exports from the north increased by 30.25 percent to 2.566 million tons in July to June 2021 from 1.970 million tons during the same period last year.

In the south region, domestic cement despatches increased by 33.70 percent to 7.537 million tons from July 20 to June 21 from 5.638 million tons on July 19 to June 20 period. Exports from the south also increased by 14.82 percent to 6.747 million tons from July 20 to June 21 from 5.877 million tons during the corresponding period last year.

A Spokesman of APCMA said that FY2020-21 has been a good year for cement, as demand has grown considerably. The cement industry is expanding its capacity from 70 million tons to around 100 million tons with the hope that the demand will increase by 15% annually for the next three years due to an increase in allocation in PSDP, an increase in CPEC related projects, and housing as well as industrial demand.

The coal prices are showing a significant upward trend as the C&F cost during the financial year ended on 30th June 21 has increased to USD 140 per ton from USD 60 per ton same period last year.

Along with coal prices, the electricity tariff and furnace oil prices have also increased which has impacted the overall cost of production which has gone up by around Rs. 110/- per bag compared to the same period last year.

Pakistan cement industry dispatches increased by 49.8/20.9% YoY in May’21/11MFY21 to 3.9/52.2mn tons Analysts have attributed the growth in dispatches to:

1. Strong demand from the private sector given increased liquidity amid lower borrowing costs.
2. Disbursement of subsidy under NPHP.
3. Extension in construction package.
4. Soft base effect due to COVID induced lockdowns in May’20.

Furthermore, on a sequential basis, dispatches declined by 20.1% MoM in May’21 due to extended Eid-ul-Fitr holidays to control the third wave of COVID outbreak.

Impact

Increased demand from private sector uplifted cement demand: Pakistan cement dispatches increased/decreased by 49.8/20.1% YoY/MoM in May’21. South-based players continue to outperform the industry by delivering 64.9% YoY growth in May ’21 due to a solid rebound in domestic demand, while north region dispatches increased by 45.2% YoY.

To highlight, the contribution of the north region in overall communications declined by 2.4/0.5ppt YoY/MoM to 73.9% in May’21 due to solid demand in the south domestic/export market.

Total domestic dispatches increased/decreased by 40.9/21.3% YoY/MoM in May’21. However, exports increased/decreased by 105.6/14.9% YoY/MoM in May’21 due to higher exports by northern players. Furthermore, the domestic market north/south region dispatches increased by 35.5/81.2% YoY in May’21. On a sequential basis, north/south domestic communications declined by 19.7/29.2% MoM due to extended Eid holidays.

Industry utilization increased due to low base effect: Pakistan cement industry capacity utilization clocked in at 68.2% (up 22.7% YoY) with the local weight of 81.1% in May’21. However, on a sequential basis, industry capacity utilization declined by 17.2% MoM to 68.2% in May’21 due to extended holidays during Eid to contain the third wave of COVID outbreak. We attribute higher utilization levels to:

Extension in construction package

1. Increased demand from the private sector given the rebound in economic activity.
2. Disbursement of subsidy under Naya Pakistan Housing Program at subsidized interest rates.

To highlight, consumer housing finance reached the highest level of Rs95.5bn in Pakistan history, up 11.1% YoY in Apr’21.

The region-wise comparison shows that the north increased/decreased by 20.4/16.0% YoY/MoM in May’21. While in the south region, utilization level increased/reduced by 30.3/21.3% YoY/MoM in May’21.

The majority impact of higher energy input cost has already passed on to the consumers in the north market as retail prices in the region increased by 15.9% YoY to Rs604/bag in May’21. Furthermore, we expect local cement players to increase their prices post FY22 budget by Rs22/bag to pass on the impact of ~USD19/ton increase in international coal prices from Apr’21 to date.

Outlook

Better utilization level given higher cement demand would allow a gradual increase in cement prices in FY22/23. Moreover, lower finance costs due to reduced interest rates would also support the sector’s profitability. We are positive in the sector, with LUCK and KOHC as our top picks, Foundation Securities said in a report. The government package for the construction sector had also boosted sales of cement.