ISLAMABAD: Cement dispatches in February 2024 witnessed a significant decline of 19 percent year-on-year and 5 percent month-on-month, with a total of 3.26 million tons. Despite this decrease, the overall tally for the first eight months of FY24 reached 30.5 million tons, marking a 3 percent year-on-year increase, albeit on a lower base.
According to a report by JS Global, the decrease in dispatches can be attributed to various factors, including seasonal impacts such as winter and fog, which hampered construction activities across the country. Additionally, challenges related to increased input costs and elevated financing expenses are expected to maintain pressure on volumes, particularly as March approaches, marked by Ramadan.
However, there is some respite as Richard Bay coal prices have dropped by over 30% in the last 12 months. This decrease has led to a favorable cost trade-off for cement manufacturers, with the landed price of Richard Bay coal being lower than the mix of Afghan and local coal used by most players. Despite this positive development, the dynamic nature of the cost trade-off between Afghan, local and international coal remains a factor to consider.
Furthermore, despite recent underperformance, the long-term demand of the cement sector remains intact, supported by potential margin accretion resulting from cost efficiencies and better volume forecasts. With the new government taking charge and political uncertainties settling, there is optimism for demand recovery in the long run.
Despite challenges, certain cement companies have shown resilience, with Pioneer Cement (PIOC) notably outperforming. Its strong financial performance and dividend announcement demonstrate its growth potential.
In conclusion, while the cement sector faces immediate challenges, its long-term prospects remain promising. Maintaining an overweight stance on the sector, with MLCF and FCCL highlighted as top picks, underscores confidence in their ability to navigate challenges and capitalize on future opportunities.
