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Pakistani cement attracts investors on PSX


News Desk |

The shares of top Pakistan’s cement producers at Pakistan Stock Exchange (PSX) become attractive for international and local buyers on 5 February on anticipation of good results ahead.

The benchmark KSE100 Index started the week on a buoyant note, settling marginally above the key barrier of 41,600. The gains were mainly led by aggressive buying in cements with DG Khan Cement Ltd DGKC PA up five per cent, Maple Leaf Cement Factory Ltd (MLCF) up five per cent and Lucky Cement Limited LUCK PA up 4.7 per cent trading at their upper circuits on the back of the decline in international coal prices, says a report of Elixir Securities Pakistan.

Pakistani firms are said to be more price-competitive in clinker production instead of cement and are exporting clinker to countries such as Bangladesh and Kenya.

Despite sluggish local demand, total dispatches of Pakistani cement are likely to post 3 percent YoY (Year over Year) growth in 7MFY19, mainly on the back of stellar growth in exports. Continuing with its past trend, exports will remain encouraging during Jan 2019 at over 60 percent annually on the back of higher clinker sales to regional countries. Due to lower local demand, South players are striving to export surplus inventory to avoid pricing pressure on domestic cement prices.

Cement exports surged 58.6 percent YoY to US$77.6m. With additional capacity coming online in the south in 2HFY18, firms in the region have been aggressively marketing to foreign buyers. That said, initial customs data, as well as market intelligence, suggests that clinkers, instead of finished (Portland) cement, drove the volume increase in exports in 1QFY19. Pakistani firms are said to be more price-competitive in clinker production instead of cement and are exporting clinker to countries such as Bangladesh and Kenya.

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However, local Pakistani cement dispatches are likely to register a 9 percent decline in January 2019 annually. On monthly basis, it is expected that volumes will fall by around 4 percent.

According to Intermarket Securities, the slowdown in local cement dispatches has been in place since elections and appears to be gathering pace. This could be attributable to lower PSDP disbursements, a more challenging macroeconomic environment and legal challenges on major private sector construction projects.

The regional divergence is possibly due to some plants in the south understood to be selling in the south Punjab market (which falls under the northern region).

The State Bank of Pakistan on Tuesday released its first quarterly report on the State of Pakistan’s economy for FY19. According to the report, the overall macroeconomic environment remained challenging during the first quarter of FY19 as suggested by the preliminary data. It pointed out that the 6.2 percent target for real GDP growth seems unachievable with the policy focus now tilted towards macroeconomic stabilization.

Furthermore, in 7MFY19 local cement sales were down four percent YoY to 22.6Mt. Northern-based sales fell eight percent YoY to 17.8Mt while southern-based sales increased 17 percent YoY to 4.8Mt. The regional divergence is possibly due to some plants in the south understood to be selling in the south Punjab market (which falls under the northern region).

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Capacities, especially in the south, also continue to be diverted towards exports, which have clocked in at 4.1Mt in 7MFY19, up 50 percent YoY. Overall industry utilization based on 7MFY19 sales is 81 percent (vs. 99 percent in the same period last year).

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