Hike in cement prices to hit sector’s earnings up to 10% in FY22

August 4, 2021 (MLN): The Cement sector is undergoing a nerve wrecking phase in spite of extended cushions from government in a way to accelerate the infrastructure and development projects. The substantial reduction of 19.41% in sales growth in the month of July’21 after witnessing an enormous growth in the preceding month has left everyone bewildered.

At the same time, the incessant hike in cement prices has created a rambling situation. Cement prices in the North region have increased by Rs10 per bag to a new all-time high of Rs 660 per bag.

This is the second consecutive hike in the past week, taking total price increase to Rs20 to Rs25 per bag, a report by Intermarket Securities noted.

This increase in price is primarily attributable to the surge in global coal prices which has reached to $133 per ton, and transportation costs amid rising local petroleum prices.

It was anticipated that During FY22, average cement and coal prices will likely be clocked in at Rs658 per bag and $110 per ton respectively. However, it is now believed that prices in North will reach Rs700 per bag by the end of FY22, the report said.

This is mainly backed by robust local demand from the private construction space, propelled by the continuation of amnesty scheme for builders, which is complemented with higher PSDP allocation for FY22. 

As per projections made by Intermarket Securities, the above catalysts to remain in place, keeping cement demand robust and sustaining high prices, as the next general elections are due in 2023.

With regards to South region, the report underlined that cement prices are ranging Rs640 to RS690 per bag against the projected price Rs698 per bag.

Company wise, Attock Cement, as usual, is selling at a premium over the prices of LUCK, DGKC and Power Cement; whereas MLCF and Thatta Cement are selling at cheaper rates of Rs640 and Rs650 per bag respectively.  It is expected that cement price in South region will likely increase to Rs720 per bag by the end of FY22.

PIOC, DGKC, CHCC and FCCL are most sensitive companies to cement prices; where every Rs10 per bag change in prices will increase annualized earnings by 10%, 9%, 9% and 8% respectively, the report noted.

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