Cement shares up as investors respond to price hike

PSX Cement Sector Index was up 2200 points or 4.1 percent today after investors flocked to cement scrips as Northern Manufacturers raised prices of 50 kilogram bag by 10 Rupees. The cement scrips helped KSE – 100 Index cross 43500 points threshold during the day.

Cement scrips were pick of investors today, as turnover in Cement sector managed to rise by 18.9 percent with total turnover at 39,137,550 shares. Fauji Cement Company FCCL 4.97%, Cherat Cement Company CHCC 5.00%, Kohat Cement KOHC 5.00%, Lucky Cement LUCK 5.00%, Pioneer Cement PIOC 4.99%, Flying Horse Cement FLYNG 4.82% and Gharibwal Cement GWLC 4.24% remained were among the top performers in PSX Cement Sector Index.

Cement prices in north have remained under pressure throughout fiscal year 2018 after local manufacturers compete to maintain their market share after new production line of Cherat Cement Company’s was commissioned in January, 2017. Northern manufacturers have been competing hard amongst each other to maintain their share in the domestic markets as the sector goes through an expansionary phase. Furthermore, the cement manufacturers have been selling cement at a discount of 20 – 30 Rupees for some months now despite the rise in domestic demand.

According to various research houses, the net impact of 10 rupees raise will result in a 9 percent impact on earnings of cement sector. The decision to raise the prices, however, has only come from Northern manufacturers but no such raise has been reported from Southern region. Cement manufacturers have hinted at a further rate hike in prices in the coming few weeks pausing somewhere at Rupees 550 for 50 kilogram bags.

Furthermore, industry experts hint that there is a very strong case of rising prices in the coming few weeks, which will turn out to be a testing phase for Pakistan’s cement manufacturers. As the D.G. Khan Cements’ additional capacity expansion of 2.7 million tons is expected to come online by May, 2018 which will significantly impact the north’s cement supplies to the southern region.

According to local research houses, the impact of price raise would translate into 2 percent additional margins with earnings per share effect to be somewhere between +4 – 10 percent. These are troubling times for the cement industry as competition continues to grow tough with every passing year. Given the expansionary cycle, the manufacturers will look to foreign markets to increase their exports in order to support achieve capacity utilization. However, that depends entirely upon stable coal prices which even though have fallen in short term but are currently at their five year highs. The South African coal prices have been steadily rising during the year crossing $93/ton.

Higher prices coupled with declining coal prices would help cement manufacturers increase their margins in the current and coming fiscal year.

Posted on: 2018-03-01T16:29:00+05:00