D.G. Khan Cement Company has estimated that cement markets are likely to suffer in FY23 due to budget constraints, which suggests growth next year will be negative or single-digit. Moreover, the management in a corporate briefing stated today that various projects were put on hold amid high steel and cement prices. Likewise, local growth was flat this year due to inconsistent policies, and domestic political situation exports went down due to lack of availability of coal since prices rose dramatically.
However, Jun’22 offtake was slightly better than previous months. Initially, it posted a jump of 8-9% YoY, but it has slowly normalized and is expected at just 2% YoY. On a positive note, management sees that housing sector demand can be seen in rural areas.
The Company will also try to pass on the impact of the super tax, where the management awaits clarity.
Coal factor in cement industry
DGKC is procuring Afghan coal in the North, whereby prices have increased massively from PKR 29,000/ton to PKR 50,000/ton. The government of Pakistan is also considering using Afghan coal in local coal plants, which will make the supply to the industry difficult. This will be tough, though, as boilers have already been built based on the composition of imported RB coal since Afghan coal has a very high moisture level.
Moreover, the government is encouraging local companies to use locally available coal, which some players are already consuming. Besides this, Irani and Tajik coal is also coming unofficially to Pakistan.
The management also believes if RB coal price comes down to USD 70-80/ton, the industry will switch back to it as transportation from Afghanistan is too high.
The last imported coal procurement by the Company was done at USD 244/ton (CNF), and the Company has two months of inventory for the HUB plant and 40 days for the DGKC site. For the Kallar Kahar site, DGKC has a mix of imported and Afghan coal inventory of 50 days.
Currently, Company is using 100% imported coal at Hub and DGKC sites but is now planning to procure Afghan coal.
At the Kallar Kahar site, the Afghan coal cost is PKR 48-50k/ton. Irani coal also has good specifications and has a similar price. At the same time, coal from Uzbekistan is also being offered at the same price but with lower quality.
Transportation of Afghan coal to HUB is PKR 2,000/ton and PKR 1,000-1,500/ton at the DGKC site.
The banking situation is also complex right now due to difficulty opening LCs. DGKC bought some Indonesian coal (RB coal not being procured currently) but had to agree to the banks’ parity. Freight on this is USD 18-20/ton.
The availability of tyres is not that significant. Still, the Company is trying to tap into America, and if it finds a huge quantity, it will use the TDF facility against coal consumption. The price of tyres is around USD 300-350/ton; DGKC will use this if it comes down to USD 200-250.
The Company has switched to KEL in the South, while the DGKC site is running at coal (50%; at PKR 28-32/unit compared to grid cost of PKR 22/unit) and 50% on WHR.
The Company is contemplating solar power expansion. The previously announced 7MW solar plant is being put up for PKR 800mn, financed purely through SBP financing. Efficiency is forecast at 18-20%. After this, the Company will check the feasibility of the Hub and DGKC sites.
The Company has no plans to announce expansion at present.
Courtesy – AHL Research