Pakistan cement underperforms due to high coal prices CY21

· As CY21 approaches close, we take a look at AKD Cement Universe’s performance during the year where even after a strong performance for 1HCY21 (up 18% against 8% of KSE-100), the sector comes out among the underperformers, posting a CYTD return of -10% against KSE-100 increasing by 1%.

· The underperformance was mainly on the back of increasing coal prices which have increased 64% however, the same did not have a significant impact on margins of local players as after initially absorbing some pressure, they were able to increase prices while also altering their fuel mix to reduce reliance on imported coal. However, some impact will be witnessed on margins for 2QFY22.

· Additional factors impacting the sector’s performance were muted growth in dispatches, increased freight rates due to global supply chain issues and rising local interest rates.

· Moving forward, what initiated pressure on local cement stocks (i.e. coal prices), is expected to be the catalyst for bringing the sector back into the limelight for CY22, where we expect the post-winter decline in demand of coal in developed economies to trigger the decline in coal prices and resultantly expand margins of local payers given cement prices have proved to be downward sticky historically.

Courtesy – AKD Research

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