The slowdown in construction activities affected cement sales in May

Pakistan cement sales are expected to contract by 17% MoM to 2.92mn tons with local dispatches likely to be down by 19% MoM mainly due to Eid holidays and economic slowdown.

On YoY basis, cement sales in May-2022 are anticipated to decline by around 26% YoY. Local dispatches are likely to be down by 15% YoY primarily due to (i) slowdown in construction activity and (ii) elevated construction cost, we believe.

Exports during May-2022 are likely to witness a decline of around 74% YoY, while they are likely to scale up by around 22% MoM. The attrition in exports are on the back of disruption in global supply chain resulting in higher sea freight charges.

In 11MFY22E, cement sales are expected to fall by around 10% YoY with local sales also posing a downward trend of 3% YoY. Lower offtakes in local cement dispatches is on the back of 1) lower spending in Public Sector Development Program (PSDP) as disbursement currently stands at Rs466bn against the authorized Rs603bn for FY22, 2) rising construction cost, and 3) inflationary impact restricting the demand growth owing to super commodity cycle.

Industry utilization during May-2022 is estimated to clock in at 51% with 11MFY22 average utilization of around 67%.

Industry dispatches are likely to show single-digit growth on MoM basis in June-2022 with normalized working days and the spending in PSDP to inch up during the end of FY22. Thus in FY22, cement sales are likely to clock in at 50.4mn tons, down by 13% YoY vs. last year growth of 19%.

With rising interest rates, expected slowdown in economic growth and contained PSDP, we expect cement dispatches to remain under pressure in FY23.

Courtesy- Topline Securities

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