Cement companies join heads
as coal prices threaten recent success
N
ame any random object in Pakistan and chances are, someone has organized a conference on it. Our national love for conferences - day long, two day long, weekend long seminars that go on and on - is endless. Sometimes neither participant nor organizer at the end of a conference can figure out exactly what the need for this conference was. Not so the latest conference organized by AKD Securities: this being the Pakistan Cement Conference, with Lucky Cement, DG Cement, Attock Cement, and Gharibwal Cement. This was necessary: as a note sent to clients on September 16 by Shahrukh Saleem showed, that while cement companies were optimistic about the future, rising coal prices threatened to cause some worry in the years ahead.
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So first, on the demand side: all companies showed an overwhelming sense of optimism, with an estimate of growth of 8-10% year-on-year in fiscal year 2022. Most of this is because the private sector is expected to continue providing support . The 20% year-on-year increase in local demand for fiscal year 2021 was a mix of pent-up demand and initiation of work on private sector projects. According to Saleem, more private sector projects are expected to be initiated in the shape of housing schemes and high rises, helped by the construction of dams as well When it comes to exports, cement sent to Afghanistan seems uncertain, while perhaps they might increase in the months to come as a rebuilding effort begins. There were additional concerns about Iran cement players that might dominate the region. Perhaps the
biggest concern was how international prices might be disrupted because of coal prices: for instance, sea based clinker exports would become infeasible with the increasing coal costs, while the margins on cement exports is expected to reduce. This brings us to the main problem: coal prices. The average cost of the coal inventory is $100-110/ton - but recent shipments have been arriving at much higher rates of $140150/ton. Since December 2020, coal prices have risen by an astonishing 77%. Worse,at least Rs60-70/bag has still not been passed on to customers, affecting coal players. The federal government has tried to control the increase in the price of commodities, and also tried to stop local players from increasing prices, which means a decline in margins from the second quarter of fiscal year 2022. The companies present at the con-
