Cement dispatches remain weak in November 2010

Dismal exports dragged cement dispatches by 3% YoY: Total cement industry dispatches declined by 3% YoY to 2.42mn tons during Nov-10, due to 11% YoY decline in exports dispatches while local sales were up by a meager 1% YoY. MoM comparison shows a hefty 17% decline primarily due to weak construction activity during Eid holidays.

Soaring coal prices; limited gas availability could drag down margins: Coal prices in the international market have risen to USD116/ton, up 22% 2QFY11 to date. The impact would likely be offset by 1% increase in cement prices during the period. However, higher FO usage during winters due to limited gas availability could hurt margins in 2QFY11 and 3QFY11.

Immediate pressures likely before post winter demand recovery: Weak dispatches, coupled with rising cost pose risks to profitability in 2QFY11/3QFY11 and we thus expect a muted three month period before post winter demand revival in 4QFY11.

Dismal exports dragged cement dispatches by 3% YoY

Cement dispatches fell 3% YoY to 2.42mn tons during Nov-10 as export dispatches fell 11% YoY whereas local dispatches were up a meager 1% YoY. 5MFY11 cement dispatches, down 12% YoY still post a dismal picture as broad based post flood uptick in local cement demand is yet to materialize, whereas export markets have become a difficult avenue to maintain. However, Nov-10 YoY decline at 3% being 140pps lower than 4MFY11 decline is an encouraging signpost. MoM comparison for Nov-10 shows a hefty 17% decrease mainly because of fewer working days in Nov-10 (due to Eid holidays).  Local dispatches declined by 12% MoM, whereas exports were down 32% MoM.

Soaring coal prices to be a drag on margins

Following the recent upsurge in oil price, coal prices in international market have touched USD116/ton, up 22% 2QFY11 to date, reflecting a cost increase of PKR12/bag for cement.  Local cement manufacturers managing to raise retentions by PKR14/bag in north and PKR9/bag in south 2QFY11 to date, would likely offset impact of coal cost.  However,

northern plants would also suffer from cost escalation emanating from gas to FO substitution for electricity generation due to limited gas availability in winter season, which would likely trim margins in 2Q and 3QFY11.

Immediate pressures likely before post winter demand recovery

Weak dispatches amid slow domestic and export demand, coupled with rising cost pose risks to profitability in 2QFY11/3QFY11 and we thus expect a muted three month period before post winter demand revival in 4QFY11. Major recovery in demand from post flood reconstruction and recovery in farmer incomes remain the key indicators to watch out for, amid constrained demand from development projects.

Economic & Political News

Pakistan targets USD1385mn through CBs: Waqar

Declaring that Pakistan offers best business opportunities, Federal Minister for Privatisation Senator Waqar Ahmed Khan called on the British entrepreneurs to invest in a range of sectors from oil and energy to railways and banking and take advantage of the government’s liberal policies. The Minister said the proposed timeline for issuing CBs for SOEs including OGDCL with an issue size of USD1,081mn is March 2011, PPL with a size of USD304mn July 2011. Together the total size of two entities amount to USD1385mn. He said the proceeds from CBs could fund future plans helping the companies to raise efficient funding and divest stakes in the company at premium. The plan is to raise USD1.0bn against the equity.
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