Karachi, July 12, 2021 (PPI-OT): Pakistan Commodities: Yet to witness a slowdown

Commodities continued their rebound from multi-year low with TRJ index recording its strongest run in a decade in FY21, +54.7%YoY backed by optimism surrounding normalcy amid vaccine roll-out.

Global crude oil prices averaged at US$73/bbl in Jun’21, touching two year high, and is up 50% CYTD, with ramp up in vaccination rates driving the momentum. The uptrend in oil prices translates into better earnings for E and Ps, where circular debt accumulation remains a sentiment dampener.

Coal prices averaged at US$114/MT, up 12.7%MoM on the back of natural gas supply side issues due to flooding in Indonesia and Australia coupled with ongoing trade spat between Australia and China, where local cement players are expected to continue passing on the cost pressures.

Commodities should continue reflecting strength, stepping in FY22. Sector-wise, cement and engineering sector remain immune from the uptrend in coal/scrap prices—any normalization in input costs for these sectors will make for an inflection point in terms of profitability, particularly in cements. Our top picks include LUCK, MLCF, ASTL, FFBL and OGDC.