Karachi: Cement dispatches for July 2024 registered a 6.8% year-on-year decline, totaling 3.01 million tons due to a slowdown in construction activities influenced by high costs and elevated interest rates. Additionally, protests by cement retailers against increased withholding taxes have exacerbated the downturn. While domestic sales saw a significant drop, exports experienced a notable increase.
According to AKD Securities Limited, local cement sales in July fell by 11.4% annually to 2.5 million tons. In contrast, cement exports rose by 21.6% year-on-year, mainly due to higher export volumes from the southern region, which benefited from stable coal prices and the exploration of new markets. However, industry utilization hit a two-year low of 43%, with regional figures standing at 39% in the North and 56% in the South. On a monthly basis, dispatches declined by 15.3%, affected by the monsoonal season.
The recent increase in royalty rates on limestone mining by the Punjab government, which links rates to ex-factory prices, is anticipated to triple limestone costs for cement manufacturers and push cement prices up by approximately PKR 50-60 per bag. Despite these cost pressures, stable international coal prices at around USD 103 per ton year-to-date have provided some relief, supporting the viability of southern exports. Furthermore, the exploration of North American markets is expected to maintain export growth momentum this year.
From an investment perspective, the potential increase in cement prices might reduce local demand by 2-2.5% for the fiscal year 2025, contrary to earlier projections of stable volumes. Total cement dispatches are expected to remain flat annually. Despite these challenges, AKD Securities maintains a positive outlook for the cement sector, driven by expected stable margins and healthier earnings, supported by a potential easing in monetary policy. The firm's preferred picks from the sector include LUCK and FCCL.