Karachi, April 12, 2022 (PPI-OT): Cements: 3QFY22 dispatches decline 10% YoY

As per the latest data, Cement dispatches for March-2022 stood at 5.0mn tons (-6% YoY), taking cumulative dispatches for 9MFY22 to 40.8mn tons, down 6% YoY as well over a higher base.

With 3QFY22 dispatches clocking in at 13.3mn tons (-10% YoY), we expect 4QFY22 dispatches to depict a slower trend as well due to slowdown in construction activities owing to Ramzan and Eid holidays.

On the pricing front, recent price hikes would try to neutralize some of the impact of sharp rise in coal prices during the last quarter due to the Russia Ukraine issue, however further price increments are warranted in 4QFY22 if international coal prices continue to remain at current levels.

Cement dispatches recover MoM in Mar-2022

Cement dispatches for March clocked in at 5.0mn tons vs. 5.4mn tons in the corresponding period of last year, reporting a decrease of 6% YoY. Dispatches improved on a MoM basis as construction activities picked up post winter season and rainfall across the country.

Local dispatches for the Northern region clocked in at 3.8mn tons for the month of Mar-2022, depicted marginal rise of 1% YoY. Whereas, exports from the region decreased by 71% on a YoY basis. On a MoM basis, Local dispatches were 20% lower while exports saw an increase of 97% on a MoM basis.

Local dispatches for the Southern region clocked in at 898k tons during the month, a 19% YoY increase. Cement exports, which constitute a major chunk of total dispatches from the region, witnessed a decline of 60% YoY in Mar-2022.

Price pass-on to remain a challenge amid dull demand

We see local dispatches to remain dull during 4QFY22 due to slowdown in construction activities owing to Ramzan and Eid. The year may likely close with negative growth if slowdown persists in the coming months.

Rising coal prices led to the procurement of coal at higher rates by cement manufacturers, requiring them to raise cement prices by Rs115/bag during the month of March. Where as in the last 12 months, Domestic cement prices have increased 40% (Rs~250/bag). We believe that if coal prices stay at these high levels, 4QFY22 profitability will likely be impacted as average cost of coal inventory would be ~US$250/ton+. Further price increment would be needed to neutralize the cost impact but given the sector’s slower demand, it would be difficult for cement companies to raise prices for some time.