Karachi: The earnings estimates for Pakistan's cement sector have been revised downward by an average of 15-20% for the fiscal years 2026 and 2027, according to JS Global. The adjustment reflects a challenging macroeconomic environment, compounded by the ongoing US-Iran conflict and the closure of the Afghan border, which have significantly impacted the industry's dynamics, particularly for North-based players reliant on Afghan coal imports and exports to Afghanistan.
According to JS Global, local cement dispatches showed a year-on-year increase of approximately 9% during the first eleven months of fiscal year 2026, buoyed by improving macroeconomic conditions and a gradual recovery in construction activity. However, the outlook for fiscal year 2027 is less optimistic, with demand growth forecasts reduced to 5-6% from a previous estimate of 8%. This revision considers lower expected public sector development spending, a reduction in GDP growth assumptions to 3.5%, and recent policy rate increases.
The sector's margins are under pressure due to rising coal prices, which surged to $112 per ton in May 2026, following the US-Iran conflict. This has led to an upward revision of coal price assumptions to $100 per ton for fiscal years 2026-2027, exacerbated by tighter local coal supplies and the suspension of Afghan coal imports. Cement prices have been increased, with North-based producers raising prices by approximately Rs80 per bag and South-based producers by Rs30-40 per bag, partially offsetting cost pressures.
The State Bank of Pakistan's recent decision to increase the policy rate by 100 basis points to 11.5% has also contributed to the sector's challenges. This move is expected to affect the profitability of leveraged companies and dampen construction activity and cement demand.
Company-specific revisions include downward adjustments in earnings for D.G. Khan Cement, Maple Leaf Cement, Fauji Cement, Lucky Cement, and Kohat Cement, primarily due to higher fuel costs and changes in coal mix usage. The revisions reflect the broader sectoral challenges, highlighting increased reliance on higher-cost international and local coal and the impact of macroeconomic factors on construction and demand.