Cement Sector: Pricing Indiscipline In The South, A

If we look at the sales figures of the Cement sector, it doesn’t depict the true picture of the sector performance as the cement stocks have recently outperformed i.e. up by 82% since March 2020.

However, this outstanding performance yet failed to lift the profitability of the cement producers as of 4QFY20.

Since most of the factors that are currently driving the bull run in the cement stocks such as pickup in local demand led by the private sector, anticipated commencement of the Naya Pakistan Housing Scheme, the recent announcement of Karachi Package by the PM, and the recovery in North cement prices, where the improvement in retention prices was also driven by fewer trade discounts and decrease in FED by PKR25/bag, are expected to be persistent in the medium term, thus, the profit margins are expected to remain low in 1QFY20, a report by Intermarket Securities highlighted.

The local cement dispatches during 2MFY21 posted a double-digit jump of 18% YoY to 6.6 million tons. The increase was witnessed only in the North Region, where dispatches rose 23% YoY to 5.9 million tons; whereas, in the South, demand ostensibly declined by 1% YoY to 0.8 million tons (12% of total sales).