Pakistan Cement Dispatches Rise To 45.29 million Tons In FY24 – OpEd

According to a report by Pakistan’s leading brokerage house, AKD Securities, cement industry has posted modest growth on higher exports. Cement dispatches reached 45.29 million tons in FY24, an increase of 2%YoY. The growth was primarily driven by higher export volumes, while domestic sales fell to a seven-year low of 33.2 million tons, down by 5%YoY.

The decline in the local sales was mainly attributed to a slowdown in construction activities due to elevated construction costs, higher inflation, and record interest rates. Meanwhile, exports witnessed a 56% annual growth to 7.11 million tons. South region played a major role posting 62%YoY surge, with the drop in the international coal prices enhanced exports viability.

In Jun 2024, local sales declined by 12%YoY to 3.1 million tons, due to less working days amid Eid holidays. Similarly, exports also dropped by 18%YoY, primarily due to lower clinker sales from the South.

Federal budget FY25 introduced an increase in FED on cement, doubling it from PKR100/bag to PKR200/bag. However, the sector's pricing power allowed it to pass on this increase to customers, resulting in cement prices by up to PKR150/bag to over PKR1,400/bag.

Furthermore, Federal PSDP allocation for FY25 has been increased by 75%YoY to PKR1.15 trillion as compared to FY24 revised allocation of PKR0.7 trillion. Historically, PSDP utilization has remained lower than total allocation, and likewise expected for current year as well. Nevertheless, the increase (even with low utilization), is expected to support the current level of demand from public projects at a minimum.

On the downside, increased taxes on income (personal, AoP, and salaried individuals), along with taxes on developers, are expected to negatively impact local cement demand.

OGRA recently has announced another hike in the gas prices for the captive usage to PKR3,000/ mmbtu (effective July 01, 2024), from PKR2,750/ mmbtu previously. This increase is expected to significantly impact CHCC and LUCK, as they source 50% and 14% of their power from gas, respectively. The aforementioned price hike will have a negative annual impact of 4.4% on CHCC and 1.5% on LUCK's earnings. To note, captive gas prices have increased by 2.5xYoY, rising from PKR1,200/mmbtu in Jun 2023. The said substantial increase has eroded the competitive advantage of these companies. Despite this, power generated from captive gas at the revised rates still remains cheaper than grid rates, calculated at PKR29.5/kWh.