Pakistan cement margins expected to improve next quarter

Pakistan cement margins expected to improve next quarter
Published: 25 June 2010

Cement margins for Pakistan producers are expected to improve next quarter on the back of price increase and expected reduction in demand-supply gap, according to an analyst.

Cement prices are already up 14 per cent to PKR290 per bag in the last two weeks.

The performance of the sector remained subdued at local bourses, down seven per cent this year against a three per cent rise in the KSE-100 index, said Topline Securities analyst Furqan Panjani.

Cement dispatches have improved by 14 per cent to 31.6Mt in the first 11 months of the current fiscal year on the back of sharp recovery in local demand, up 24 per cent to 21.8Mt. Exports were also up four per cent to 9.8Mt.

Cement dispatches are expected to reach 33.3Mt by the end of fiscal 2010, said Panjani in his research report.

Increased Public Sector Development Programme (PSDP) allocation and new export markets discovered by cement manufacturers will help overall sales reach around 38Mt in fiscal year 2011, up 15 per cent YoY, the report said.

Actual production capacity of the sector is expected to reach 46Mt by fiscal 2011 as no major expansion is expected except for Fauji Cement’s 2Mt increase in capacity.

However, effective production capacity of the sector is lower around 42Mt because of negative margins and inability to produce at maximum level.

DG Khan Cement (DGKC) after recording losses in the last two quarters because of very low cement prices is expected to have better margins going forward, the report said.