As per the latest data released by the All Pakistan Cement Manufacturer’s Association (APCMA), cement volumes in 11MFY12 have continued with their mixed trend seen throughout the year, with cumulative sales (local + exports) increasing by 3.3%YoY to stand at ~29.5mn tons. While local sales continued with their increasing trend, rising by 8.4%YoY in 11MFY12, exports have continued to decline, falling by 8.6%YoY during the review period. Local sales in May’12 increased by a respectable by 10.4%YoY despite being down 7.4%MoM as seasonality impact kicked in (lower demand and labor availability due to the harvest season). Exports to Afghanistan witnessed some relief as May’12 offtake increased by 3.2%YoY after having posted declines in the past 7 out of 9 months. With Cement sector scrips and the broader in correction mode, the AKD Cement universe has decline by 6.8% since Budget’12. Fundamentally speaking, cement sector remains strong with a rally likely once result season starts. Till then, we advise investors to remain on the sidelines.
Local Increasing; Exports declining: Local sales have continued with their upward trajectory, increasing by 8.4%YoY to stand at 21.6mn tons. While May’12 sales disappointed owing to harvest season, they nevertheless increased by 10.4%YoY to stand at ~2.1mn tons. At the same time, exports have continued with their declining trend, registering a fall of 8.6%YoY in 11MFY12. In May’12 alone, exports witnessed a decline of 6.3%YoY, clocking in at 821.4k tons.
Declining coal offset by rising greenback: As we noted in our earlier note, coal prices have been on a steady decline, with spot Richards Bay falling to US$89.5 per ton compared to the year’s average of US$122 per ton. In line, most international commodity analysts have recently lowered their forecast for FY13 international coal prices with average estimates standing at US$109 per ton for Newcastle coal and US$105-US$107 per ton for Richards Bay. While declining coal prices are a positive for manufacturers, rising greenback against the PkR poses a counter risk where the PkR has already devalued by 9.6% FYTD (though cements are partially hedged due to exports).
Outlook: While recent price performance for the cement sector remains weak (inline with the market trend), we expect the stocks to rebound once result season kicks in. At the same time, selected companies within the sector have continued to be in the limelight. In this regard, LUCK announced recently its intention to carry out due diligence of ICI Pakistan Ltd. for acquisition purposes. The move is strategic where by way of background, Tabba Group (LUCK’s sponsor) has interest in textiles. Cherat Cement was also in news on account of rumors regarding a doubling of capacity to cater to demand in Afghanistan (though the rumors fizzled out later). Our recommendation for investors – stay sidelined given the current economic and political noise and wait for a trigger to excite the market, likely to be the result season.
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