Cement domestic sale to decline by 7pc in July due to Monsoon

LAHORE: While anticipating cement domestic dispatches to decline by 5-7 percent in July due to start of the Monsoon season, industry sources suggest a slight improvement of 6-8 percent on annual basis. They expect this improvement on the back of purchases delayed until July 1st in anticipation of fall in prices, less inclement weather this year and some reconstruction activities in flood-hit areas.

Expert said that after peaking at FOB $130/ton in Jan 2011, coal prices have since then fallen to $115/ton vs. FY12 assumption of $120/ton. Hence, coal prices at these levels are likely to pose an upside risk to earnings estimates. As per sensitivity analysis, a $5/ton differential from assumption of coal prices results in an earnings impact of 7 percent and 21 percent for LUCK and DGKC, respectively.

It is expected local dispatches to rise by 6 percent in FY12 on the back of 1) higher PSDP spending and 2) reconstruction activities in the flood hit areas, resulting in a rise of 5 percent in overall dispatches. Moreover, experts eye margin expansion for cement companies in FY12 owing to rising retention prices and lower international coal prices.

Post the budgetary measures, retention for cement manufacturers has increased by an average 7 percent in July so far to Rs 5,300/ton. Though industry’s dispatches are likely to depict a MoM decline in July owing to the start of the Monsoon season, industry reports suggest a slight improvement on a YoY basis. Analysts expect domestic demand to recover by 6 percent in FY12 on the back of higher PSDP spending and more suitable weather conditions this year.

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