KARACHI: Cement sales in August 2011 fell to its lowest level since September 2010 at 2.4 million tonnes, down 18 percent month-on-month (sharpest MoM fall in 21 months).
Heavy rainfalls in the country along with lesser working hours during Ramazan were the key contributors towards this decline. Domestic demand stood at 1.6 million tonnes (down 19 percent MoM), while exports slipped to 714,000 tonnes (down 14 percent MoM). However, previous year’s low base owing to floods helped total cement sales in 2MFY12 to rise by 7 percent year-on-year (5.2 million tonnes).
On the other hand, local retention prices have increased to Rs 290/bag (retail prices in the vicinity of Rs 410-420/bag) from last month’s average of Rs 251/bag. Recent rise in power cost of Rs 2/unit has been passed on by the manufacturers, well over and above our estimated impact of Rs 20/bag. Export prices (by sea) have gained some ground as well, rising up to $60/tonne from its recent mean of $52-55 per tonne.
Analysts expect domestic cement demand to reach 23.3 million tonnes (up 6 percent YoY), while exports to remain in the neighborhood of 9.5 million tonnes.
Local cement sales fell by 19 percent MoM in August, with the decline led by a fall from the southern part of the country (down 38 percent MoM). The decline is attributed to heavy rainfalls in the south along with curtailed working hours during Ramazan. As a result, industry’s sales during 2MFY12 reached 3.7 million tonnes, an increase of 14%YoY – reflecting the low base of last year.
Meanwhile, exports also declined to 714,000 tonnes in August (down 14%MoM) as logistical issues hindered sales to Afghanistan (down 26%MoM). This takes 2MFY12 sales figure to 1.5 million tonnes, which is 7%YoY lower than last year’s sales of 1.7 million tonnes.
The local cement prices have increased up to Rs 410-420/bag, with retention for cement manufacturers reaching as high as Rs 290/bag (up 15% from August’s average of Rs 251/bag). The increase in prices is because of manufacturers passing on the impact of recent hike in power cost of Rs 2/unit. However, the Rs 35-40/bag increase in prices is well over and above our estimated impact of Rs 20/bag. Hence, earnings outlook for Q1FY12 remains bright for cement manufacturers (preliminary estimates: Lucky Rs 4.8/share – up 113%YoY and 4%QoQ).
Though overall demand in August witnessed a massive decline of 18%MoM, analysts expect this trend to reverse on the back of improvement in weather conditions. Hence, they also expect overall cement sales to reach 32.8 million tonnes in FY12, up 5% from last year.
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