Cement firms raise prices, but stocks stay unattractive

Concern about country’s macroeconomic indicators keeps investors cautious

KARACHI: As the Pakistan Tehreek-e-Insaf (PTI) government starts implementing its ambitious plan of building five million houses, cement companies in the south have raised prices by Rs20 per bag.

However, this development failed to entice any reaction from cement companies in the last two trading sessions on the stock market. The overall trend at the Pakistan Stock Exchange remained bearish due to macroeconomic uncertainties.

“News such as the prime minister’s five million houses project and now hike in prices (of cement bags) should have made cement stocks a bit attractive, but the market did not respond,” Sherman Securities’ Research Analyst Saqib Hussain told The Express Tribune.

According to Hussain, cement companies in the south, in the last couple of days, have increased prices by Rs20 per bag. According to the notices of three companies, new cement prices range from Rs580 to Rs645 per 50kg bag.

The government has initiated work on its housing scheme, which will lead to a growth in demand for cement. While cement prices have a direct link with a company’s profitability, concerns related to macroeconomic variables of the country still hurt the sector.

“The country’s macroeconomic variables are worrying and investors have kept away from the cement sector just like several other sectors. Cement stocks have lost at least 50% of their worth,” Hussain added.



Optimus Capital Research analyst Noorus Subah endorsed such views, saying cement stocks had been struggling amid a bleak outlook of the economy.

She said cement companies had tried to offset their eroding profitability through the recent price hike by passing on the impact of increasing input cost.



Subah added that coal prices had been increasing since April-May this year and reached a high of $108 per ton. Now, they are in the range of $100 to $102 per ton. Gas prices have also increased and will be affecting gas-based plants like that of Lucky Cement.

She said domestic demand for cement would come down following the cut in the Public Sector Development Programme (PSDP). Moreover, cement consumption shrinks when GDP growth slows down.

She said the GDP growth was expected to stand around 3-4%, which was markedly lower than last year’s 5.8%.

Published in The Express Tribune, October 14^th, 2018.

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