Floods will sustain cement prices despite no rise in demand

KARACHI: Floods will inevitably lead to some degree of price sustainability in the local markets even though they are unlikely to cause any major uptick in cement demand, according to analysts at BMA Capital.

Both Maple Leaf and DG Khan Cement’s management were of the opinion that predatory pricing is likely to have ended. Local retentions are still significantly below regional averages of $48 per ton as compared with Saudi Arabia and the United Arab Emirates.

Coal costs continue to be stubborn as a recently decrease in prices has been offset by the rupee’s depreciation. However, export prices have been hurt severely and are expected to clock in at around $45 to $50 per ton as compared with $65 per ton during the fiscal year of 2009.

Furthermore, exports to far flung regions have significantly reduced the viability of exports on a freight adjusted level. On the back of continued depression in export prices, potential declines in export volumes and stubborn input prices of imported coal in the event of a depreciating rupee. Thus, analysts expect major triggers for the sector as a whole to have been exhausted for the time being.

Recent revival of local prices is undoubtedly a good omen for the sector; however while things on the local front look upwards. The export scenario has posits significant questions for the sector. Regional demand decline and low retentions on a freight adjusted basis are fast becoming a source of concern. This together with no real reconstruction activity pick up in the much famed Afghanistan market is likely to keep local pricing rationalization under check.

Published in The Express Tribune, August 14^th, 2010.