Equity Analysis /

Pakistan cement: Prices test recent trough

    Intermarket Securities
    30 January 2020

    As per our channel checks, cement prices in the North region have declined from its recent peak of PKR535/bag (December 2019) to below PKR450/bag in some markets in the region. The main reason behind this escalation is demand pressure amid winter season while new capacities have been added rapidly (three new units of cumulative 8.5mn tpa added in North in the past two months). We understand that price competition has been instigated by some of the large players trying to grab more market share. 

    Cement prices in Peshawar, Islamabad, Rawalpindi, Lahore, Chakwal and Faisalabad are hovering in the range of PKR420-490 per bag (lowest in Chakwal).

    Moreover, in the South region, prices have fallen below recent high of PKR650/bag (Karachi). This has followed the recent commissioning of Power Cement's (POWER) new capacity of 2.5mn tpa in South. We understand presently LUCK, DGKC, POWER and Thatta Cement are selling at PKR630, PKR620, PKR610 and PKR590 per bag, respectively. Attock Cement, however, is still selling at a premium at PKR650/bag.

    It is worth highlighting the price competition erupted before commissioning of the new capacities of LUCK, KOHC and PIOC which are online now. Therefore, we believe that this price indiscipline will remain elevated. What is alarming is that current prices of PKR420/bag and PKR450/bag in Chakwal and Islamabad are below the previous trough level of PKR460/bag, reached in May 2019. 

    We maintain a cautious outlook on the sector, with LUCK (TP: PKR544/sh) as our preferred pick given diverse business operations besides local cement and greater ability to withstand lower prices, courtesy cost efficiencies, and lack of leverage.