No “Price War” Expected in Cement Sector

May 14, 2023

A local Research House organized “Pakistan Cement Conference 2023” where management of major Cement Companies participated.

The cement sector has remained in limelight primarily due to posting above expected Financial Results in the March-2023 Quarter. The summary of the conference is mentioned below.

Cement companies management are not worried about a price war. They believe that a price war would be unwise due to the current economic conditions and slow demand. They also point out that major price wars in the past have only occurred when capacity has increased by around 50% in a span of one to two years.

Cement company managements expect demand in FY24 to remain stable after a large decline in FY23. They also expect margins to remain strong. Maple Leaf Cement Management has stated that the sector is trading at 20% of replacement value, which has led them to buy a stake in Pioneer Cement.

The cement sector is currently trading at an average EV/ton of US$22/ton and is trading significantly below replacement value. This makes the sector cheap.

The cement sector has managed the increase in international coal prices by moving towards Afghan and local coal. Some companies have also opened letters of credit (LCs) for coal from South Africa, which would reduce the average cost of coal. Coal from Richards Bay has declined to the lowest level since June 2021. As LC opening restrictions reduce and the supply of South African coal improves, the cost of Afghan coal is expected to decline.