Topline Securities hosted the Pakistan Cement Conference 2023, where top executives of major cement players Maple Leaf Cement (MLCF), Lucky Cement (LUCK), DG Khan Cement (DGKC), Cherat Cement (CHCC), Kohat Cement (KOHC) and Pioneer Cement (PIOC) participated in the conference through Zoom recently.
They ruled out unanimous fears of a price war, stating that it would be unwise to start a price war due to economic conditions and slow demand. However, they believed that major price wars have only commenced when capacity has increased by around 50 per cent in a span of one to two years.
Recall here, the major price wars in the past started in 1995-96, 2006 and 2017 when large capacities came online. The sector has managed smaller increases in capacity in the past without any major pricing indiscipline. Cement company managements expect demand in FY23-24 to remain stable after a large decline in FY22-23 and expects margins to remain strong. The sector is currently trading at an average EV/t of US$22/t and is trading significantly below replacement value and remains cheap. The sector has managed the increase in international coal prices by moving towards Afghan and local coal.
Some companies pointed out that they have opened letters of credit 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 LoC opening restrictions reduce and the supply of South African coal improves, the cost of Afghan coal is expected to decline, toplines concluded in its research coverage report.
