A spike in Afghan coal prices has affected the cost of cement production in northern Pakistan. JS Research reports that the northern-based cement companies, which operate 20 of the 26 production lines in Pakistan, are facing the challenge of high production costs due to a recent rise in imported coal prices. The cost trade-off between Afghan and international coal remains dynamic, leading to difficulties for the industry. The northern region players face costs of around PKR53,000/t (US$188.20) for Afghan coal, while local coal prices have also experienced a notable surge. Most northern participants face costs ranging between PKR40,000/t and PKR42,000/t for domestic coal. In addition, the adjustment in axle load requirements has resulted in higher freight costs, with transportation expenses from Karachi port to northern regions exceeding PKR10,000/t.
On the other hand, South African coal prices have declined by 50 per cent in the year to date due to dull global demand. Prices have been low for most of 2023, and the subdued demand outlook results from concerns about a prolonged global economic slowdown and stricter carbon emission targets in countries that produce coal in the years ahead. Richard Bay coal (RB3) is now less expensive than Afghan coal prices, but only if import restrictions remain sustained and freight costs do not increase further. Southern players are at an advantage due to their proximity to the seaport.
Outlook
The slowdown in construction activities due to uncertain economic and political situations, high inflation, and high financing costs make it difficult for cement manufacturers to pass these costs on to customers fully. Moreover, the recent upsurge in Afghan and local prices, combined with increases in power and gas tariffs, could exert pressure on the profitability of cement companies.
