Karachi, August 16, 2019 (PPI-OT): Pakistan Cement: Coal prices creating some room to breathe
Coal prices stand at USD60/ton after touching a three year low of USD59.7/ton as intensifying trade war between China-US and fears of recession across the globe put significant pressure on the prices.
The decline serves as a sigh of relief for local players where declining local prices significantly dented the profitability for FY19. LUCK being the least sensitive stands to gain the least while CHCC and PIOC have the most to rejoice.
The current downturn is expected to be relatively different from 1HCY19 where PkR depreciation worn out the benefits of decline in coal prices however with expected depreciation already incorporated in our base case, we believe sustaining the current levels will be beneficial for local players.
An axe in the shape of declining local cement prices in North can cut off more than the gains with some players providing significant discounts where upcoming capacities will further increase pressure on prices.
We maintain our underweight stance on the sector with PIOC (TP: PkR17.3/sh) as our top sell with the company being heavily leveraged (FY20E D/E: 152%) and most sensitive to changing dynamics.