Coal and crude prices beneficial for cement industry, says DG Khan Cement

Two of DG Khan Cement’s senior management, Raza Mansha, CEO, and Farid Noor Ali Fazal, director, commented that falling coal and crude prices in international markets would reduce the cost of cement production in Pakistan, according to the company’s 9MFY20 report. They also anticipate a rise in cement demand on the back of government big hydroelectric dam projects.

According to the report, coal prices will remain low and may ease pressure on cost. Oil prices have hit rock bottom and are expected to remain on the low in near term during the time of the pandemic. This could provide some relief on the monetary side. Alongside, the healthy fall in interest rates, the cement industry should receive some breathing space.

Cement demand
DG Khan Cement expects a rise in cement demand, as soon as the groundbreaking of the special economic zones take place, later this year and the government commits to the plan regarding its development. Flagship projects Diamer-Bhasha Dam and Mohmand Dam are yet to reach the  construction phase. These factors could offset the negative pressure of COVID-19 on industry.

Financial results
However, the 9MFY20 was not encouraging for the company. While it was able to reverse the loss in the 2QFY20, it could not maintain pace in 3QFY20 due to the cyclical trend of the cement industry, lockdown in the third month of the quarter, continuous cost pressure and tough price wars due to fierce competition. For the 9MFY20, the overall quantity of cement sales registered growth, mainly driven by local cement sales and clinker exports.

Exports of cement declined mainly from halt of exports to India after imposition of the 200 per cent duty. Sales utilisation of DG Khan Cement improved to 107 per cent (9MFY19: 76 per cent). Clinker was exported to contribute towards fixed costs and to reduce the piling of clinker stocks.

DG Khan Cement reported a loss of PKR1.85bn (US$11.48m) in 9MFY20 against net profit of PKR2.62bn in same period last year.