LAHORE - The global coal prices have jumped to $75.7/ton, which is highest in 28 months, compared to $67.7/ton at September 2016 and $52.8/ton at April 2016.

According to industry experts, higher coal prices would dampen local cement players’ profits by 5-7 percent on average, as coal constitutes more than 30 percent to the total production costs. Experts said that coal prices have been gradually increasing since May 2016, when China (World’s largest coal producer, importer and consumer) imposed supply side measures to limit its coal mining capacity. Recent surge to the trajectory came from stricter local rules on coal transportation which fueled coal imports.

In shorter term, domestic Chinese coal supplies may increase in October and November in order to prevent a supply shortfall, which would be a short-term bear point for all coal prices. However, upcoming massive coal demand from South Asian countries owing to upcoming coal power plants, is likely to keep the coal prices downward sticky in longer term and it is expected the prices to remain $70/ton.

Though the impact would be similar across Pakistan Cement players, MLCF would be amongst most affected due to upcoming coal CPP while DGKC and LUCK would be less affected owing to diversification (other income) benefits and production efficiencies, respectively.

It is pertinent to mention here that low demand in domestic markets limited growth in cement despatches to 3.55 percent for the month of September 2016. On the other hand, cement exports registered double digit growth during the same period. The reason for slowdown in domestic growth is mainly due to holidays for Eid. It was the first time in more than 15 months that growth in exports exceeded growth in domestic consumption.

The APCMA spokesman said that domestic despatches in September 2016 were 2.536 million tons registering a growth of 2 percent while the exports amounted to 0.523 million tons reflecting growth of 11.79 percent, compared to September 2015. Total cement despatches in September amounted to 3.059 million tons depicting a growth of 3.55 percent. Capacity utilisation during the first quarter of this fiscal is 79 percent, an increase of 7percent compared with corresponding period last year.

Experts said that global fertiliser and steel prices including other coal dependent sectors may also increase might lead to higher domestic prices and improved margins. Coal IPPs may not be impacted due to fixed ROE based formula but Pakistan overall import bill would increase due to higher import prices.