Weak International coal prices to help cement sector

Faizan Saleem

The coal prices in the international market are heading southwards owing to weak economic conditions in major parts of the world including Europe and United States along with sluggish economic growth. However, the weak coal prices would be helpful in supplementing the earnings of local cement manufacturers.

In previous years, it has been witnessed that historically coal prices remain higher in winter due to strong demand.

But, this time, the deteriorating economic conditions in Europe and US coupled with retrenching developing market growth has led to a slide in coal prices to US$102.2/ton, said Furqan Ayub, research analyst at JS Global Capital Limited.

However, the global demand of coal is expected to remain firm in coming year due to increased reliance on thermal power generation and strong industrial growth in China. During the first five months of the current fiscal year (Jul-Nov), the cement demand in the country posted a moderate growth of 3.54 percent.

He further said that the higher cement prices along with weak coal prices bode well for the future earnings of the cement manufacturers. Higher cement prices and contained coal prices are triggers that have gone somewhat unnoticed amid the weak sentiments prevailing in the market.

Even if coal prices take a U-turn from here, cement prices are firm enough to sustain healthy margins of the manufacturers.

In Pakistan, the cement manufacturers are currently enjoying higher level of cement prices even in winter season when construction activities remained on halt. Even, the weak coal prices are going to ease off the pressure from the operational cost of the company providing further boost to the margins of the manufacturers.

This development together with rupee depreciation will help making Pakistan cement more attractive to the rest of the world. But, the concern going forward is that cement demand in rest of the world may remain low as most developed countries are going through an economic turmoil. China, which is still growing is self sufficient in cement making and hence, now the major task will be to search new markets besides India and Afghanistan.

http://www.halaltamweel.com/2011/12/28/News/Weak-Int-l-coal-prices-to-help-cement-sector-/2912/Story.aspx