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AKD Quotidian about — Cement Sector: Positives on higher Cement Prices

Karachi: Owing to consistent cement demand in the country (post flood reconstruction & construction of small dams) cement prices have remained flat despite the onset of winter.

According to AKD Securities expects higher price levels to prevail till the beginning of snow fall. AKD Securities reiterates AKD Securities’ positive stance on the local cement sector, given the prevailing high cement prices, declining coal prices and the expected growth in dispatches (post seasonal decline in winter). Besides, alternate fuel implementation should also begin by end-1HFY12. At current price levels, AKD Securities has a Buy stance on both LUCK (FY12F PER: 4.9x) and DGKC (FY12F PER: 9.3x), which offer respective upsides of 47% and 71% to AKD Securities’ target prices of PKR113/share and PKR34/share.

Cement prices prevail at highs: Cement manufacturers have continued to maintain cement prices at levels as high as PKR420/bag in the North and PKR414/bag in the South. High cement prices have managed to prevail due to high cement dispatches on the back of post flood reconstruction in the country overall and construction of small dams in the North. Damage due to law & order disturbances in Quetta especially (where cement prices stand at PKR45O/bag), have also contributed to an overall increase in cement prices. Local cement prices may take a seasonal dip in the North, as the snow fall begins, only to jump back to current levels, post winter.

Coal prices continue to fall: Amidst low energy demand on the back of slowdown in manufacturing activity on the global front, coal prices have continued to maintain their fall. After rising to as high as US$123.9/ton in Jun’11, coal prices have declined by 17.3% to stand at US$102.5/ton. Further impact on coal prices can come from the proposed regulations on coal plant emissions (on the global front), lower expected international gas prices (increased gas production in the US) and lower demand as industries throughout the world switch to alternate fuels. A continuation in this downfall should benefit the local cement industry, in terms of higher margins going forward.

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