ISLAMABAD: Falling share prices of cement sector in local bourse bounced back for the second consecutive day as relatively cheaper Afghan coal provides the much needed support.
According to a report of Foundation Securities, international coal prices have touched an all time high of $460 per tonne, surging around 114 percent in the last 3 weeks. This has forced local cement players to switch towards other resources where Afghan coal has taken a lead by cutting down input cost and providing a breathing space.
Players like Cherat Cement, Lucky Cement, and Maple Leaf Cement Factory (MLCF) have switched to 60-70 percent usage of Afghan coal while Pioneer Cement’s usage stands at 40-50 percent and DGKC is using 20-30 percent of Afghan coal in the northern region. Similarly, other players are also meeting a major portion of their overall coal requirement from Afghan origin coal.
According to the brokerage, Afghan coal used to trade at 25 to 30 percent discount to Richards Bay Coal (RB1) until a few weeks ago. This differential has increased in recent days post significant jump in RB1 prices.
As per market sources, on-site delivered Afghan coal price in the north currently stands at around $235 per tonne. This indicates that delivered prices are less than 50 percent of South African comparable coal. Similarly, usable domestic coal trades at around $170 per tonne i.e. at 64% discount to RB1, Foundation Securities cited.
According to AKD Research, monthly availability of Afghan coal ranges from 0.2-0.25 million tonnes while local coal’s availability is in the range of 0.1-0.125 million tonnes. North’s monthly demand of coal at 0.42-0.45mn tons currently; hence, the northern region can easily replace 65-70 percent of its coal requirement through Afghan coal.
However, limited coal inventory and the unreliability of the supply chain of Afghan coal pose a risk on sustainability of the cement operations if the prices remain at current levels. This may lead cement players to shut down their plants until reversal of commodity prices.
According to the AKD Research, the situation in the south is trickier as Afghan coal is not currently being utilised where the players in the region have stopped taking export orders currently due to low prices of clinker while they also prioritise local markets in a bid to improve longevity on current stock of coal.
