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Pakistan Cement: Cement Dispatches to fall 9% YoY during Jan 2019

• Pakistan cement dispatches are likely to post up to 9% decline in Jan 2019 YoY. On monthly basis, we expect volumes to fall by around 4%.
• Volumes will be lower mainly on the back of weak local dispatches as cold weather and slowdown in economy continue to post challenge to the local industry. Taking cue from our discussion with the industry, the decline in local sales can be as much as 15-20% YoY in Jan 2019. To note, Large Scale Manufacturing (LSM) numbers remained disappointing in 5MFY19 as the index was down 0.9% YoY.
• Continuing with its past trend, exports to remain encouraging during Jan 2019, +60% YoY on the back of higher clinker sales to regional countries. Due to lower local demand, South players are striving to export surplus inventory to avoid pricing pressure on domestic cement prices.
• Despite sluggish local demand, total dispatches are likely to post 3% YoY growth in 7MFY19, mainly on the back of stellar growth in exports. We believe that, slowdown in economy (where we expect FY19 GDP growth at 3-4% vs. 5.8% in FY18) is likely to keep pressure on domestic side.
• Due to weak macros and tightening monetary policy, local cement demand is likely to fall by up to 3% YoY in FY19 while higher input costs will likely keep pressure on margins. To note, Dec 2018 Quarterly results of cement producers have started coming in and as per our initial impression, we expect further contraction in gross margins (1QFY19 margins were at 24%).