Pakistan’s cement sector is set to face fresh challenges, as rising global coal prices endanger its use of coal as a raw material for power generation, putting pressure on the industry’s margins.
Coal prices have surged 15% over the average coal price of $97/ton, nearing $125/ton and averaging out at $112.2/ton for the fiscal year thus far. This rally is primarily driven by disruptions in global energy markets, particularly oil and LNG, amidst the Middle East conflict and closures of major shipping lanes.
The suspended supplies have pushed several Asian economies to increase coal consumption as an alternative fuel. Pakistan’s cement sector already relies on the resource as a heating and electricity fuel, putting pressure on manufacturers’ margins if prevailing rates persist.
A research analyst from Sherman Securities said the ultimate impact on sector earnings would depend less on the absolute level of coal prices and more on the ability of manufacturers to pass higher costs to consumers, their fuel efficiency and the extent of alternative-fuel usage.
Shifting to coal
Iran’s blockade of the Strait of Hormuz, in force since February 2026, cut off roughly a fifth of global LNG supply and pushed gas prices up worldwide. As a result utilities across Asia and Europe switched back to coal because it suddenly looked cheap by comparison.
Although China, which is the largest coal consumer in world, has relatively witnessed slowdown in demand due to solar revolution, but coal markets are anticipating additional demand in upcoming winters, especially from Europe.
The analyst from the brokerage house said the cement sector earnings would remain subdued considering rising coal prices and overall inflationary pressures. “We have assumed 5% increase in local cement retention prices during FY27 while coal prices to stay higher by 10% ($107/ton) compared to FY26 average of $97/ton,” he said.
According to estimates, every $10/ton increase in coal prices raises the industry’s cost by around Rs. 30/bag. If the industry absorbs the entire increase, gross margins are estimated to decline by 3% year-on-year, resulting in a 10% year-on-year decline in earnings.
However, if producers pass on the full inflationary pressure, including higher coal prices, to consumers while maintaining last year’s margins, cement prices would need to increase by around 5.5% year-on-year, or Rs. 44/bag. Under this scenario, the industry could deliver 4.5% year-on-year growth in net earnings in FY27.
Historically, the brokerage said it had observed that cement prices tend to rise during periods of elevated coal prices, while prices have remained relatively sticky when coal prices subsequently decline. “We expect coal prices to remain elevated in the near term as geopolitical disruptions continue to support energy prices, but anticipate some normalization as global energy markets stabilize,” said the analyst.
The key downside risk to estimates remains a prolonged disruption that keeps coal prices above $110/ton, limiting the industry’s ability to fully pass through higher fuel costs.
Europe
In Europe, LNG gas storage stood at just 48.6% in late June 2026 compared to historical average of 84% which is considered to be critical for upcoming winters when gas demand generally increases for heating purposes. In the current scenario, when LNG supply is short due to closure of Strait of Hormuz, E.U. storage is expected to reach only 76% by end-October, marking the lowest pre-winter level.
Ever since Ukraine-Russia conflict started in 2022, U.S. and Qatar have been the major LNG suppliers as an alternate to pipeline gas from Russia. With rising charges for spot LNG, and with freight rising exponentially, there is pre-buying expected in coal market ahead of winter season.
This raises renewed upside risks for coal prices.
During the Russia-Ukraine war, the disruption to Russian gas supplies prompted Europe to increase coal consumption as an alternative source of energy, driving a sharp rally in coal prices. While Europe has since diversified its gas supply, particularly through U.S. and Qatari LNG, the loss of Qatari LNG supply ahead of the winter heating season, combined with already-low storage levels, could once again tighten Europe’s energy market and increase demand for coal, providing further upside risk to coal prices.