Cement: Sunny with a chance of rain!

Sometimes big is beautiful; or at least that has been true for some industries, and across the world, the cement sector is fast becoming one of them. That’s what a McKinsey report tells. The industry here at home is relishing that idea in pursuit of the immense potential Pakistan hopes to witness in the next decade.

Greater urbanization, housing demand as well as CPEC spill-over are major drivers. And so far, despite somber trends in sales, the headlines are screaming optimism and cement sector is maintaining a strong rally in the stock market—though a few plays are a lot more dominant than others.

Even so, everyone is trying, and vying for that extra piece of the pie. It seems the slices will get thinner for some, thicker for others but no one wants to be left behind.

Since our last story on the subject of expansions and acquisitions in the sector (Cement’s race: No finish line), we are happy to report a smaller company—Flying cement—has announced an expansion, doubling capacity from 2,000 tons per day to 4,000. Flying is joining the dozen other firms to enhance its existing market share and our estimations suggest, it will capture 2 percent of the industry capacity, against its current one percent (see graph).

Earlier, we reported the acquisition of Dewan cement by industry giant Bestway as well as an expansion of the latter that would allow it to remain one of the top dogs. The total expansions—per our own estimations—suggest an increase of capacity by 29 million tons in the next five years or so.

But the demand is in doldrums. The sector is far from the projection of 12 percent growth—currently (8MFY17) at 9 percent year-on-year in local sales while also experiencing a steep drop in exports that has taken total growth to 6 percent. Iran is proving to be a force to be reckoned with in the Afghan market pinching a chunk of the share Pakistani cement used to enjoy.

It won’t get better soon either. Iran is undergoing expansions and is expected to take its current 80 million tons to 120 million in a few years. The government just announced a new plant of a million tons to kick-off these plans. According to reports, the new plant is located strategically to export to Afghanistan as well as Pakistan.

Is the cement industry even worried about falling exports? Bad luck in terms of slower construction and infrastructural demand globally, coupled with a lack of market access paint a somber picture. At home, the cement industry has a cushion of tariffs on imports (even though it doesn’t make sense given how competitive the sector is locally) but it has to have a greater competitive advantage in global markets when it is dealing with Indian, Chinese and Iranian cements.

Could the trend of exports change the game plan? Will local demand catch up to the expectations of the sector that are driving expansions? Let’s keep an open mind, and not decide just yet.