Cement: Wandering, but not lost

Despite a lull that has setlled across the construction industry predominantly because of rising inflation and reducing purchasing power, a demand situation that has only been exacerbated by the floods, cement industry’s sales in Ocotober did not take a massive plunge to the south. In fact, cement offtake during the month stood at 4.249 million, only slighly lower than last month and higher than the 6-year monthly average cement offtake of roughly 4 million tons. Year on year, offtake during the month dropped 19 percent (local: -18%, exports: -40%). Cumulatively, in the 4MFY23 period, total offtake dropped 23 percent year on year, where local sales dropped 22 percent and the major downward thrust came from exports, declining 36 percent.

October is not the worst month of this or any year in terms of offtake. Though recovery based on demand revival from the current immobility may not be on the cards just yet. The country is reeling from the devastations caused by the floods while macroeconomic outlook seems only to be worsening. Prices are running amok with no signs of stalling. Costs of construction have been near prohibitive where both cement and steel prices, along with other building materials, rose manifolds over the last year. Schemes like the Mera Pakistan Mera Ghar that promised affordable mortgages through markup subsidies to first time home buyers was largely taken off the table with PTI exit.

Development spending done through government projects is also down, safe for projects already in the pipeline, some halted due to the floods. Funds collection for flood rehabilitation of nearly 33 million affected is not nearly enough but will lead to a small growth spurt in construction supplies, of which cement is primary. Any substantial turnaround in demand would depend on construction costs, overall inflation and interest rates. Coal prices are heading south which may ease cement prices in the short run. Inflation however is not expected to simmer down so soon which will keep spenders in no hurry to make hasty decisions relating to large expenses like home construction.

While flood infrastructure and rehabilitation may provide spur a little demand, new development spending may not, given fiscal constraints owing to high debt-servicing needs and not enough significant mobilization in tax revenue. Though monthly demand is higher than the average offtake over the past six years, this year is going to be a downer.