Cement’s long shadow

Pakistan’s cement industry is enjoying a return to growth. After three years of subdued activity, total cement offtake reached 46million tons in 11MFY26, up 6 percent compared to the period last year. This recovery has been driven by a turnaround in domestic demand, reversing a prolonged period of weakness that had forced producers to lean increasingly on export markets.

But even as demand recovers, capacity has run far ahead of consumption.Years of aggressive capacity expansion have left producers saddled with a growing surplus of idle capacity. With exports slowing down, declining 1 percent this year, the burden has shifted on domestic markets to keep capacity operational. The numbers tell a familiar story.

Despite average monthly domestic dispatches growing 8 percent, capacity utilization has remained below 60 percent. Total offtake is also about 12 percent below the FY21 peak. The construction sector has yet to fully regain the momentum lost during the prolonged macroeconomic downturn.Between FY22 and FY25, domestic demand steadily deteriorated as inflation surged, interest rates climbed, and construction activity slowed.

During this period, exports stepped in to fill part of the gap growing from around 10 percent in the sales mix during FY22 and FY23 to 19 percent in FY25, helping producers keep kilns running even as local demand weakened. Export volumes more than doubled between FY18 and FY21 but then retreated as regional competition intensified and freight costs grew.

This year, exports lost their momentum which is offset by domestic demand but just. For margins, this is good news as producers have stronger pricing power in the domestic markets and logistics costs are lower.But volumetrically, the expansion surge that doubled capacity remains unaddressed. Much of this investment was undertaken during the optimism of CPEC and the FY21 boom when the then government announced a sweet real estate package for builders and subsidy schemes for buyers. The expected growth was cut short as the program came to an abrupt end. Demand was never the same since.

There is now another home loan subsidy in the works that is expected to temporarily boost housing construction. But even with another tax package that aids builders, any major shift in the market will only come if the government substantially raises the bar on development spending, and home buyers see a steady rise in their incomes relative to inflation and the growing burden of taxes. Since neither of these scenarios will play out in the foreseeable future in this country, cement producers will have to be satisfied with existing capacity just laying idle—and for most of the mid to large ones, it appears that they are going to be just fine.