Pakistan’s cement sector is set to close FY26 with its strongest volume performance in several years, but perhaps after a long time, a recovery in demand may not translate into stronger profitability after all.
Based on 11MFY26 dispatches, full-year industry offtake is on track to exceed 50 million tons, approaching levels last seen during the FY21 construction boom. Domestic dispatches alone may finish comfortably above 41-42 million tons, much higher than last year.
The rebound marks a significant turnaround from the prolonged slowdown following the post-pandemic construction cycle. Domestic demand, which had fallen for three consecutive years amid high inflation, elevated interest rates and weak development spending, has returned as macroeconomic conditions improved. Lower borrowing costs, easing inflation and the gradual revival of construction activity have supported a recovery in cement consumption across both retail and infrastructure segments.
However, even with total dispatches likely crossing the 50-million-ton mark, years of aggressive investment have left the sector with nearly 80 million tons of installed capacity. Utilization rates, despite improving this year, are still hovering below 60 percent, leaving more than two-fifths of industry capacity idle.The recovery may not solve the industry’s underlying overcapacity problem.
This is well demonstrated in the earnings performance too. During 9MFY26, listed cement producers posted an 8 percent increase in revenue despite volumetric growth of roughly 10 percent. Revenue growth lagged dispatch growth because retention prices remained soft, particularly as producers competed for market share and could not raise prices too much.
The shift in sales mix has also altered the industry’s economics. Exports, which had served as a critical buffer during the domestic slowdown, have begun to lose momentum. Export dispatches in 11MFY26 were marginally lower than last year and their share of total sales slipped from 19 percent to 18 percent.
Ordinarily, a greater reliance on domestic sales would be positive for profitability because local markets offer better pricing and lower freight costs. However, weak pricing discipline and abundant spare capacity have prevented producers from fully capitalizing on the domestic recovery.
As a result, margins have continued to soften. Industry gross margins declined to around 30 percent in 9MFY26 from 31 percent a year earlier despite relatively favorable coal prices for much of the year. The inability of northern producers to access cheaper Afghan coal and competitive pressure in local markets diluted much of the benefit from lower imported fuel costs.
What ultimately supported earnings was not stronger pricing but lower interest rates. Finance costs fell sharply as monetary easing reduced borrowing expenses and improved balance sheets across the sector. Without this relief, earnings growth would have been substantially weaker.
That cushion may now be fading. Rising international coal prices and renewed energy market disruptions are expected to place fresh pressure on profitability in FY27.
Northern manufacturers are particularly exposed following restrictions on Afghan coal imports, forcing them to rely more heavily on imported alternatives. Though volumes are expected to grow moderately—given the government’s housing subsidy which will support demand to a degree—pricing power and margins will remain strained. Inflationary pressure may force the monetary policy to further tighten which will lower current estimates of profitability.
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