A few months ago, hitting 5 million tons in a month was a huge feat for the cement industry but dispatches are now touching 6 million tons as the industry enters peak winter period. It is very likely that if this trend continues, cement industry would be gearing for another phase of capacity expansion in no time. To that end, Fauji cement already announced it would be going into greenfield expansion in DG Khan.
Reasons are evident. Government’s policy to support construction industry comes in the form of a liquidity injection through affordable financing in housing whereby a mark-up subsidy for mortgages is being offered. To date, at least 100,000 houses are already planned to be constructed which would drive building materials demand. Banks are given targets to grow their mortgage lending, to 5 percent of their private credit portfolio. Builders are offered tax cuts and/or waivers while there is a reduced regulatory oversight on private investment inflows into construction. Another major source of demand is from the construction of new dams which will add about 3 million tons of dispatch demand annually for the next few years at least.
Cumulatively in 4MFY21, dispatches have grown by 20 percent year on year while exports are also growing on the back of strong clinker demand in overseas markets. Clearly, the massive and somewhat unexpected recovery in volumes that will continue their upward trajectory would improve earnings for the industry substantially better price retention, low cost of coal, reduced peak power tariff and cost-efficient projects such as solar and waste heat recovery plants will all buttress margins—perhaps beginning the touch the levels achieved in 2016 and 2017.
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