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Cement demand is heading further south (as predicted in this column many times). In April, both domestic and export sales dropped 17 percent and 82 percent respectively, cumulatively dropping by 29 percent during the month year on year. Part of that may be a slowdown associated to Ramazan and Eid holidays but the decline has been coming on for a while due to a number of factors, all of which are expected to last for the next few months. In the 10M period, total dispatches dropped 8 percent pulled down by a near dramatic drop in exports by 39 percent and domestic demand slowdown of 2 percent.

While hydro power projects and other public sector projects are still underway, the real worry in demand comes from the private sector where the future of Naya Pakistan Housing Projects remains uncertain after the PTI ouster. But even organic demand is under threat as construction costs have ballooned substantially, price increases necessitated by massive surge in key components. Coal prices surged manifolds, more recently increasing due to the Russia-Ukraine war. Coal prices continue to remain in flux and cement manufacturers have been procuring coal supplies from Afghanistan. But increase in demand from the region has also causes Afghan coal prices to go up. Fuel and coal prices are expected to remain at the current level or increase even more which will further push cement makers to raise prices. As a result, they will be sacrificing volumes because construction inflation (that includes not just cement, but also steel and other construction materials) has also proved to be detrimental to demand.

Meanwhile, high freight costs have made exports overseas unviable. The resultant drop in exports—31 percent for seaborne exports—in 10MF22 will continue its current trajectory until freight rates normalize. Cross-border exports to Afghanistan and other regional markets have also fallen victim to poor economic conditions. Sri Lanka has run into a default while Afghanistan is reeling from the departure of US troops which has left international trade for the country in a lurch. Exports cross-border has dropped 66 percent in 10MFY22 and will also continue this trajectory. The share of exports in total sales in April dropped to 4 percent which is the lowest it has been. Cumulatively, in 10MFY22, exports share has dropped to 11 percent from 16 percent last year; still in double-digits but barely.

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