Estimates for cement offtake in Jul-22 suggest massive decline during the month compared to last year. But this is not far from expected. Spot prices gathered by the Pakistan Bureau of Statistics (PBS) from various markets up and down the country indicate that the average price of a cement bag has crossed Rs1000, trailing Rs1100 per bag in many markets located in the north. This near dramatic increase in prices together with government’s ongoing efforts to suppress demand and cool down the economy was predicted to lower offtake. Then there is export slowdown.
Though numbers from All Pakistan Cement Manufacturers Association (APCMA) have not been officially disclosed, it should come as no surprise that demand has begun to screech to a halt. Over the past year, average cement prices have increased 71 percent (comparing spot prices for Jul-22 to Jul-21). Along with cement, steel prices too have ballooned. According to the monthly wholesale price index (WPI) of PBS, both cement and steel price indices grew nearly 50 percent in Jun-22 compared to last year; higher than the growth in WPI of 39 percent. Rising coal prices (even the shipments coming from Afghanistan) together with other fuel inputs are pushing cement companies through the ringer. Uncontrollable rupee depreciation is only translating in higher import costs.
Meanwhile, development spending has been slashed. The future of the ousted PTI government’s Naya Pakistan Housing Program (NPHP) seems unclear. That government’s construction amnesty evidently has also yielded little positive outcome in terms of generating new constructions across the country. With the SBP in the process of recalibrating the Mera Pakistan Mera Ghar (MPMG) mark-up scheme for home mortgages and new loans not being taken into process—after momentarily bringing the scheme to a stop altogether—new home constructions should come to a standstill given prevailing interest rates.
On the other side, exports have been experiencing a pronounced decline too as freight rates and shipping costs together with global slowdown have caused seaborne as well as cross-border markets to dry up. In the preceding months to July, exports had declined to 5-6 percent of all dispatches compared to over 15 percent last year. Cement manufacturers cannot rely on export markets to rebound and as predicted in this space, even as the reliance on domestic market to take off has grown, too much is impeding the sector’s growth for it to deliver. Expect FY23 to be chaotic.
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