Supply: Deepcuts

Crisis has hit nearly every industry operating in the country as import restrictions due to dollar shortage have brought the supply of imported inputs and raw materials to a screeching halt. Construction material manufacturers along with the construction industry itself are also in the same boat as everyone else, rowing as best as they can.

Cement offtake according to the All Pakistan Cement Manufacturers Association (APCMA) has declined 21 percent in the first half of the year, with exports massively plunging 56 percent and domestic offtake down 17 percent. Cement exports are certainly not finding enough market access abroad due to a variety of reasons but cement makers enjoy immense pricing power in the domestic market and prefer to optimize their sales mix based on that fact. As cement prices have ballooned in local markets over the past two years especially, it is preferable to sell at home. But home demand has slumped due to cost overruns in existing construction projects, and high inflation reducing folks' purchasing power. Government development spending is also markedly down.

The story isn't different for other construction materials manufacturers. Steel billets production has dropped nearly 9 percent in the July-Nov period according to the Pakistan Bureau of Statistics (PBS). Steel prices have followed a similar trajectory as cement, skyrocketing over the past year, easing a little in recent months as steel scrap became cheaper.

But suppressed demand is not the only challenge nor the most urgent one to solve. Manufacturers have been facing crippling supply constraints in terms of restrictions on imports which may cause many to put shutters down on their plants. Steel scrap imports are down 37 percent volumetrically in 5MFY23, according to PBS-reported data. This has thus far translated to a 9 percent drop in production but as the dollar crisis deepens, scrap shortage as well as fuel shortage in the market will be debilitating for steel manufacturers and may close down shops for longer than they would have if demand was the only trouble on the horizon. Cement is running the same risk as it is highly energy intensive with large shipment imports of coal used for production.