Cement: April fools

This is not a drill. For months now, cement demand has remained subdued, more each passing month. In April, the industry’s capacity has dropped to less than 50 percent (for the month) dispatching less than 3 million tons of cement to local and foreign markets. Of this exactly 2.95 million tons of cement, about 14 percent which is a decent enough share went to exports. Domestic offtake—which cement manufacturers rely on—is abymal.

In the 10-month period, total offtake (about 36 million tons) is down 18 percent (44 million tons during 10MFY22), where domestic offtake slid 16 percent while exports dropped 29 percent. April certainly played a mean joke compared to previous months, pushing the average even further down than before. The monthly average thus far in FY23 in fact, is one of the lowest offtake witnessed in recent history, beat only by FY17 when average offtake was slightly lower. But capacities across the industries have grown since then. Capacity utilization as a result has never been as low—at least as far back as 15 years.

It’s not shocking. Construction demand is fraught with a host of challenges all working in near cohesion. The economic environment for new constructions and development is severely weak—PSDP budgets and spending are down. Criminally high inflation across the burden, and specifically for construction materials (cement and steel both) have dissuaded many builders and developers from starting new projects or continuing with ongoing ones. For projects that are underway, progress is stalled. Much of the cost is passed onto the consumers who are already watching their savings used up toward basic consumption. In April specifically, lower operational days due to Eid holidays and rains in the north further kept offtake subdued.

Cement manufacturers have kept prices upward moving as there is also no motivation to bring down prices. Even if they dropped prices, other building materials are not getting cheaper and reduction in cement prices may not move the needle on demand as long as other materials are as expensive or more. In more critically, though cement is more or less shielded from the bank-L/C crisis, most other construction materials manufacturers are facing massive shortages in vital inputs that are imported and used in the production of those materials. As such, this would affect demand of cement too as other materials are short in the market. Until these import restrictions are eased, production across construction materials will remain weak, and so will the demand of cement.