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There is no denying now that cement offtake is on the mend compared to last year’s bleak outlook and demand side factors in total disarray. In the first three months of FY24, cumulative dispatches for cement demonstrate an impressive growth of 23 percent; where cement sent to local markets grew 18 percent compared to 1QFY23. Exports as a share of total sales grew to 15 percent versus last year’s 11 percent. While this uptick is not at par at cement benchmarks set during FY21 and FY22 in tonnage, it is certainly a welcome turn from last year where demand slump in both domestic and export markets was palpable.

As it were, only very strong pricing power in local markets and persistence to maintain those price levels against demand pressures allowed the industry to turn over profits last year. Now there will be more room to play. What remains unlikely still is a significant reduction in prices for cement manufacturers to pursue more offtake. It seems whatever construction demand exists, can be absorbed at the substantially high and prevailing costs of construction. This is likely funded long-term development projects already in the works particularly related to hydropower energy and road infrastructure.Meanwhile, inflationary pressures and international coal prices may force cement players to keep revving on prices without losing fresh demand as has been the case for over a year.

To compare, the average monthly offtake this year so far stands at about 3.37 million tons, higher than the same period’s monthly average last year, and every year since before FY21. In fact, only FY21 and FY22 are ahead of FY24 (in 3M/1Q) in terms of average monthly sales in the domestic market. Evidently, more cement is being consumed in Pakistan than ever before with the exception of the two years mentioned earlier where construction was experiencing a massive boom.

If this demand scenario really plays out over the next upcoming months—as it has for the past three months—industry will see an ever-growing capacity utilization which will put a stop to any speculations related to price wars and price competition. There is no indication that prices will move downward. The industry was well-positioned last year to stave off the economic slump when demand was critically low whilst staying strong on the prices they set, and it is even better positioned now to bear the fruits of its investment by improving margins this year. Perhaps the biggest challenge for most domestic manufacturers in Pakistan is heavy dependence on imported fuels, inputs and raw materials. Cement manufacturers have diversified their procurement sources by retooling their plants to utilize Afghan coal, domestic coal aside from coal imported from Indonesia and South Africa. When international coal prices move up, nearly all manufacturers move to nearby sources which are more affordable and most importantly, can be bought in PKR. Only a few months ago, when Afghanistan started collecting more taxes and duties on its coal supplies, domestic manufacturers moved back to international sources.

There is really no losing bet here for cement players who have now also seen massive improvements in overseas exports. Only very critically low volumes could hurt the industry now, but it looks like, that bridge has been crossed without the industry ever tipping over the edge. The question is, can new home owners and home renovators absorb the rising costs of construction at present? Is it even a good idea to build now rather than wait for economic indicators to improve and income levels to increase?


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