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Propelled uncharacteristically by vibrant exports, total cement offtake for country’s cement manufacturers combined was able to grow 11 percent overall in 5MFY24, despite only a nominal growth of 2 percent in domestic offtake. Whilst exports have benefitted from low coal prices and rupee depreciation that made them more competitive in markets overseas, domestic cement sales have been less than vivid. As a result, exports contributed to 16 percent share of the sales mix in 5MFY24, versus last year’s 9 percent; up by 2x during the period.

At its current pace, the industry will sell roughly 47 million tons of cement during the fiscal year, which will be a utilization level of about 57 percent. This is not morbidly low compared to last year, but it would be substantially lower than previous yearswhen utilization touched maximum levels, which in turn pushed cement manufacturers to invest in capacity expansions. Low utilization typically leads to price competition but it seems, cement manufacturers have not relented to such pressures, and maintained, rather raised, their price levels whenever it was possible. In unison, which is an industry norm. Most recently, last week, cement prices were on average raised by Rs33 and for some markets up by Rs 60-80 due to the implementation of the axle load regime on Pakistan’s motorways and highways which was pushing transport costs up—having surged by roughly 40 percent.

The question is: would a decline in cement price push demand in the domestic markets forward, and thus benefit cement manufacturers financially? Evidently, thus far, cement makers have not found sufficient evidence that selling cement on discount or dropping prices would benefit offtake significantly. Thus, some players are focusing on expanding their export footprint and finding home for cement abroad that is no longer selling domestically. This only works when exports are sold at favourable prices; but for now, it is working.

On average, the industry is selling (or rather, has sold) 3.34 million tons of cement every month during the July-Nov period. In four out of seven years since FY17, the average monthly offtake during the 5M period was higher. This means, despite selling more cement than last year, the industry’s performance on demand is falling behind recent past. This becomes specially concerning when rising capacities, fallen utilization and high borrowing costs are taken into consideration. Cement companies have borrowed large sums of money and invested equity into new expansions hoping to ride the construction wave that was to come, but never truly did. Demand has lacked in lustre since well before this fiscal year began. Companies will try to preserve prices at existing levels, make sure they are covering their debt obligations, optimize on their coal mix to reap benefits from diversifying, and hope that this too shall pass.

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