After an unusual year that was FY23, the cement industry is settling back into its historic trend of balancing out its sales mix with a healthy dose of strategy. Whenever domestic markets are vibrant and growing, manufacturers try to keep their offtake stabled at home, selling as much as they can locally where they enjoy significant pricing power. When domestic markets slow down, exports become vital again. Data suggests, more often than not, domestic and export markets growth typically move in opposite directions—if one is going up, the other is receding. Though domestic sales were always first choice; exports contributing between 10 percent and 20 percent to the sales mix over the past decade.
The current fiscal year however, is proving to come with its own set of challenges. Data shows a vastly different growth pattern in 5M. Some companies like DG Khan Cement (DGKC) have begun to look toward exports as more of an opportunity than a backup plan. This is the most logical move.
The industry has aggressively expanded capacities, investing resources into new greenfield and/or brownfield plants, and energy conservation as well as effeciency projects, in the hopes of a demand boom. But domestic demand has remained constrained after brief bursts during the FY20 and FY21 periods. To be sure, the industry was expecting a demand boom during the PTI government where construction sector was poised to enjoy a massive developmental push bolstered by government policies. That boom could not be sustained as the economy tanked. Last year’s floods only made things harder to take off. Demand had slid 16 percent that year cumulatively for both local and export markets. In FY24 thus far, demand has improved—up 11 percent in 5MFY24—but mostly bolstered by massively impressive export performance. If domestic demand continues to remain somber, exports will have to become more than just contingency. So concerning is the demand outlook that Kohat cement has halted its greenfield expansion project in Punjab that would add a new production line. The company is focusing on cost strategies instead.
In 5MFY24, exports are up by 2x, contributing 16 percent to total offtake, versus last year’s 9 percent. The growth rate for exports is visibly off the charts compared to the past decade. But a lot of it is a consequence of low base effect, for certain. At roughly 3.1 million tons for the period 5M, exports in tonnage are not at their peak in FY24 yet, standing behind industry exports during FY15, FY20 and FY21. This means, that while some companies are strategically looking at exports to play a more active role—DGKC was able to secure exports orders in the US and gets its foot in the door after a year long struggle into attaining adequate certifications—others will have to be more proactive. As domestic demand falters, capacity utilization is slipping to its lowest. Companies have debts to repay in a high-interest environment, they have to minimize their costs, keep prices in the domestic markets at favorable levels, and essentially find more baskets to put their eggs in.