Yet again, the power of prices (a few other factors) has enabled cement companies to turn over impressive profits despite being forsaken by local construction demand. In 1HFY25, combined revenues went up 4 percent, while earnings (post-tax) grew 31 percent for 16 cement companies at a time when domestic dispatches had fallen 10 percent. This culminated in an overall volume decline of 4 percent, as exports remained fairly robust (up 32%). This demand streak continues well into the fiscal year as the latest statistics indicate, that cement domestic demand in 8M fell 6 percent.
Meanwhile, cement found more receptive markets abroad with export share growing to 19 percent in 8MFY25. This has kept capacity utilization falling below 50 percent, now dwelling at 53 percent for the industry. Capacities have been steadily growing since FY20 and after reaching a utilization peak in FY21, overall offtake has not kept up with rising capacity, slipping past a comfortable level of 60 percent two years ago. It has been downhill for a while, and demand has been particularly dull during the current year as the economy tumbles its way out of a fresh crisis.
Despite successive cuts in policy rates and improvements in major economic indicators, persistently high cost of construction, suppressed disposable incomes and reduced government spending have led to a slower recovery in demand. For construction materials manufacturers, fresh real estate projects have been hard to come by and many projects have hit snags due to construction costs. Even as inflation eases, construction demand might take longer to tread on a recovery path as other factors such as the expanding burden of taxes have wreaked havoc on consumption. The cement industry is suffering from a lot of idle capacity waiting to be absorbed, and though exports are coming to the rescue, they are by means at their historic peak either.
Real estate builders and developers are sending proposals to the federal government to build “low-cost affordable” housing and lift the construction sector by introducing mortgage financing schemes supported by government subsidies. If the Shahbaz-led government takes the bait, the industry might see a resurgence of demand which will boost demand for construction materials too, even if temperorily so.
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