Cement demand is making a quiet return, despite floods wreaking havoc across most regions. In the first quarter of FY26, total dispatches grew 16 percent as both domestic and export markets proved receptive; up 15 percent and 20 percent respectively.
Exports have been compensating for weaker local demand since FY24, now contributing 22 percent of total dispatches. Even so, capacity utilization remains just under 55 percent, higher than last year but still shy of the 60 percent threshold below which companies typically face elevated per-unit costs.
But in FY25, when utilization slipped below 50 percent, the industry surprised on the upside: cumulative gross margins rose to 33 percent from 29 percent, while net margins jumped from 13 percent to 20 percent. The results suggest the industry operates remarkably well even during periods of uncertainty.
Ideally, capacity utilization should fall between 70 and 80 percent—anything higher triggers reinvestment and expansion, while anything lower risks inefficiency. But the strong profitability at lower utilization levels implies that current 20 percent net margins understate the industry’s earnings potential.
For at least three years now, the industry has avoided price wars. The prevailing pricing strategy has been to remain disciplined, aligning prices regionally and adjusting gradually in response to cost dynamics, rather than competing aggressively. Input costs such as coal (both imported and increasingly Afghan or local), energy, fuel, PKR depreciation, transportation, and taxes remain the primary drivers of price adjustments.
Seasonal demand also plays a role: construction peaks in summer and post-budget periods, prompting upward revisions, while prices tend to soften during monsoons and winters. Geographically, Punjab and North KP benefit from plant clustering, while higher freight costs explain elevated prices in Quetta, Khuzdar, and Sukkur relative to Karachi and Punjab’s core markets.
This pricing discipline has kept prices largely stable, avoiding volatile swings. Instead, manufacturers have raised prices in small increments, often rolling them back when demand weakens, protecting both sales volumes and margins.
The paradox is that despite suboptimal utilization, firms are posting historically strong profitability. This reflects not only their ability to pass on costs but also the oligopolistic discipline that deters undercutting. The sector has effectively shifted from being demand-led to margin-led, prioritizing stable returns over volume expansion. This ensures resilience in the face of macroeconomic shocks and weak domestic demand.
Crucially, it also sets the stage for major profitability whenever demand revives meaningfully. What is often portrayed as a narrative of “survival under pressure” may in fact be better understood as a case study in how cartel-like coordination transforms external volatilities into sustained earnings power.
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