Cement and Covid offtakes

Lockdown and reduced economic activity brought cement offtakes in March down 14 percent year on year, where domestic dispatches fell 17 percent, though exports grew 5 percent. Cumulatively however, the industry responded with a positive growth of 7 percent brought forth by a 25 percent growth in exports. Why? Before coronavirus really hit the country, dispatches in the north had started to improve on account of improved construction activity. Meanwhile, clinker exports were picking up with shipments heading to Bangaldesh and other regional destinations as other major clinker suppliers moved to bigger markets like China.

In fact, exports have been the driving force in the cement sector for the past several months. Clinker constitutes half of all exports—this share used to be 30 percent last year while 70 percent of all exports were dispached via sea as regional shipments to India stopped completely due to political tensions. In march, closing of the border with Afghanistan also led to export decline of 6 percent.

What now? COVID-19 is not going away which also means that businesses, households and economies will face undeniable tough times going forward, something which has already started to manifest in terms of plant shut downs, and layoffs. Demand in construction will plummet across the world as intermittent lockdowns continue which will stall many infrastrucure and building projects. This will hurt cement and clinker exports.

On the domestic front, since PM Imran Khan announced the construction policy, several cement plants have been reopened in anticipation of ensuring demand that will come from construction. However, how fast would his materialize into on-ground work will depend on a number of factors including how Pakistan continues to tackle COVID-19, how soon builders and developer come up with blueprints of their investment plans, and how fast the government can approve them. There are several demand side concerns relating to the construction policy which remain ambigious and many have questioned whether the policy would yield some positive outcome, if at all (read more: “Roti, Kapra, Makaan—maybe not today”, April 15, 2020).

However, it will bode well for cement manufacturers if efforts are consolidated to let construction begin fast, for at least projects that are already in the approval queue.The government is relying on the industry to create thousands of jobs for workers, that may lose jobs elsewhere in the economy.