Though still trailing above Rs1200, average cement price across Pakistan in the last recorded week (of Jan 19) has slid by Rs28 per bag compared to five weeks ago when it hit the peak at Rs1244. Prices have more or less been climbing since 2020—at the time, the price of a cement bag cost roughly between Rs560 and Rs580; half of what it is today. A steep ascent was seen during 2022 which continued well into 2023 and most recently 2024. In the past two weeks though, prices look like they are loosening up. Is this a significant enough decline to cause worry amongst cement players?

Let’s be real, this could be bad news—cement companies have been making solid profits off of really strong pricing power in the domestic market where demand has remained rather lethargic. Last year, despite a 16 percent reduction in total offtake, cement companies saw revenue improve 20 percent and before-tax earnings grow 9 percent. This was enabled by keeping prices up—revenue per ton sold for cement companies combined was up 42 percent in FY23. In the first quarter of the fiscal year—1QFY24—profitability remained intact and thriving. Earnings catapulted by 45 percent cumulatively which is impressive considering how “bad” the economy has been doing.

On the demand side, while domestic markets continued to yawn, exports took off growing in triple-digits. Still not at their peak—in neither metric tons, nor sales mix—this demand improvement helped. However, because companies have been expanding capacities over the past few years, capacity utilization slid to 57 percent in 1QFY24 and stood at 58 percent in 2QFY24. Only a very powerful force of nature could turn around fortunes on the demand and capacity utilization side as most demand dampeners are up—cost of construction is prohibitively high causing project delays, cost overruns and slowdown in new project announcements while public development spending is down.

If prices do soften, the rest of the fiscal year will prove rather destabilizing for cement manufacturers who have managed to stay afloat amid an economy that hit quite the virtual iceberg a while ago.