Cement: Earnings rise; recovery turns uneven

Pakistan’s cement sector entered FY27 on a stronger financial footing, but August dispatches show that demand recovery remains uneven. FY26 saw higher domestic volumes, improved capacity utilisation and a 13 percent rise in listed-sector profitability. The first two months of FY27 have kept the domestic recovery intact,but softer August volumes and the halt in northern exports show that the recovery is still uneven.

Total cement dispatches stood at around 4 million tons in Aug-26, down 0.7 percent year-on-year and almost 10 percent from Jul-26. Domestic dispatches fell 1.1 percent to 3.3 million tons, while exports edged up 0.9 percent to 0.76 million tons. Local sales were down around 13 percent month-on-month.

The August weakness followed a much stronger July. As a result, domestic dispatches in 2MFY27 were still up 8 percent year-on-year to 7.06 million tons. Overall dispatches rose 2.7 percent to 8.5 million tons, while exports declined 16.7 percent to 1.46 million tons.

The export weakness was largely concentrated in the North. Northern mills recorded no exports during 2MFY27 compared with around 0.44 million tons a year earlier, mainly because of the Afghanistan border closure. Their domestic sales, however, increased around 8 percent. Southern exports moved the other way, rising more than 11 percent.

The regional divergence was even sharper in August. Northern dispatches fell 9.4 percent year-on-year to 2.7 million tons, with local sales down 2.6 percent and exports falling to zero. Southern dispatches rose nearly 23 percent to 1.35 million tons, supported by 6.5 percent growth in local sales and nearly 40 percent growth in exports. Heavy rains and flooding also weighed on northern construction activity during the month.

This matters because the sector had only recently started using its large idle capacity more effectively. FY26 dispatches rose 7.2 percent to 50.5 million tons, led by a 9.5 percent increase in domestic sales, while exports fell 2.2 percent. Capacity utilisation improved to around 60 percent from roughly 56 percent in FY25.

Higher volumes helped lift FY26 earnings, with listed-sector profitability up around 13 percent. Revenues grew in single digits, but gross margins were broadly flat as cost pressures persisted. Better utilisation helped, though the improvement in operating performance remained modest.

Much of the earnings support came from lower finance costs and a lower effective tax rate. The final quarter also benefited from a one-off deferred tax adjustment after the reduction in super tax, allowing net profit to grow faster than operating profit.

Performance also varied across companies. Lucky Cement remained the largest earnings contributor, with unconsolidated FY26 profit up around 41 percent. DG Khan Cement also posted strong earnings growth, helped by lower finance costs, while Fauji Cement benefited from lower financing expenses. Maple Leaf was a notable exception, with unconsolidated earnings down around 50 percent as finance costs increased following debt taken for the Pioneer Cement acquisition.

Pricing remains supportive, with average cement prices at around Rs1,557 per 50kg bag in August, up 6 percent year-on-year. This is helping producers absorb higher energy and freight costs, though elevated prices may also keep demand in check.

Domestic demand remains the main positive, with local dispatches up 8 percent in 2MFY27. But August showed that the recovery is still uneven, particularly in the North where weather disruptions and the loss of exports weighed on volumes. Going forward, earnings will depend more on sustained demand, better utilisation and manageable costs, as the boost from lower finance costs and tax relief is unlikely to be as strong as in FY26.