Cement’s bigger picture

Updated 23 Dec, 2019

For starters, overall demand is down. Though demand in the north zone has been positive –even though winter will take this rising demand down soon enough—the south zone is in trouble. Dispatches fell by 29 percent in the Jul-Nov period against the corresponding period last year. Exports on the other hand is another story. In the north, Indian market has closed its doors to Pakistani cement, and the Afghan market is only making up for that lost demand. In the south, sea borne exports of cement are also down by 13 percent. The only saving grace for cement companies in the south are clinker exports.

Clinker exports is not a win for cement companies either, when they could be exporting a higher-value add and better priced cement. But it seems like the industry is not competitive enough to sell cement abroad and earn a good margin on it (read more: “Cement exports: The wrath of competition”, Dec 18, 2019).

Consider this with the fact that soon enough, the industry will be adding another 10 million tons of capacity to the industry. Currently, the sector is operating at 78 percent capacity utilization with a total capacity of 59.43 million tons. If demand remains constant, the added capacity would drop this utilization to 66 percent which would be the lowest utilization since 2002, and quite unprecedented for an industry that has grown 4 times since then.

The industry needs to rebrand and rethink its export strategy because unless some major infrastructure development expenditure comes through, the industry will either be producing more than it can sell, or keeping plants idle. Even though PSDP expenditure has grown, a real push could additionally come from the housing developments under the Naya Pakistan Housing Program (NPHP). The faster the government approves projects under the program, the greater chances are that cement utilization could improve. In the meantime, clinker could come to the rescue, but barely.

Read Comments