Though domestic cement sales in the north have improved (11% in 5MFY20)—which caused total cement sales in the Jul-Nov period to register a percent improvement—the real growth is happening in exports. Exports for clinker. This comes as no surprise as cement manufacturers in the south struggle to keep plants open. Demand in the region has been especially lackluster over the past several months as construction demand weakened while it seems cement being sent overseas is not finding as much space in traditional markets (down 9%). Clinker comes to the rescue.

The demand growth in the north did come out of the blue, as last year north players could not offload cement to the capacity they were producing. As a result, they were selling off excess cement in domestic markets at discounted rates. However, the past few months have seen an unlikely improvement, as PSDP funds have been released. The earlier expectations that by the start of FY20, construction for Naya Pakistan Housing Program (NPHP) would have started have not been met, as clearly existing demand is coming from other private sector quarters.

However, this progress could be a one-off as no new public projects have been started and under IMF’s watchful eye, any new infrastructure spending that requires public spending may not be very encouraged. And even though, cement exports to Afghanistan have improved (up 43%), it is only making up for the loss of market access for Pakistani cement in India. The net gain between the two cross-border importers is nearly nil compared to last year.

Meanwhile, clinker exports nearly doubled in 5MFY20 compared to the corresponding period last year. It is clear that Pakistani clinker is more desirable than Pakistani cement in markets abroad—or rather, it is more competitive. But this also means that cement manufacturers fetch a lower price on them which ultimately will affect their profitability (read more: “Cement exports: The wrath of competition”, Dec 18, 2019).

The biggest challenge that the sector is all set to face is the rising capacity enhancements (Lucky Cement announced the successfully completion of its brownfield plant in KPK just yesterday) which on the outlook of diminishing demand is rather sub-optimal (read more: “Over-capacity, under-pressure!” Dec 27, 2019). The game plan is likely for cement manufacturers to keep the port lines open with clinker exports, as cement markets recover, which couldn’t come sooner, but will likely take their sweet time.