Growing capacity and falling demand makes collusion difficult. This is why cement manufacturers have been quick to race to the market to expend excess cement they are producing (read more: “Over-capacity, under-pressure!” Dec 27, 2019). Surge of supply without demand meeting it results in price pressures, and that is what has transpired. Cement prices have on average fallen by Rs85 per cement bag since July 2019 and between Rs140 and Rs150 in some locations north of the country. In percentage terms, cement prices have come down 5 to 25 percent between Jul-19 and Jan-20.

Competition is tougher in the north zone as more cement plants have been added to the total capacity count. About 8.5 million tons were added since November. In total, by the fiscal year end, the cement industry would have added 12 million tons to its capacity. Bigger players have the advantage of efficiency and wider networks, which allows them to keep market share consistent or even grow. Others have to make do.

The industry is currently operating at 78 percent capacity utilization – at a cement capacity of 59.43 million tons. When 12 million tons are added, it would bring capacity utilization down to 66 percent given current demand trends. This is a legitimate fear of the industry association itself. which is hoping that government spending in infrastructure will revive.

While cement manufacturers in the south zone are able to sell off intermediate product clinker to overseas market—facing drying out demand for cement abroad—north zone players mostly have domestic markets to rely upon. The increase in exports to Afghanistan have only filled the void that the Indian market shutting down created a few months ago when political tensions resurfaced.

There is no winning play here. Low-margin exports is not an avenue that is doing too well though evidently, they have taken on a much larger share now in total sales as before (18% compared to 15%). Even though sales in the north registered double-digit growth, the recovery does not seem sustainable either. Price competition points toward tensions only growing.

The industry requires a new play for exporting markets to provide them with a contingency plan. This is also where they can be most proactive. In the domestic markets, they must wait for projects like Naya Pakistan Housing Program (NPHP) to break ground and initiate construction. This might take another few months to truly materialize.