Despite much noise, total cement dispatches are up 7 percent in 7MFY20—year on year—while exports are up 25 percent. Exports were 18 percent of total cement sales, and while they are driving sales up, demand in the domestic market on the north zone has also improved (selling nearly 3 million tons of cement more against last year). Pause for applause?

Depends. Improved demand in the north zone is coming from delayed construction projects. Though the same cannot be said for manufacturers located in the south. Ultimately, these cement makers are exporting clinker to markets overseas. In fact, nearly half the cement exports in the country are clinker, not cement which fetch lower prices. For north players, exports have declined due to the demand from India vanishing since countervailing duties kicked in.

The other problem is price pressures. Financially, companies are in a bit of a fix, even if they are selling off cement in the domestic and export markets, since greater price competition has brought prices down. In markets overseas, manufacturers already have to take a cut.

Cement companies have been expanding capacities since 2016, the last few of which will be set into motion by the end of this year. This means, that not only is there a smaller market to snatch—which has resulted in price competition—companies have much higher capacities against last year. Utilization is estimated to fall below 70 percent. This will trigger millions of tons of idle capacity with firms incurring costs of running of keeping plants idle. Also consider the added expenditures to the cost of borrowing due to greater leveraged positions on account of expansions, plus the higher interest rates.

On the demand front, construction activity could really pick up once the pilot projects for Naya Pakistan Housing Program (NPHP) begins in Punjab. Though the promise of 1 million houses construction cannot materialize so fast, this is a new market for cement makers altogether and no doubt, will benefit those located near the projects far more. A suitable expectation is that north zone sales will grow in the domestic market, while clinker exports will lead the way for south zone players.