Cement exports plunge

Though the first quarter financial books of cement industry may not reflect it—industry pre-tax earnings grew 11 percent during the period—the cement industry is coming into a world of trouble. Offtake in 4MFY23 has dropped 22 percent and cement exports have dropped even more dramatically—down 47 percent. Many export markets seemingly have become unviable because of rising costs. Meanwhile, cement exporters like Iran and Thailand—Pakistan’s key competitors—are witnessing a recovery in demand, both domestically and abroad.

Pakistan’s primary clinker and cement markets remain in the region—cement going to Afghanistan, Bangladesh, and Sri Lanka while overseas there are some African markets that have been tapped. Naturally, with economic downturn in Sri Lanka, and political upheaval in Afghanistan, demand is patchy. But the more prominent reason seems to be pricing. Although, Pakistani cement exports are fetching better prices this year compared to last. Based on Pakistan Bureau of Statistics (PBS) data, average dollar per ton exported during the Jul-Oct period rose 33 percent compared to the same period last year. While exported quantities are certainly down, export price fetched is much higher.

However, cement manufacturers have been keeping cement prices fairly high in the domestic market to match with rising costs. These prices are higher than prices being fetched abroad. Estimated using the financial data of 16 companies, the costs per ton sold during 1QFY23 for cement industry rose 63 percent, compared to the revenue per ton increase of 64 percent. It makes sense that cement manufacturers would prefer selling domestically—as much as they can—as pricing is better. Exports share in total dispatches during Nov-22 fell to 4 percent which is the lowest share since 2006.

The problem is that domestic market is not keeping up which will ultimately lead to large plant capacities left idle. There is very weak appetite within the construction industry, especially in private sector projects. With cuts in development spending, only those infrastructure projects are seeking demands that are funded. Flood rehabilitation may boost demand but that rehabilitation may not come anytime soon. Without demand, there is only so much that prices can push.