March brings a more sizable turn in cement demand which—given the substantial surge in prices—could even be considered a delayed response. Total offtake in March dropped to less than 4 million tons (3.795m to be exact)—last year, offtake stood ar 5 million tons. Meanwhile, domestic offtake stood at 3.3 million tons in Mar-23, lowest since Aug-22. Exports were also slightly lower than Feb but the share of exports in total dispatches grew to 12 percent during the month which is a mega improvement from a few months ago when it had dropped to less than 5 percent for a month or so. Cumulatively in the nine months to the fiscal year, cement sales are down 18 percent, in which domestic offtake slid 15 percent and exports were down 35 percent. The share in total dispatches for exports—at 9 percent—is also lower than last year’s 12 percent but upcoming months may bring this share up. Numbers suggest improvement in exports where inthe past three months, the average exports have stood at roughly 0.44 million tons versus the previous six month’s average of 0.28 million tons. In March, both cross-border and overseas exports were up from last year.
The slow rise in exports may be an indicator that exports are becoming more viable and markets may be becoming more receptive, but given the industry’s preference for domestic markets and the prevailing prices reaching their historic peaks which have bolstered earnings across the industry, it could also indicate that local markets are drying up with demand, leaving cement makers to offload more cement abroad.Indeed, weekly price data extracted from the Pakistan Bureau of Statistics (PBS) would suggest prices have surged on average by 45 percent this year compared to last year—where some markets in the north going as high as 47 percent. Individual markets have demonstrated different intensity in price hikes but a more consistent increase is visible in northern markets. Last year as in previous years, markets in the north and south had a more pronounced difference in price with southern markets leading the way. This year, with bigger hikes in the northern markets, current prices in both south and north markets have converged to roughly the same. In 9MFY23, domestic offtake in the north is down much more—at 16 percent—compared to southern offtake decline of 11 percent.
As argued earlier in this space, prices may not see a major shift downward, even though there is a visible decline in demand within the construction industry and across the private and public sector domains. Builders and developers have been more vocal about price hikes in steel rebars used in construction and even announced suspension of procurement for a week. Unlike cement industry that has been fairly shielded by the import restrictions that have caused massive supply chain challenges for many industries, steel production depends heavily on imported steel scrap and has been facing obstruction in sourcing steel supplies from abroad. In addition, rupee depreciation and high cost of borrowing is also inflating prices. The supply side hurdles and price dynamics will likely continue to handicap construction demand and March may only be the beginning of a very long and ardous summer ahead.
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