Three months into the fiscal year and there doesn’t seem to be any recovery in sight for the construction industry as both cement and steel production has shrunk. In 2MFY25, cement dispatches have dropped 18 percent year on year, down 23 percent compared to FY22 which happened to be a great year for cement. Said shrinking began in FY23, and doubled during FY24 with experts predicting economic improvement will translate into greater activity within the construction industry. However, even though cement companies made fairly respectable profits during the outgoing year, domestic demand is not budging.
Part of the reason is the high costs of construction—with prices of cement, steel, and other building materials skyrocketing—that have not stopped growing over the past year. Many major development projects across the country as well as private sector housing and commercial projects have experienced not only massive cost overruns but as a result, significant delays or complete standstill of activity. The real estate sector went into a long slumber; its hibernation continuing beyond winter. A quick look at the price index published by Zameen.com would show a significant slump in property values in the past year, with many projects hitting snags due to long-running political reasons but most others hitting their slumps due to a visible demand crash as buying appetites nosedived.
Consumers are facing higher taxation across the board, particularly those taxes that target consumption. Double-digit inflation in the past year has sent purchasing power in a tizzy with many households deciding to hold off on large spending, not being able to commit to construction costs that rival the price of the land. With few and far mortgage options available, and peak borrowing rates, lifetime savings is how most households build their family homes but with existing inflation and tax burdens, their budgets likely went off track forcing them to put off their plans. Homeownership remains a dream for most households, despite adding more of their family members into the labor force because of the steep cost of living at a time when wages have not kept pace with those costs.
Corporations are not better off either, as one would think. The steel industry—not having gone through the kind of strategic preparation and made the kind of long-term investment that the cement industry has over the years, no doubt utilizing all the opportunities that came their way—is struggling with most major steel rebar companies in losses. As rebar producers flounder on multiple fronts—rising energy costs, dependence on imported raw materials, competition with the informal sector, only having one market to sell to, lack of technological advancement, and hence staying behind the curve—domestic demand is not showing any substantial signs of recovery. That is a problem, not just for those who have made investments into these companies, but for the future of their employees and their employment status. At this point though, there aren’t any solutions forthcoming except waiting for this to be over.
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