Despite a growing trend in cement dispatches year on year, market confidence in cement scrips has drastically plummeted, wiping out nearly all the value the sector built up in the last two years, indicating the start to the end of the cement cartel; or the market jumping the gun. We hope to take this up in detail in a later column. But it is also equally important to talk about the construction demand and where cement dispatches are headed. The three months into FY18, the sector has grown total dispatches by 15 percent year-on-year despite a drop of exports by 17 percent.

Demand in the north is flourishing as was expected since the region is swamped with infrastructural demand. In fact, many players in the south are selling cement to companies in the north who are running at maximum capacity. Local dispatches grew by 22 percent in 3MFY18, even as Sep-17 was a slow month for the sector. Seasonal changes are expected as weather in the north changes but the sector is on track to absorb the new capacity that will be added by the end of FY18. The sector will see idle capacity as all the planned 30 million tons of expansions come through over the next five years.

The falling exports have continued to cast a dark shadow on future prospects. As this column has talked about in detail, exports—which were primarily going to Afghanistan—took up a significant chunk of total sales back in 2009 (35%); it has fallen to 12 percent today. Even in 3MFY17, exports took up 17 percent of the total sales mix for the industry.

Cement manufacturers claim that it is simply a readjustment of sales mix toward local market when demand here is so much that they don’t need exports to balance the score. It isn’t any secret that cement makers here at home have to take a hefty price cut to export to countries abroad where they face tough competition. Particularly in regional markets such as Afghanistan, cement coming through Iran is significantly cheaper, even if low quality. In fact, the country has single-handedly poached nearly half of the quantity of Pakistani cement since 2015.

Calculations based on figures reported by All Pakistan Cement Manufacturers’ Association (APCMA) show that capacity utilization for 3MFY18 has reached 88 percent compared to 77 percent this period last year. Most infrastructure projects are on track and local cement demand is expected to move up year after year but a decline in exports will only hurt cement manufacturers going forward as cement manufacturers will be depending on one market for all sales. After all, there are many advantages to maintaining a healthy share of exports as competing in foreign markets is the best way to continue improving in terms of efficiency which the sector today boasts about.

A very strong argument can be made for the sector to beef up efforts to allocating some expenditure toward marketing activities especially in regional smaller countries like Sri Lanka; but also growing economies in Africa to gain a foothold in those markets. As capacities are expanded, and the sector grows idle capacity, prior efforts toward reaching out to new markets will only pay back dividends.