Over the past year, cement prices rose 45 percent on average according to PBS recorded monthly data. During the same period, wholesale price index rose 36 percent and other construction materials such as steel bar prices grew 33 percent. Prices began to increase in early 2021 and kept going up. Despite that, demand’s slowdown began to materialize much later. In FY22, domestic offtake declined only one percent. This led to an industry combined revenue growth of 39 percent, and an eventual pre-tax earnings growth of 41 percent. Not too shabby after all. Post-tax earnings grew only 6 percent as a result of a one-time supertax nearly doubling the effective tax during FY22 compared to last year. Still not too shabby. Unfortunately, the industry may not be able to secure such a promising financial standing in the coming year.

Demand is simply not delivering. In the first two months of FY23, offtake is already down 37 percent. Of this, domestic dispatches fell 34 percent. In fact, the industry hit a low in July selling about 2 million tons of cement, which is a first in 12 years. Cost of construction is prohibitive for any substantial growth to happen, specially in the private construction space. Government development spending has already been slashed though most of the hydropower constructions are still undergoing. Cement to steel consumption in tons (using large scale manufacturing data for steel and APCMA data for cement) shows that more steel is used in proportion to cement than before. As a general rule of thump, this seems to be indicated that the demand is predominantly in large scale dam construction projects where more steel is consumed than housing or other developments.

Meanwhile, the floods have wreaked havoc on a country tethered by nothing else but hope. According to the National Disaster Management Authority (NDMA), the floods displaced 8 million people leaving 2 million houses and over 400 bridges completely or partially damaged and thousands of kms submerged under water. This would require reconstruction. Once the water recedes and the required funding is in place, domestic demand will pick up but this may not be immediate. In fact, flood related rehabilitation may take a year to kick off which will coincide with the election year pushing provinces and Center to ramp up spending.

Until that time, demand for cement (and other construction materials) will tell a sobering tale. Cement prices have already begun to show weakness and it seems unlikely that continued deceleration in demand would allow cement manufacturers to keep prices up. This would cost them, and with export markets drying up, there is no way out of this conundrum but through.