Inflation is hurting, and it is hurting across the board. The construction industry is certainly no stranger to it with costs going through the roof, and few signs of weakening. Cement and steel—that constitute the majority of the cost of grey construction—have witnessed a dramatic rally with prices going up as high as 80 percent over the past 20 or so months. As a result, demand has plunged as old projects face cost overruns and new projects face viability issues.

Neither steel nor cement manufacturers have shied away from raising prices to keep their own margins secure. Expensive fuel, high commodity imports, and rupee depreciation together propelled their costs to balloon. In FY22 for instance, costs per ton sold for the cement industry rose 49 percent (for 16 listed companies), but because they did not stop raising prices, revenue per ton sold also rose—51 percent. In the first quarter of the ongoing fiscal year (FY23), the costs per ton sold have risen even more—63 percent. Comparatively, revenue per ton sold surged 64 percent.

In Sep-22, according to the Pakistan Bureau of Statistics (PBS), price indices for cement and steel have gone up 47 percent and 22 percent compared to the period last year. The same since Nov-20 have gone up 64 percent and 84 percent respectively. This is much higher than the wholesale price index. Steel prices peaked on July 22 and have since started to come down as international scrap prices have receded in the global markets but cement prices have not shown any downward inclination despite coal prices having declined internationally. Perhaps, they are biding for time till demand absolutely necessitates that they bring down prices.

There aren’t accurate production or sales number for steel rebars but the Pakistan Bureau of Statistics (PBS) survey shows a clear slowdown in monthly demand in recent months. In October, both steel billet production and cement domestic dispatches (data provided by the cement manufacturers association) cumulatively are slightly higher than the 5-year monthly average of the two. However, recent sales for cement would show a more pronounced decline. In 5MFY23, cement sales—for both domestic and export markets—dropped 22 percent. A more meaningful indicator is the average sales in the same period (July to November) for previous years—which shows that FY23’s 5-month average monthly sales of 3.57 million tons is lower than every year since FY16. Demand will continue this trajectory well into the coming year, not just because of higher construction costs but overall inflation and reduced purchasing power. Flood-related rehabilitation may reboot some demand but that is not coming anytime soon.