Low demand amid rising prices, and now a shortage of raw materials and inputs—story of every industry. But weak demand happens. Whether led by an economic slowdown or a combination of higher taxes and inflation, curbing appetite for different goods, and has happened often in a country like Pakistan. But the supply difficulties that are emerging at the moment are rare, reminiscent of the supply-chain challenges faced by the world in the immediate aftermath of covid when demand plunged and then rose dramatically, causing commodity prices to skyrocket and important inputs to run short of supply (semiconductor chips, anyone?). Today as billions of dollars worth of inputs, raw materials, food items, and medicines are waiting to be cleared at the port, our problem is fairly local, hamstrung by decades of subsequent, poor policies and belligerent self-righteousness of some decision makers.

Over the past several months, a number of industries have persevered in the face of weakening demand due to strong pricing power and the protection they enjoy in the country in the form of various forms of rents. Take cement. Offtake in the first quarter was down 25 percent, but because of really strong and rising prices, the industry recorded a pre-tax earnings growth of 11 percent (5% post-tax). By the second quarter, demand is down, slightly less, at 21 percent (in 1HFY23 year on year) and prices have remained consistently at the same levels, so the possibility of turning out a profit in the second quarter too is definitely in the cards. Prices have remained persistently high for another strong reason. Cement is not the only industry within the construction. Nearly all building materials manufacturers have raised prices (steel is a prominent one which is currently trailing at historic peak prices)—even if cement prices were coming down, construction demand may not bounce back as most private and public sector projects have been facing too many cost overruns already to be resuscitated immediately. Development spending is significantly lacking behind. The strategy then for cement makers is to sell as much as they can, as locally as they can, as long as they can, at prevailing prices.

The real problem comes now as raw material inventories imported from abroad run short, and there are no dollars available to get L/Cs from banks to import said materials. For cement, local coal prices are rising, and imported coal from South Africa and other markets seems unlikely as supply restrictions persist and folks wait eagerly for the IMF bailout, daydreaming of much easier times.