Recording an uptick in month on month dispatches during May (total dispatches up 34%), it may seem like demand for cement is not pummelling to its demise just yet. But total offtake during the 11 months for the fiscal year at roughly 40.5 million tons did drop 15 percent from last year’s 47.5 million tons. During the fiscal year, export share dropped to as low as 4 percent of dispatches in Nov-22 but since has seen an improvement. In the cumulative 11M period, exports share stands at 10 percent—roughly the same as last year. Though exports have fallen –down 21 percent—their contribution to total offtake has persevered despite having a few hiccups along the way.

For months, demand has been lackluster as development spending dried up, existing construction projects ran into setbacks and delays caused by cost overruns, and new projects faced feasibility issues. PTI government’s Naya Pakistan Housing Program (NPHP) that was touted to build 5 million houses across the country seems to have been left in the dust, no update on the markup scheme that was so popularized at the time (more on that later), less so about the 5 million houses.Some analysts were expecting flood-related spending to ramp up rehabilitation and as a result, demand for construction materials but that demand didn’t quite surface as predicted in this column. The economy is in the trenches. Buying power across households has shrunk and inflation is wreaking havoc as borrowing costs shoot up—this is not a conducive environment for spending on construction. Even so, a 5 percent drop in dispatches is not a death sentence for anyone, least of all the cement companies that have been doing well.

Cement companies have been making profits off of reasonably high cement prices that have maintained their upward trajectory—average prices have risen about 47 percent across different markets in the past year and they are still slowly rising as other goods used in construction have also seen similar price hikes. At the same time, cement manufacturers had the good fortune to turn to domestic and Afghan coal to meet their energy requirements usually met through imported coal from South Africa and other locations. Firms shifted to the more affordable coal in the neighboring land long before the ongoing LC crisis even hit in the country, but the availability of which helped secure margins. Meanwhile, any major cost upsurges have been passed onto consumers through prices. Now when global coal has become cheaper, firms can move to importing from abroad granted they are able to open LCs with local banks. This is certainly a hurdle but not one that is unique to cement industry which has thus far been shielded from input shortages through prudent inventory management and timely procurement from alternate diversified sources.

At the same time however, not much is looking up on the demand front. While offtake in May showed an improvement which has had seasonal impact due to longer working hours in summer and more working days, the industry capacity is compromised and is certainly not at optimal levels. The average monthly offtake for the July to May period this year is the lowest since FY17, safe for one instance in FY20 when dispatches were slightly lower. However, capacities have ramped up since then and capacity utilization as a result has fallen. More so, demand will further get affected if construction allied goods such as steel, glass, tiles etc. go short in the market as most manufacturers of these materials are facing supply chain shortages due to import restrictions.