It is in rare cases when exports in Pakistan come to the rescue, but for the well-established cement industry of the country, when domestic demand struggles, cement manufacturers turn to exporting clinker and cement to cross border and overseas to offload as much of their product as is possible. And indeed, this fiscal year, domestic demand has struggled—not grinding to a halt but experiencing significant drop, higher than in any year over the past 15 years. Exports fought their way up but not quite so fervently as before.

Export share in 11MFY23 stood at 10 percent, same as last year, much below 18 percent from the previous year. But it was touch and go for a while. For a month or so, exports share even dropped down to 4 percent, even though domestic demand was subdued. In order to cover their fixed costs, cement companies have to produce close to their capacities i.e. try to maximize utilization—whatever they cannot sell in the domestic market where they enjoy typically higher prices, they want to sell off to exporting markets if such markets are open and accessible. But because they enjoy pricing power in the domestic market, they prefer to sell at home. This year, export markets too became unviable for a host of reasons ranging from instability in Afghanistan, economic slowdown in many countries and costs of production being too high for cement makers to sell abroad. Coal prices remained high for the better part of the year and most cement manufacturers had to turn to Afghan coal and domestic sources to be able to buy their desired quantities.

Now in May-23, exports share in total dispatches has grown to 13 percent as coal prices have been on a decline internationally. The Afghan government has slashed export taxes that it had placed earlier seeing the shift of Pakistani cement producers to Afghan coal to meet their procurement needs. Even though, cement manufacturers are enjoying substantial pricing power in the domestic market—average price of a cement bag in the country has increased by 42 percent over the past year according to weekly prices captured by the Pakistan Bureau of Statistics (PBS)—they are operating significantly under capacity, domestic demand settled on a downward trajectory. This necessitates selling more cement (and clinker) abroad.