Exports may be saving the day for many cement manufacturers in FY24. The cement exports share in the total sales mix in last year’s quarterly average (for the first three quarters) was 9 percent. This year, the same has grown to 15 percent. During FY20 and FY21 meanwhile, these averages were 17 percent and 18 percent. Certainly, exports are occupying more space in the total mix in FY24, and yet in value terms (or in terms of their contribution to the mix) they are still not at their peak.

Domestic demand has faltered. In 10MFY24, total cement offtake rose almost 3 percent, only because exports had rebounded from last year’s lows. Locally, sales fell by 4 percent compared to 10MFY23. Domestic demand had seen better days even last year, but this year, average demand in the local markets is lower than it has been since FY17 according to BR Research calculations (Read: “Cement: No steam”, May 14, 2024). Government policies have ensured demand suppression and for many industries, it has worked. Local construction demand appears sensitive to prices as well as income—rising prices and falling incomes weaken demand. This shows in not only cement offtake numbers but other allied industries too including commodities such as steel.

Manufacturers are then left with few options as they struggle to cover their fixed costs. Many cement manufacturers have also raised capacities in the hopes of meeting—what they thought would be—expanding demand. And yet, this cycle of expansion was served a basket of really rotten eggs. In a long stretch between FY17 and FY20, the industry raised capacities in order to meet expected demand from CPEC, and other large infrastructure structures including a massive housing plan that the PTI government had launched its tenure. Much of this demand was being absorbed, with offtake reaching the peak in FY18. In FY23 once again, more capacities came online as cement manufacturers wanted to be prepared for a demand boom. That has yet to come. In FY23, demand plummeted. At the time, exports also remained weak. But companies became more proactive which resulted in exports growing to meet the gap that domestic offtake left vacant. Factors such as favourably high prices, subdued competition in spite of that, lower coal prices and energy efficiency investments have allowed cement companies to stay above the fray without crumbling. FY24 will end on that note.