Being able to sell its excess products into exporting markets when local demand wanes is not something every industry in Pakistan can boast it can do. The cement industry can, though at the cost of better prices the industry gets locally. The down trending domestic demand, particularly in the north area may not be a one-off though. Clearly, this is not going to be the year of cement.

North zone sales are down by 6 percent in 1HFY19, sales in the south are up while it is sea-borne exports, not the Afghan market that is breaking all records. The latter has actually seen its share drop over the past two years as the market becomes more favorable toward other exporting countries like Iran.

The industry has brought on nearly half of its planned expansions and the rest will slowly come on by FY21—together these will take the capacity to 73 million tons. The industry is currently operating at 85 percent capacity, of which 15 percent is being utilized by exports, up from 10-11 percent last year. While exports share rising is a positive sign of diversification of markets, on the local front, there is no denying that the tide has turned since the country shifted gears into an austerity drive.

Nearly half of the construction demand comes from mega development projects with the rest coming from commercial and housing construction. Though most of China backed CPEC projects are still underway, many expected projects were cut from the government plans. Moreover, a mini budget is due soon which may cut more of the PSDP expenditure plans.

Moreover, on the commercial and real estate side, higher cost of borrowing due to the hike in interest rates may pose to be a deterrent for large commercial projects. Though most of the construction in the sector is funded through equity and investor groups, so this may not be a huge restraining factor for most private sector projects.

Same goes for low mortgage coverage. Since most consumers purchase and construct houses and plots on cash, interest rates may not affect them as much. However, in times of economic uncertainty and depreciating currency, consumers tend not to make big ticker size purchases. The restriction on non-filers to purchase properties may be one factor that could be curbing the enthusiasm in the industry, which in turn would affect construction demand. However, the real estate sector has not shown any substantial signs of fatigue.

Amid the uncertainty is the silver lining going by the titular Naya Pakistan Housing Plan which has constructors, developers and even banks excited. The pilot phase of the project will be run across seven cities, but there is very little information available on the specifics of the program. Who are the planners and the partners with the government, how will it be funded, where will the houses be constructed, who will be the regulator, and so on. However, various estimates have emerged for the construction industry.

As per Elixer Securities, five million houses will raise the demand for cement by 50 million tons across five years or 10 million tons each year. BR Research’s own estimates were slightly more ambitious—estimating an additional 20 million tons of demand each year. An additional 10-20 million tons of new cement demand may just be what the doctor ordered. Successful execution of this project, as well as construction of the dams will ensure that the industry will not be left with idle capacity that it is adding to the system. In absence of these projects, the fiscal year is painting a sobering picture.