Cement industry poised for robust exports

Experts predict staggering 159% YoY increase in exports, reaching 0.4 million tonnes

KARACHI:

In July 2023, the cement industry in Pakistan is gearing up for a remarkable surge in exports, with experts predicting a staggering 159% year-on-year increase, reaching 0.4 million tonnes. According to a Topline Securities’ report, this positive trajectory is mainly attributed to the recent decline in coal prices, making cement exports economically viable once again. The upward trend in cement exports is expected to have a positive impact on the nation’s economy and the cement sector.

However, while the prospects for exports look promising, the domestic market is expected to face challenges in July 2023. Cement sales within the country are projected to decline by 21-25% on a month-on-month basis. The factors contributing to this downturn include the onset of the monsoon season, which often dampens construction activities due to adverse weather conditions leading to project delays.

JS Global’s Cement Sector Analyst, Waqas Ghani Kukaswadia said, elevated costs of raw materials, labour, and transportation have made it challenging for businesses to maintain profitability, resulting in fewer new construction projects. Builders are also grappling with higher financing expenses, making it more expensive to initiate new projects, leading to a decrease in demand for cement in the market, he said.

In July 2023, the average daily domestic sales of the cement sector are expected to be around 89,000 tonnes/day, showing a decline compared to the average daily sales of 97,000 tonnes/day observed in July over the past five years. These figures underscore the slowdown in construction activities and the impact of higher costs on the industry.

Despite the challenges in the domestic market, Pakistan’s total cement sales are projected to witness a considerable boost of 53-57% year-on-year, reaching 3.2 million tonnes in July 2023. The surge in sales can be attributed to both local dispatches and cement exports.

Local dispatches are expected to rise by 44-48% year-on-year, reaching 2.8 million tonnes. This growth is influenced by a low base effect caused by last year’s flash floods and prolonged monsoons, which adversely affected the industry.

Cement exports are also set to flourish in July 2023 due to the decline in international and Afghan coal prices, making exports economically viable again. The reduction in freight costs has further contributed to the growth of cement export numbers.

While cement retail prices remained stable in July 2023, higher interest rates, expectations of a slowdown in construction activity, and controlled Public Sector Development Program (PSDP) spending pose challenges for the start of FY2024. These factors are likely to keep cement dispatches under pressure in the coming months.

To maintain profitability and ensure growth, the industry must address challenges related to elevated raw material and labour costs, transportation expenses, and high financing charges. Additionally, fostering an environment conducive to new construction projects will be crucial in driving demand for cement.

Despite the anticipated decline in domestic sales in July 2023, the cement industry of Pakistan is poised for substantial growth in exports, driven by the decline in coal prices. The industry’s ability to adapt to market dynamics and address challenges will play a pivotal role in its continued growth and contribution to Pakistan’s economic development.

Published in The Express Tribune, July 29^th, 2023.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.