Cement demand in both foreign & domestic markets continues to fall
- Total dispatches fell 9% year on year in 11MFY22 (local: 2%, exports: 42%), with the last two months putting cement mills’ patience to the test.
- As the cost of production rises, cement makers have followed pace with price increases.
KARACHI: Cement demand continues to decline, taking a pounding not just in international markets but also in local demand. Total dispatches fell 9% year on year in 11MFY22 (local: 2%, exports: 42%), with the last two months putting cement mills’ patience to the test.
As the government tightens its belt and cuts development and infrastructure spending, Cement demand in the north and south zones is dwindling.
Meanwhile, contractors and builders are dealing with sky-high steel prices, which have risen drastically as a result of rising steel scrap prices on the worldwide market. As the cost of production rises, cement makers have followed pace with price increases.
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The worldwide market for coal has seen its largest increase since the Russia-Ukraine conflict engulfed the world. While mills in the north of the country were able to switch to more economical Afghan coal, high freight and transportation expenses (together with growing gasoline prices) make it impossible for mills in the south to do so.
These mills have had it even harder, as increased freight prices have reduced their international exports, which were a lifeline for some smaller businesses.
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Exports fell 42 percent year over year in 11MFY22, accounting for 11 percent of total dispatches compared to 17 percent the previous year. Cross-border and regional exports have suffered as a result of the poor and worsening economic conditions in the north.
As US forces departed the ground, Sri Lanka defaulted on its debt, and Afghanistan is still transitioning. As Pakistani cement shipments struggle to stay up with what they supplied last year, uncertainty lurks in these markets.
Higher inflation has hindered the demand for housing and building in the United States. The future of Naya Pakistan Housing Projects is in jeopardy as a result of the PTI’s demise.
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Unfortunately, the most recent figures for housing and building loans under Mera Pakistan Mera Ghar (MPMG) were from February 22nd. The subsidy cover under MPMG would not be enough to make housing finance “affordable” with policy rates amended numerous times.
A number of cement companies are expanding and working on waste heat recovery and fuel efficiency to reduce costs. However, with Cement demand being so low, cost efficiency can only go so far.
The cement sector is not going to fare well in the coming months, and the government is unlikely to lower any taxes or levies on the product as it moves into austerity mode.