Challenges to grow in 2019 for Pakistan cement sector

Pakistan's cement industry is likely to face a number of challenges in 2019 on the domestic front owing to a flatness in demand, high markup rates, price competition and currency depreciation, etc.

According to the 'Investment Strategy 2019' report released by Spectrum Securities Ltd, after tremendous sales growth (13.8 per cent YoY) in cement dispatches during FY18, demand is expected to remain flattish in FY19 mainly due to higher base of FY18, reduction in allocation of the Public Sector Development Program (PSDP) and higher interest rates which would lead to lower construction financing (lower demand from private sector).

Moreover, industry experts anticipate cement price would remain under pressure in the north region as Cherat Cement and Maple Leaf Cement expansion projects of 4.4Mt are expected to be online in 2HFY19.

Furthermore, gross margins for industry are likely to fallon the back of PKR devaluation, lower cement retention prices and fixed cost (depreciation) owing to capital expenditure of plant expansion. Net margins are also estimated to stay flat on the back of higher financial costs. However, the bottom-line would have some support from tax credits and holidays, the report suggests.

Cement demand to halt amid weak economic indicators
It is estimated that cement local demand is expected to decline mainly due to:
1) lower government spending (to cut PSDP)
2) slowdown in the economy 
3) hike in interest rate leads to lower demand from the private sector. However, cement export demand is anticipated to be on an upper trajectory as PKR devaluation will make Pakistani cement cheaper in the international market.

Expert forecast cement demand willsurge in FY20 as the governemnt will have some relief on fiscal deficit to build five million houses.

Cement bag prices to remain under pressure
In north region cement price to remain under pressure in 2HFY19 and FY20 due to weak demand and
the upcoming expansion of Cherat and Maple Leaf Cement. It is expected that cement prices will hover around PKR575/bag (US$4.11/bag) in FY19-20, while in the south region cement prices will be around PKR600/bag as companies here are expected to export due to devaluation.