State Bank of Pakistan reviews cement industry performance in FY22
The State Bank of Pakistan (SBP) has critically analysed the performance of the cement industry between July 2021 and June 2022. The central bank gauged the positive and negative impacts on local and export dispatches, employment, quarrying of minerals and the reason behind on slow progress of the industry. The SBP concluded that "marginal growth in local dispatches and declining exports hurt the cement industry in FY21-22".
The cement sector’s output declined by 3.6 per cent (48.011Mt) in FY21-22, compared to a growth of 27.3 per cent in FY20-21. Cement exports declined considerably during the review period, whereas domestic dispatches witnessed an increase in 1HFY21-22 before posting a decline during second half of FY21-22 compared to FY20-21, more specifically in 4QFY21-22.
Cement dispatches declined by 7.9 per cent during FY21-22, compared to 20.1 per cent growth last year. Export dispatches faced a steep drop of 43.6 per cent during FY21-22, compared to 18.7 per cent growth in FY20-21. This was primarily attributed to elevated freight costs, and reduced demand for cement and clinker from Afghanistan and Bangladesh.
On the other hand, domestic dispatches declined by one per cent in FY22 to fall below the 48Mt mark set last year. The decline can be traced to slower offtake during April and May 2022, as political uncertainty hurt the construction sector activities. The slowdown was also partly attributed to the rising cement prices in the domestic market. Specifically, the cost of cement rose by 28 per cent on average during FY22, compared to 3.1 per cent in FY21. By extension, the elevated domestic prices could be traced to a combination of rising global prices of inputs such as coal and the PKR depreciation.
Local bank financing for expansion
Besides textiles, cement was the second largest user of fixed investment loans in the manufacturing sector. This sector increased borrowings by PKR34.3bn (US$150.2m) during FY22, compared to PKR7.8bn last year. Almost the entire increase was concentrated in 3Q-FY22, as major cement manufacturers resorted to bank financing for the procurement of machinery and capacity expansion.
Impact on workforce
The automobile and cement industry lost more workers during FY22. A decrease in foreign demand, owing partly to an increase in freight costs, hampered the growth of the cement producers in the south, which may have led to layoffs in the Sindh province.
Mining and quarrying
Mining and quarrying output declined during the year. This may be traced to a drop in the extraction of gypsum and limestone minerals. As these minerals are predominantly utilised in cement manufacturing, the lower production of cement may help explain the drop in output of these commodities.
