Low cement production in 1HFY22-23 attributed to construction downtrend

Last week, the State Bank of Pakistan (SBP) released its half year report for the FY22-23 on the state of Pakistan’s economy. The analysis in the report covered all sectors, including cement, was prepared on data for the July-December 2022 period.

Cement industry output
The output in the cement sector contracted by 15.1 per cent during the 1HFY22-23, compared to a 0.9 per cent decline in the same period last year. According to the All Pakistan Cement Manufacturing Association (APCMA), the decrease in cement production was mainly attributed to lower construction demand as reflected by a 16.9 per cent reduction in domestic dispatches during the 1HFY22-23, compared to an expansion of two per cent in the same period of the previous financial year.   

Furthermore, subdued export demand reduced cement output. As reported by APCMA, the volume of cement exports to countries other than Afghanistan declined by 49 per cent during the current review period compared with 32.5 per cent growth in the same period last year.  

Apart from the devastating flood, the soaring imported coal price owing to the Russia-Ukraine war, import constraints on spare parts, tight monetary conditions, lower Public Sector Development Project (PSDP) spending, and inflationary pressure were the main factors causing lower demand and production of cement during the review period, SBP attributed in the report. 

Production finance
Despite the decline in production in the 1HFY22-23, borrowing by cement sectors rose to PKR23.6bn compared to PKR10bn in the same period last year. A general increase in the cost of production amid rising fuel, power and coal prices contributed to raising the sector’s borrowing needs.

Fixed investment in the cement industry
Cement was the second-biggest user of fixed investment loans in the manufacturing sector after textiles, as it increased borrowings by PKR22.3bn (US$77.6m) during the 1HFY22-23, compared to PKR1.6bn last year. The entire increase was concentrated in the 1QFY22-23, as a major listed cement manufacturer resorted to bank financing for capacity expansion, which includes investing in a cement plant in the Mianwali district and another in the Haripur district of Khyber Pakhtunkhwa. Another listed firm borrowed for capacity expansion and invested in solar power projects at its plants in Khyber Pakhtunkhwa and Sindh provinces for cost-saving purposes by reducing the reliance on costlier fuel.