Pakistan's cement industry performance in FY22-23

In FY22-23, Pakistan’s cement industry’s local dispatches were affected by expensive construction (high steel and cement prices), declining consumer buying power and cuts in public sector spending. However, the industry saw some respite in the latter half of the year when exports picked up and the industry sustained profitability. Looking ahead, some relief in the import price of Afghan coal and a fall in prices internationally would bode well for the industry, according to the local media research cell of Business Recorder and JS Global, adding that Richards Bay coal prices have declined 54 per cent since December 2022.

Cement sales during FY22-23 in the domestic market fell 16 per cent. In comparison, exports during the year declined 14 per cent. When domestic and export sales are combined, the cement industry contracted by 16 per cent in FY22-23, with the share of exports remaining constant at 10 per cent same as last year. Compared with the previous year, exports have improved significantly as last year exports dropped by 56 per cent. Domestic sales declined by 17 per cent in the 1HFY21-22, leading to a total sales drop of 21 per cent. Exports began to improve after hitting a low at the half-year mark.

Companies’ profitability
At the same time, cement companies have reported good earnings owing to strong and continued pricing power in the domestic market. If production costs have grown, cement manufacturers have passed them on to the buyers, and projects that have needed cement have just had to deal with cost overruns that they have already experienced owing to prevailing inflation across the board for most commodities. As a result, despite reduced demand, companies have seen robust revenue growth.

On the cost side, companies have been making timely decisions regarding fuel procurement, shifting to domestic coal supplies and mixing it with Afghan coal trucked in through the borders. This helped them to shield their margins from shrinking as international coal prices shot up.

Though the government had budgeted a record-high number of public sector development programmes (PSDP in FY23-24), budget cuts are still the norm. Meanwhile, demand in the private sector may improve little, given rising inflation and higher taxes. However, cement manufacturers have the opportunity to continue improving their margins as Afghan coal has become cheaper (the Afghan government has cut down on export taxes). At the same time, international coal prices have also declined.

The FY22-23 wraps with the price of a 50kg cement bag standing tall at an average of PKR1145 (US$4.11), the highest average price ever recorded, local media remarked.