Pakistan's Cement Industry Faces Stagnation Despite Expansion Investments

Despite significant investments and expansions, Pakistan's cement industry struggles with stagnant sales and low capacity utilization, as reported by Mettis Global.

Pakistan's Cement Industry Faces Stagnation Despite Expansion Investments
Photo by Muhammad Khubaib Sarfraz / Unsplash

Pakistan's cement industry has been facing a challenging period, with a mere 1% year-over-year growth in domestic sales in the first half of FY24, according to data from the All Pakistan Cement Manufacturers Association. The total domestic cement sales during this period were around 20.2 million metric tons, only slightly higher than the 20 million tons dispatched in the same period last year.

The industry's stagnation is attributed to the country's economic and political turmoil, which has hindered economic growth and stability. Despite the industry's efforts to expand production capacity, including taking on debts, the local dispatches have remained under pressure.

For instance, Lucky Cement Limited, holding a 16.5% share in the industry's sales in FY23, expanded its cement production capacity by 64% to 15.3 million tons since FY18. However, its actual production fell by almost 8% during the same period, leading to a capacity utilization of just 46%. Similarly, Bestway Cement Limited saw a 74% increase in its cement production capacity since FY18, while its actual production fell by 24%, resulting in a capacity utilization of only 42%.

The industry is also grappling with rising costs due to record high inflation and higher fuel prices, further exacerbated by the implementation of the axle load regime. These factors have increased construction costs and deterred demand, leading to subdued investment and skyrocketing cement prices, which have more than tripled since FY18.

The IMF's technical assistance report for Pakistan highlighted inefficiencies in the Public Sector Development Program (PSDP), a critical driver of public sector investment. The report suggested that the PSDP is unaffordable and needs reassessment, as the estimated cost to complete projects in the PSDP is more than 14 times the budget allocation.

Despite these challenges, the cement industry is exploring opportunities on the export front, which has helped maintain profitability. Export dispatches were substantially higher by 2.11x year-over-year, with volumes increasing to 3.653 million tons during the first six months of the current fiscal year.

Mettis Global