The next cement boom is here: Arif Habib analysts

Pakistan’s cement manufacturers have spent much of the past four years learning an uncomfortable lesson: having more factories does not necessarily mean selling more cement.

An investment cycle begun during the latter years of the China-Pakistan Economic Corridor brought millions of tonnes of new production capacity into an industry already prone to periodic bouts of overbuilding. The expansion was followed by economic stagnation, punishing interest rates, a collapse in private construction, cuts to development spending and an extraordinary increase in the cost of coal. Companies had newer and larger plants, but insufficient demand to keep them running.

Arif Habib Ltd now believes the equation is changing.

In a report published on July 8, analysts at the Karachi-based investment bank argue that Pakistan’s cement sector is entering its next upcycle. Their optimism rests not on any single dramatic revival in construction, but on five developments occurring at approximately the same time: domestic demand is recovering; the latest round of capacity additions is ending; larger manufacturers are acquiring competitors; the federal budget contains several measures favourable to construction and real estate; and exports are providing southern producers with a profitable outlet for excess capacity.