Cement offtakes in Pakistan saw a 5% year-on-year (YoY) decline in September 2024, reaching 3.67 million tons, driven by an 18% drop in domestic sales. This is the lowest level of local cement sales since 2017.
In contrast, Pakistan’s cement exports surged 72% YoY, with the southern region’s exports growing by 81% YoY to 0.78 million tons, according to industry data.
For the first quarter of FY25, total cement dispatches fell by 14% YoY to 10.3 million tons, with local dispatches dropping 20% YoY. The slowdown in domestic demand is primarily attributed to reduced construction activity amid economic difficulties and rising construction costs, fueled by increasing cement prices.
Cement prices have risen by 14% since the FY25 budget, largely due to hikes in the Federal Excise Duty (FED), advance tax, and higher royalty rates.
According to data compiled by brokerage firm AKD Securities, the rise in exports is supported by more favorable export conditions, including lower coal prices compared to last year. Additionally, Sri Lanka’s decision to reduce the levy on imported cement by PKR 1.0 per kilogram, effective from September 6, 2024, contributed to the growth in exports.
Average daily domestic sales in September stood at 90,000 tons, showing a slight 1% month-on-month (MoM) increase, though still 13% below the FY24 average of 104,000 tons.
Industry-wide utilisation fell to 52%, down from 60% in the same period last year, though it improved by 4.3 percentage points on a monthly basis. The northern region’s utilisation remained low at 42%, while the southern region saw a significant boost in utilisation to 85%, driven by strong export growth.
The price gap between the northern and southern regions has narrowed, with a PKR 32 per bag reduction in North cement prices over the past month, reducing the price differential to PKR 104 per bag from PKR 138 per bag in the previous month.
This gap is expected to shrink further to around PKR 70 per bag, supported by declining transportation costs due to lower petroleum prices. However, if southern utilization exceeds 90%, the gap could shrink further or even reverse.
Brokerage firm forecasted that local cement demand is expected to contract by 2-3% YoY in FY25, primarily due to weaker construction activity, rising costs, lower farmer income, and high borrowing rates. A potential reduction in the Federal Public Sector Development Program (PSDP) budget, currently set at PKR 1.1 trillion, may also further dampen domestic demand, especially if tax collection targets continue to fall short (with a PKR 87 billion shortfall in 1QFY25).
Despite these challenges, the cement sector’s profitability is expected to grow, driven by improved gross margins and potential monetary easing. In FY24, profitability in AKD’s cement universe grew by 75% YoY, despite only a modest 1.6% YoY increase in total cement offtakes.
Gross margins expanded to 30% from 26% in FY23. Preferred stocks in the sector include Lucky Cement (LUCK), Fauji Cement (FCCL), and Maple Leaf Cement (MLCF), while higher-leveraged companies may also benefit from ongoing monetary easing. However, risks to this outlook include price instability due to declining capacity utilization, rising input costs, and a potential drop in exports.
