According to the latest data, the cement sector witnessed a slowdown in dispatches in September 2023, as the demand from the construction industry remained subdued due to uncertain economic situation, rapidly rising construction costs and high financing costs. The total cement dispatches for the month of September 2023 stood at 4.1 million tons, down by 4% year-on-year (YoY) compared to 4.3 million tons in the same month of last year. However, the cumulative dispatches for the first quarter of fiscal year 2024 (1QFY24) registered a growth of 23% YoY to reach 11.8 million tons, mainly due to a low base effect.
The breakdown of the dispatches shows that the local dispatches declined by 7% YoY in September 2023, while the exports increased by 18% YoY. The local dispatches for the north region, which accounts for more than two-thirds of the total local dispatches, dropped by 8% YoY to 2.9 million tons in September 2023. The local dispatches for the south region, which mainly caters to the Karachi market, also decreased by 3% YoY to 651,000 tons in the same month.
On the other hand, the exports from both regions showed a positive trend in September 2023. The exports from the north region, which are mainly destined to Afghanistan and Central Asian countries, rose by 12% YoY to 0.2 million tons in September 2023. The exports from the south region, which are largely shipped to East Africa and Middle East countries, jumped by 22% YoY to 0.4 million tons in the same month.
The cement sector is facing multiple challenges in terms of rising input costs, higher taxation and regulatory hurdles. The recent hike in electricity tariffs and gas prices has increased the production cost of cement by around Rs50-60 per bag. The government has also imposed a federal excise duty (FED) of Rs25 per bag on cement and increased the sales tax rate from 17% to 20%. Moreover, the Supreme Court has banned the use of groundwater for industrial purposes in Punjab and Khyber Pakhtunkhwa, which has affected the operations of some cement plants.
The outlook for the cement sector depends largely on the revival of the construction activity in the country, which is linked to the implementation of public sector development projects and private sector housing schemes. The government has announced various incentives for the construction industry under the Naya Pakistan Housing Program (NPHP), such as tax exemptions, subsidized loans and land availability. However, these measures have not yet translated into a significant increase in cement demand.
The cement sector is also looking for opportunities to enhance its export potential by exploring new markets and increasing its competitiveness. The recent depreciation of the Pakistani rupee against the US dollar has improved the export margins of cement manufacturers. The cement sector is also seeking preferential trade agreements with neighboring countries such as China, Iran and India to boost its exports.
The cement sector is currently operating at around 80% capacity utilization, which is expected to increase further as new capacities come online in the next few years. The total installed capacity of the cement sector is expected to reach 88 million tons by FY25, up from 69 million tons in FY23. This will create an oversupply situation in the domestic market and increase the reliance on exports.
The cement sector is one of the key contributors to the economic growth and development of Pakistan. It provides direct and indirect employment to more than one million people and generates substantial revenues for the government. The cement sector also plays a vital role in meeting the infrastructure and housing needs of the country. Therefore, it is important that the government provides a conducive environment for the growth and sustainability of this sector.