Pakistan Cement Industry Future 2019-2020

The profit margins of the Pakistani cement industry remain under pressure in FY19 and this trend is likely to continue in FY20 on the back of poor demand, higher coal prices and interest rates, lesser allocation for development projects, and competition in local and overseas markets. Reviewing the industry performance, experts observed in the local media that the industry started making expansion plans soon after the then-government signed CPEC agreements with the Chinese government in anticipation of considerable expenditure in energy and infrastructure. Thus, the strong demand continued well into FY18, but the sector started to face other factors that affected profitability.  As expansions came through, price competition grew, which led to lower retention prices in many northern markets and to a great extent, volatility in others. In addition, there was a contraction in exports, particularly from the Afghan market, which was witnessing an influx of cheaper Iranian cement. Exports to India were also impacted due to the growing tension between the two countries.

Coal prices
Furthermore, as the industry entered FY19, energy prices were higher while the Pakistani rupee also took a nose dive. It lost nearly 34 per cent of its value against the dollar and this resulted in more expensive imported inputs, including coal.

Cement demand
Domestic cement demand slowed during FY19 as government spending dried up and private sector development halted due to regulatory crackdown (such as restriction on non-filers to purchase property or Supreme Court ban on high-rise construction).
These demand-cost scenarios have resulted in average gross margins to fall to 25 per cent to date, reminiscent of events in 2010-12. Profitability for many companies is expected to be slashed due to higher finance costs (as a share of revenue), led by increased expansion-led borrowing and the higher cost of borrowing due to a rate hike. Experts were of the view that if industry is able explore the overseas markets more, revenues would continue to grow, but margins may not improve as cost pressures coupled with price competition — both locally and globally — may affect the profitability.

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