Potential impacts of Pakistan capacity build

Potential impacts of Pakistan capacity build
27 July 2017

Pakistan cement producers have embarked on an ambitious expansion phase but could this fast-paced capacity build up be leading to a potential supply glut and a reduction in company margins?

All the industry's major players are undertaking new investment projects and some 32Mta of capacity is due to come online in the next 5-6 years. This has led one local research house to warn that following tremendous valuation expansion in the last three years, risks are now becoming more prominent in terms of over-supply and rising cost structures.

However, with annual domestic demand increasing by an average of seven per cent over the last five years, the domestic industry is likely to absorb 20Mta of new capacity, at a utilisation level of 75 per cent. Excess new volumes of 12Mta would therefore have to be directed towards exports. Hence, it is anticipated that a complete breakdown in pricing dynamics can be avoided, but a secular decline in margins is likely.

According to industry sources, three projects are due to be completed in December 2017. These include the expansion of Lucky Cement's 1.2Mta plant in Karachi, as well as DG Khan and Attock Cement's new investments in Balochistan.

Published under Cement News