Overcapacity challenges in Pakistan

Overcapacity challenges in Pakistan
11 February 2020

At the end of 2019, Pakistan cement production capacity reached to its highest level to meet the local demand and export the surplus production.

According to All Pakistan Cement Manufacturers Association (APCMA), as of December 2019, Pakistan's total cement production capacity exceeded the total production – 59.202Mta of clinker and 62.162Mta of cement. This represents the total production capacity from 17 cement producers, operating 25 plants across the country. Of this total, 12 plants are located in Punjab, seven in Khyber Pakhtunkhwa, four in Sindh and two in Balochistan.

It is estimated that new capacity totalling 4.7Mta (Kohat Cement 2.3Mta and Pioneer Cement 2.4Mta) is expected to come online FY20, thus increasing installed cement capacity to 66.96Mta. This is forecast to exert downward pressure on cement prices per bag until capacity utilisation picks up pace, according to AHCML Research. The research house foresees cement capacity utilisation at ~75 per cent in FY20, which is a challenging task for the industry.

According to a research report of AL Habib Capital Markets (Pvt) Ltd, high inflation and the consequent tight monetary policy, absence of a regional cement price fixation mechanism, excess capacities have come online in a scenario of weak total demand and have negatively affected the bottomline of cement companies. Furthermore, a spokesperson for APCMA has stated that it is imperative that consumption of cement increases to cover the huge surplus and save the industry from total collapse.

Two more factors have resurfaced again ie, implementation of axle load limit and effectiveness of NIC copy for the purchase of cement more than the worth of PKR50,000 (US$323.8). This would also impact supply chain of cement industry.  

Moving forward, for optimistic outlook for the cement industry, it has now pinned hopes on timely release of PSDP, execution of Prime Minister's housing scheme, construction of highways, dedicated freight corridors, ports, infrastructure projects, planned construction of water reservoirs and dams. Already federal government has released ~PKR298bn (US$3.39bn) during IHFY20 against total budgetary allocation of PKR701bn for FY20 on account of Federal PSDP disbursement.

Published under Cement News