Cement capacity outpaces production in Pakistan

Cement capacity outpaces production in Pakistan
06 September 2022

Pakistan's cement industry saw a fall of 3.6 per cent to 48.011Mt in cement production between July 2021 to June 2022 from 49.79 Mt produced in the year-ago period, says data released by the Pakistan Bureau of Statistics (PBS). While analysts attribute the slide to a range of factors, particularly to blame were high inflation and interest rate, costly raw materials, high cost of doing business and political uncertainty during the production period of last year.

FBS data indicates that Pakistan's total production during FY15-16 was 35.43Mt, which increased to 49.803Mt in FY20-21, showing a growth of 40.55 per cent in the last five years due to the addition of new capacities and production efficiency programmes implemented by some plants.

Attock Cement Pakistan Ltd's Senior General Manager (Finance & Coordination) and Company Secretary, Irfan Amanullah, has informed CemNet that the principal reason behind the decline is a higher inflationary trend in the economy coupled with higher interest rates which have switched investments from the real estate sector to fixed income. In addition, the cost of production in the last 18 months has increased by almost 50 per cent, owing to a significant jump in global coal prices, a steep rise in electricity and diesel rates, and an inflationary trend witnessed in other cost drivers. He added that political uncertainty has also played a significant role as most investors are on a wait-and-watch policy.

Furthermore, two key markets of Pakistani cement and clinker, Bangladesh and Sri Lanka, are also either caught in a debt trap or face foreign exchange issues. Therefore, demand from these two markets has slowed significantly, impacting Pakistani export volumes and capacity utilisation. It is expected that this trend will continue during the next 3-4 months until the market stabilises, Mr Amanullah concluded.

According to AL Habib Capital Markets, the cement industry in Pakistan currently stands at a capacity of 70Mta. Historically, the industry has recorded an average utilisation of 80 per cent. However, the analyst expects the utilisation levels to drop below 70 per cent by FY23-24, as the addition of new capacities will likely outpace demand growth.

Published under Cement News