Cement woes

Business Recorder

24-06-2025

This was a challenging year for the cement industry, mostly because of absent domestic demand. In 11MFY25, sales dropped 2 percent from a rather weak last year. This year's performance is 6 percent below industry volumes during FY23, and nearly 20 percent lower than volumes sold during FY22. At the time, the industry also made impressive profits as for the first time in many years, prices went up rather quickly. In the north zone, prices surged 30 percent while in the south, cement prices rose 25 percent.
Since then, not only have prices skyrocketed, demand has continued to slid down. In the north, prices went up,averaging at Rs744 in FY22 to crossing Rs1000 in FY23, Rs1200 in FY24, and Rs1400 now in FY25. Southern prices have follow4d a similar trajectory, though they tend to be comparatively more stable. The other thing that changed was prices in north ovetook southern prices in FY23. Northern markets have maintained that differential since then. Prior to FY23, prices in the south were always higher than the north. Demand has been fairly erratic. Fluctuations in international coal prices, and often currency depreciation forced cement manufacturers to raise pricesafter FY21. South prices were always higher then due to higher competition in the north. But first came massive demand that made manufacturers more comfortable raising prices, then came crippling inflation that made it impossible to keep going without keeping prices up.
In FY25, prices have not been as volatile but they have never really dropped significantly enough. Demand has been unforgiving. In fact, it was improved prices that allowed cement companies to turn decently positive financial performance. The second helper was exports. In 11MFY25, exports grew 26 percent and contributed to roughly 20 percent of the sales mix. This is the highest exports share in the past decade.
Moving into FY26, demand may improve if PSDP disbursements keep coming and keep coming on time. When fiscal pressures intensify, the first line of defense is to cut on development spending. It's a time bound tradition. On the upside, the government's upcoming mark-up scheme for mortgages could resuscitate home construction demand which will breathe new life into the sector- at least for a little while. The construction material manufacturers will have that to look forward to. Even though demand is sure to grow in the fiscal year, even if it slows down later in FY26, if cement companies are able to keep prices sticky up, they will coast on their back fairly easily. The rub might come in the form of reduced export demand which is the perfect fallback plan for cement makers when domestic markets are weak. That may prove more trouble than it's worth.