Likely post-coronavirus cement scenario in Pakistan

A local research house has estimated cement demands/sales in Pakistan after the coronavirus period, provided it is fully controlled well before it could bring any catastrophe on the economic front.

IMS Research forecasts that the present lockdown will keep cement demand below full potential until the end of 1HFY21 (July-December). Thereafter, a strong rebound in demand growth and profit margins seems more likely, given an earlier-than-expected start of monetary easing and government’s stimulus for the construction sector, according to analysts.

The research house anticipates that during FY21 (July 2020-June 2021), cement producers will have greater willingness and ability to raise prices (or trim discounts) at the prospect of rising economic growth and the government’s focus on low-cost housing scheme,while added lower interest rates and energy costs will also lift margins.

The present lockdown which is expected to depress local cement demand until the end of 1HFY21, the research house foresee a nine per cent YoY decline in FY20 domestic sales, followed by a five per cent YoY growth in FY21. However, total sales will decline by five per cent to 44.7Mt in FY20.

Pakistan continues to have a large infrastructure deficit (houses, dams, roads etc), where fiscal constraints in the past two years stalled government spending. A substantial increase in PSDP disbursement during FY21, is likely delayed as the government has diverted significant funds towards combating the COVID-19 pandemic. This will however be mitigated by the recently announced construction package, which can revive private cement consumption and stimulate the development of low income housing scheme on a large scale, in research house views. However, an extended period of lockdown is a key risk to these future forecast.

Prices will follow an upward trajectory in FY21
After two years of intense price competition, analyst expects retail cement prices to increase during FY21. Notably, most major expansions are online and the macroeconomic environment is more conducive. However, given the delayed uptick in demand, the industry will also take a little more time to reach consensus on prices. The retail price would rise to PKR610/bag (US$3.63/bag) in the north and PKR700/bag (US$4.17/bag) in the south by end-FY21, from PKR510/bag and PKR620/bag respectively (March 2020).