Pakistan Cement Sector Closes FY26 on Positive Note as Dispatches and Margins Recover
Pakistan's cement industry ended FY26 (the fiscal year to June 2026) on a positive note, with sector dispatches and profitability showing recovery after a difficult FY25. Lower coal prices and a modest pickup in construction activity supported margins across the sector.
What Changed in the Cement Sector Through FY26
Pakistan's cement industry entered FY26 under pressure from high energy costs and subdued construction activity, but closed the year on a better footing than most producers had expected at the start. A combination of lower international coal prices, gradual recovery in public sector development programme spending, and a modest rise in private construction activity helped stabilise the sector through the year.
Coal is the single biggest variable cost for Pakistani cement makers, who imported significant volumes from Afghanistan and international markets. When global coal prices fell from their 2022 and 2023 peaks, Pakistani cement manufacturers benefited directly through improved gross margins. This cost tailwind allowed producers to maintain or slightly expand their earnings even in an environment where cement prices did not rise significantly.
Why FY26 Conditions Matter for Cement Stocks
Cement companies on the Pakistan Stock Exchange carry significant fixed cost bases, which means their margins are highly sensitive to the interplay between coal costs and cement retention prices (the price producers earn from their distributors, before final retail markup). When coal falls and retention prices hold, the sector's profitability improves in a way that flows directly to the bottom line.
FY26's positive note also reflected some recovery in cement demand. Public sector infrastructure projects, including roads, dams, and housing programmes like Apna Ghar, created demand in regions where capacity had been underutilised. The northern cement belt, home to several major manufacturers, saw reasonably healthy volume throughput through the second half of the fiscal year.
Which Stocks and Why
Lucky Cement is the sector's largest player and an index heavyweight, making it the most visible beneficiary of any broad sector improvement. Its diversified operations in autos and chemicals provide some buffer, but cement remains the core earnings driver.
D.G. Khan Cement carries meaningful exposure to imported coal and also holds investments in other companies, so its earnings are sensitive both to coal cost movements and to broader market conditions. A positive year for the sector supports its cement profitability, though the investment portfolio introduces variability.
Cherat Cement and Kohat Cement are north-region producers whose margins track closely with coal input costs and regional construction demand. Both benefited from the coal cost moderation through FY26.
What to Watch in FY27
The two key variables that will determine whether FY27 continues the positive trend are coal prices and PSDP (Public Sector Development Programme) disbursements. If the federal government maintains its infrastructure spending commitments, cement volumes have a floor. If global coal prices rise again due to supply constraints or geopolitical disruption, margin gains from FY26 could reverse quickly.
The SBP policy rate trajectory is also relevant. Lower interest rates reduce the borrowing cost of construction projects, supporting private sector demand for cement. Any further rate cuts in FY27 would provide an additional volume tailwind. A rupee depreciation, on the other hand, would increase the PKR cost of imported coal and erode the margin gains from FY26.
Sources
Frequently asked questions
Why does coal price matter so much for Pakistani cement companies?
Coal is the primary fuel used in cement kilns to generate the heat needed for production. For most Pakistani cement makers, coal accounts for 40 to 50 percent of total production costs. When coal prices fall internationally or from Afghan supply, cement manufacturers benefit directly through lower per-tonne production costs, which expands their margins even if cement selling prices stay flat.
What is the cement retention price and why does it affect these stocks?
The retention price is the price a cement manufacturer receives from its distributor network, before the retailer adds their markup. It differs from the bag price a consumer pays. Changes in the retention price directly affect the revenue cement producers earn per tonne, so any increase in the retention price is a positive for manufacturer margins.
Which cement company is most exposed to coal price changes?
All Pakistani cement manufacturers are exposed to coal prices, but those with higher dependence on imported coal, such as D.G. Khan Cement and Maple Leaf Cement, face more rupee-linked volatility because imported coal is priced in US dollars.
Informational only, not investment advice. Sentiment reflects news exposure, not a buy/sell recommendation or price forecast. Do your own research and consult a licensed professional.
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