Cement: Price and priorities

Even as Pakistani cement is free-falling to at least a 5-year low, and capacities are increasing, there are no signs that prices will see any major downward plunge which is typically what happens when capacity utilization slips. By 9M, capacity utilization is roughly 58 percent for industry as a whole, and in April, industry capacity dropped to less than 50 percent. Manufacturers have assured the same—that they will not indulge in any major price wars. It seems whatever demand exists in the market will get furnished at the prevailing prices without any substantial softening in the foreseeable future.

On average, cement prices have increased by 43 percent for various markets in the July to May period till now. Prices have remained on the up—more or less since last year with sharp burst throughout the ongoing fiscal year as inflation for nearly all consumption goods rose, as did cost of production. Prices for nearly all building materials rose in tandem with cement (where steel took the lead). It is a well-thought-out strategy and one that has worked so far in favor of cement manufacturers.

Even if cement prices dropped—and there was a price war—it may not influence greater spending on development or construction as other goods such as steel remain costly. The demand dynamics for cement and other construction materials are not shifting gears and probably won’t there aren’t any new avenues for demand that are opening up—development and public spending won’t recuperate until the ongoing economic crisis emerges out of its deep coma.

In the 10-month period, total domestic dispatches for cement dropped 18 percent where domestic offtake dropped 16 percent; exports plummeting by a lot more (29% to be exact). There is no demand motivation to cut prices as cement manufacturers would prefer to maximize their revenues as much as they can and safeguard their margins at times when costs of production are skyrocketing. This means, consumers will have to pay up (builders will pass on the cost) or delay their projects until the time it seems more feasible.