Sadly, it is time to go back to “reliable sources” to gauge the movement of cement prices in key markets as the government chooses to shove its head in the sand whilst hoping the problem goes away by deciding to not publish the weekly SPI data. This data played an integral role in understanding cement markets’ price dynamics. It helped in capturing small changes and trends in various cement markets on a very short-term basis that in turn helped analysts glean insights into price competitiveness (or lack thereof) and ask important questions about industry demand and supply.
Cement prices have certainly not let up as they battle it out in both northern and southern markets with cement manufacturers trying to strike a balance between maintaining dispatch volumes at favourable margins. Given the havoc that coal prices in the global markets have wreaked (“Cement’s coal play”, Oct 5, 2021), decisions to move away from imported to local coal were made to cushion the blow of expensive coal (which is also short in supply) and depreciating rupee. This in fact, allowed cement manufacturers to slowly raise prices of cement bags (since July, average cement prices have gone up by 15%--higher at 18% in markets like Multan in the north and lower at 14% in markets like Karachi) so the impact on consumers would not hit hard to the extent of making it infeasible for cement consumption to stay upbeat.
Retention during Q1 for most cement manufacturers despite a lazy demand in the domestic markets and a massive drop in the export markets was outstanding. Revenue per ton sold for the industry was up 31 percent (read: “Cement: Camouflaging risks”, Nov 3, 2021). This was much higher for cement manufacturers in the north compared to the south (read: “Cement: Camouflaging risks- II”, Nov 4, 2021).
This is also very visible from weekly price data. Historically, cement prices remain higher in the south zone compared to the north where competition tends to be much tougher as there are more players operating in the space. But with demand strong in the north zone—much of which is coming from public-sector infrastructure and hydro power projects—cement manufacturers were able to raise prices despite raised eyebrows. In fact, over the past few months, cement prices between the north and south zone have inched closer and closer to each other and the gap has almost become non-existent.
But prices can only be raised to a certain degree until it starts to affect demand and cement makers know that very well. Right now, builders and developers are suitably irked by the rising cost of construction; advertising and pleading with the government to intervene and control cement/steel and other building material prices. The government must not intervene, as much as it enjoys to. If construction projects do become infeasible, cement manufacturers would just have to stop raising prices, absorb the inflating costs of production (fuel, transport and coal costs) and take a hit on their margins. Right now, they see no reason to stop price increases because they feel the demand is still there.
However, there may be a chink in the armour. Average 4M monthly cement dispatches (domestically) stand at 3.9 million tons—slightly higher than last year. With exports skidding down (falling 40% in 4MFY22), cement manufacturers’ dependence on domestic demand has increased, and so will the pressure to keep selling.
This whole picture drawn here would have been conjecture if there was no weekly price data mapped out that could be mapped out against volumetric numbers. Let’s hope the government reconsiders.
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