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Here are some numbers: in the past year, cost of construction has risen in double-digits. According to the monthly price index of the Pakistan Bureau of Statistics (PBS) for Nov-21, index price of steel bars and sheets has risen 64 percent since last year, while cement prices have increased 16 percent, paints and varnishes 13 percent, glass sheets 8 percent, and bricks and tiles by 7 percent. Rebars, cement and bricks/tiles make up for 49 percent of the total cost of grey construction.

Prices are only going up. Steel manufacturers particularly have cited the depreciating rupee and high energy tariffs as the primary cause for the increase in prices. Demand for steel rebars, it seems, has not been affected—according to the Large-Scale Manufacturing (LSM) index, production of steel billets and ingots grew 15 percent in the first quarter. Steel manufacturers say demand is now slowing down. This is also visible from cement dispatch statistics where local sales for cement bags only grew 4 percent during the first quarter, already falling further down to 3 percent growth in the 5M period.

Curiously, if production ratios are compared of cement and steel, last year, cement to steel production ratio was around 11 tons (for every 1 ton of steel, 11 tons of cement was consumed), which has now dropped to 9.4 tons (during FY21 and FY20, this share was 12 and 13 tons).

The better performance of steel likely indicates that while demand amongst hydropower projects has continued to grow (this is where cement to steel ratio is typically lower i.e., more steel is used in such projects compared to the housing segment), demand might be slowing down for housing and commercial development projects. This is despite a construction amnesty package already functional and a mark-up subsidy scheme that SBP has been heavily pushing on hesitant banks.

While SBP has been quick to advertise how well housing and construction finance is doing given the mark-up scheme as well as the targets given to banks on maintaining mandatory financing ratio in their portfolios (amount disbursed under the scheme crossed Rs28 billion by Nov-21, against the total construction and housing financing of Rs305 billion which is nearly double of what it was last year), there is little information on the units of housing that are being financed and the size of loans being disbursed.

This puts a very deliberate veil around the extent to which construction has actually taken off the ground given there is no way to evaluate what the Rs305 billion is feeding; meanwhile, one cannot be too sure about how many of the housing for which Rs28 billion have been disbursed are actually low-cost.

From cement production numbers, it is clear construction is trudging on at snail speed compared to last year. Gradually hiking cement prices may only be a good strategy for cement producers only until they have pricing power because of burgeoning demand. Since demand is no longer booming, and export markets have also dried up because of high freight costs, cement manufacturers might have to hold their horses on the price front.

If steel rebar prices continue to increase, it will dampen demand. However, given how easily large steel manufacturers have raised prices, it seems that they are not too worried about demand in the market which means most of it is likely originating from infrastructure and hydro power projects. It also seems they are not too worried about losing market share to cheaper non-graded steel, something graded steel manufacturers have continued to argue give them a “ton” of competition, pun intended.

Cost pressures are certainly a problem for manufacturers right now—given how expensive imported inputs are with the added pressure of a weaker rupee—but if they are confident enough to keep raising prices, they must be a lot more confident about the demand offtake than they are letting on. The question is where exactly is this demand?


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Arshad Jamil Dec 13, 2021 01:00pm
پاکستان کے سٹرکرل اینجینیئرز مل بیٹھ کر اپنے عل کو روائز کریں اور لکل ریالٹیز کو دیکھتے ہوئے سٹرکچر ڈیزائن کریں تو آج ایک دن میں سریئے کی کھپت کم ہوسکتی ہے۔ بغیر سوچے سمجھے فارمولے لگا کر سیفٹی فیکٹر کے بہانے سے اوور ڈیزائن کر دیتے ہیں۔۔۔ اور دوسری طرف بغیر اینجینیئر کے کام کرنے والے سریا باندھنے والے کاریگر اپنی مذدوری بڑھانے کے چکر میں ذیادہ سریا ڈالتے ہیں۔۔ پاکستان کے ٹمپریچر کے ایکسٹریم ویدر کو دیکھے بغیر ساری ڈومیسٹک مارکیٹ مینگائ کو بگھت رہی ہے۔۔ اینجینئرز کیوں نہیں اکانومکل ڈیزائننگ پر توجہ دیتے؟
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