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Back breaking construction costs are only worsening (read: “Construction costs: Breaking back!”, Apr 5, 2022). Cement prices have crossed Rs1000 per 50-kg bag, according to the weekly price data published by the Pakistan Bureau of Statistics (PBS) where many cities in the north such as Lahore have cement prices trailing Rs1150 for the last recording week of June. This is astonishingly high. Traditionally, cement bags are more expensive in the southern part of the country compared to the northern zone with few players and considerable pricing power and almost decided market shares. Over the past few weeks, markets in the north have surpassed prices in the south zone for the first time.

Between June of last year till the last week of June, cement prices are up between 40 percent to as high as 85 percent in certain markets located in the north. The average cement bag in the country is 64 percent more expensive than last year. Compared to two years ago when prices are floating low, cement prices are up on average by 88 percent—in Lahore, they are up 125 percent, in Islamabad 100 percent and Hyderabad 61 percent. These prices have moved parallel to other building material prices such as steel rebars where prices have undoubtedly shot up without pause. Construction price inflation meanwhile has been in line with the surge in wholesale price index.

Demand has already been hit by rising prices showing marked signs of slowing down (read: “Cement: Dangers loom”, June 09, 2022). Total volumetric sales in tons have dropped 9 percent with domestic dispatches losing momentum, dropping 2 percent and exports free-falling by 42 percent in 11MFY22. Thus far though, it has not been exactly doomsday scenario for most cement makers that made healthy profits in 9M (cumulative earnings grew 18% and margins stood fast at 24%) despite demand slowdown given frequent price increases in tandem with their cost escalations (coal prices in the global market skyrocketed over the past year). But there is only so much that manufacturers can raise prices.

Already price increases have hurt domestic demand. With PSDP cuts and public expenditure drying up, the industry needs organic demand for cement in housing and construction which has been brought to a standstill if builders and constructors—and advertisements in newspapers by them—are to be believed. But the fact that cement manufacturers keep raising prices, it does suggest a certain level of confidence in volumetric demand coming from confirmed offtake. That or they have no other choice. Considering there will now be a super tax on a variety of industries including cement, manufacturers will want to pass the tax onto consumers in the form of prices. Those that have to buy cement will have no choice but to buy from the local market since imported cement is unheard of.

With export markets becoming extinct (read: “Cement: Trade-offs”, June 17, 2022), the pressure for domestic market to deliver has risen but at prevailing construction costs, and formal borrowing rates, the average builder or home buyer will not be treading this path of much resistance. Most will want to wait out the storm.

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