The fiscal year (FY23) wraps with the price of a 50-kg cement bag standing tall at an average Rs1145, highest average price ever recorded, with markets such as Islamabad and Lahore leading the way at Rs1150 and Rs1170 per bag. The two markets are also behind the largest hike in average prices, boosting the surge in average weekly price during the year of about 40 percent compared to the average weekly price last year; all markets average being only slightly behind at 39 percent. Contrast this to the demand that has faltered, waning as prices climbed. Total offtake during the year is not the lowest ever recordedand still trailing above FY17 levels, but capacity utilization has more than declined. It has dropped for the first time below 60 percent which in recent history is quite the fall.

As cement manufacturers have raised capacities—investing heavily into new brownfield and greenfield expansions in the hopes of greater public and private expenditure on infrastructure and housing construction—the pressure to sell off additional tonnage of cement has only mounted. New investments have come with higher debt burdens (though most companies utilized the subsidized TERF scheme of the SBP which put them at a significant advantage in terms of loan pricing), and they need to prove these investments viable. But recent economic challenges have made it quite the challenge. Domestic demand has proved taciturn which has over time caused capacity utilization to plummet. Meanwhile, exports in the first half of the year were also not picking up. Stands to reason that when demand is low, and capacity utilization is critically falling, the industry should enter a phase it is familiar with—one of competing with peers on prices.

But that has not happened. In fact, prices have continued to be raised slowly but surely and have bolstered the financial performance of cement companies who have managed to even retain their margins despite heavy cost inflation by moving to local and Afghan sources of coal. The 9M financial performance of listed companies suggest revenue per ton sold combined rose 53 percent (indicating the strong price retention) whereas cost per ton sold rose 51 percent. Volumes (in tons) declined by 18 percent during the period. Perhaps, cement manufacturers would be bringing down prices in the domestic market ready to offload as much cement as they can, but it would seem they have made demand projections and are not confident reduced prices would increase offtake. Prices of other construction materials—that complement and go with cement—such as steel, marbles and tiles, PVC materials have all seen price rise due to higher cost of production. Making cement cheaper without everything else only becoming more expensive does not seem like very good business specially when companies can make profits despite the reduced demand.

The most recent upside now is the declining coal prices in the international markets coinciding with the government roling back its import restrictions. Cement manufacturers can now optimize their coal mix by procuring locally, through Afghan sources where export duties have been reduced and from traditional suppliers in South Africa. With a little dash of luck and some strategy, the success story –at a time when the economy remains in the trenches fighting a war it may never win—writes itself.


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