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Last week, cement prices stood close to Rs1200 per cement bag. Over the past 20 days, average cement price rose by Rs20 according to Pakistan Bureau of Statistics (PBS) where some markets are clearly playing catch-up with others. In a demand slump, with fewer avenues for growth still, prices typically decline so manufacturers can keep selling their product to the market and not lose market share. Pakistani cement industry—though not operating in a categorically free market environment where prices are determined by demand and supply—follows a pattern analogous to a free market. When demand is low, and capacity utilization is declining, price competition ensues. But not since last year. Even when demand is well and duly on its way to crash and burn, prices have remained steadfast with slowly paced price hikes adminstered in nearly every market in the country that cement sells in.

In July-23 (the first month for the fiscal year FY24), year on year, total offtake grew about 58 percent but this is only compared to last year’s July when offtake was critically low. In fact, July’s cement offtake for the domestic market is lower than the average monthly offtake recorded since FY20 for the industry. This means, despite increased capacities, the domestic cement market has retreated to at least three years ago. Since demand is not taking off, and all fundamentals point toward a continued lethargy (lower development spending, exorbitant interest rates, inflation debilitatingly high for consumers and businesses alike), it is speculated that pricing power in the cement industry may extinguish ever so slowly in the coming months.

But it may not benefit manufacturers to substantially lower price or offer discounts when prices are elevated for all goods. Generally, hike in petrol prices have a domino effect on overall inflation which means, prices of goods will not decline as petrol prices keep going up (they are going up!). Coal prices are declining, but other materials are certainly costly—this is the first consideration for price setting and the goal for margin preservation. But cement companies are also observing and gathering market intelligence on the demand of goods that are bought alongside cement such as bricks, steel, marble and tiles, PVC, glass, furnishings, etc., and watching where price of these goods may settle over the next few months.

Prices for nearly all construction materials have followed a similar trajectory—some experiencing more frequent and substantive hikes than others. Building material users are unlikely to base their entire project construction on the cost of one material alone; overall cost of construction is prohibitive. Having said that, cement is certainly a major cost component in the grey construction process and buyers may stand to benefit buying at discounted prices. But declining cement prices may still not persuade greater buying, as taxes are soaring and wallets have shrunks as buying power has weakened. It stands to reason then that without demand being an adequate motivator, companies will likely watch market dynamics like a hawk and keep prices steady, raising them wherever they can. Unfortunately for consumers, the response to inflation is more inflation.

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Sohail Raja Aug 15, 2023 10:44am
Cement prices should be below RS 500.
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Love Your Country Aug 15, 2023 07:13pm
Cement makers work as a cartel so demand and supply dynamics is only theoretical. Coal price, petrol price, interest rates, there will always be a reason in favour of the business man. No chance of lower prices in the foreseeable future in my view. Will be happy to be proved wrong.
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GhotoHafeez Aug 16, 2023 10:10am
@Sohail Raja,
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GhotoHafeez Aug 16, 2023 10:13am
Cement price never goes down ,what ever the strategy you adopt,it is because cement companies have made cartel and they are more power full than that of government of pakistan.
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