Total sales in the Jul-Oct period for the cement industry as a whole has grown by 4 percent compared to the period last year. During the same period, retention prices on average have grown 0.5 percent—as they oscillated up and down around their mean value. Surprisingly, the real improvement in prices comes from the southern zone where domestic demand has been lackluster in the past few months, compared to the north zone where dispatches grew 11 percent. Trends suggest prices in the north may fluctuate every few weeks but tend to converge on the same level.
Competition in the north side is a lot greater when demand is weak which leads to price rallies. But prices improve as fast as they had worsened. Demand it seems is improving in the zone as PSDP funds are released for several mega CPEC transportation projects which will feed into construction, no doubt. Moreover, sources believe market confidence is also improving despite the past few months post-IMF bailout and stabilization policies hitting businesses where it hurts the most. Demand slowdown in commercial and housing development was lethargic at best. Companies in the north that had headed to expansion were now racing to the market to offload excess cement they were manufacturing.
Over the past two months, cement demand has definitely improved but it may be too soon to say whether it is headed toward some dramatic turnaround, given that the country is still very much at a standstill. Private consumption and spending is down and no new public projects are being signed on. The purse strings are tight. In fact, the recent dispatch increase may just be due to expectation of future cement inflation or the CNIC requirement kicking off which will drive out a lot of informal traders and agents from the market if they intend on remaining informal.
Pakistan Bureau of Statistics market surveys for prices actually show that prices were headed up toward the end of October across many markets including Islamabad, Lahore and Peshawer but started to recede in the last week of the month for some markets. Others are staying put. When market share is at risk, it is difficult for companies to keep prices stable. As a result, prices fluctuate.
Prices have remained stable in the south zone, improved in the case for Karachi, even when demand has not kept up. There are very few players in the south with more or less a very fixed market share. More players entering the areana may change the dynamics, though the real opportunities for being in the south is to capture the exporting markets being near the ports. Which is an area that allows cement makers to diversify and in times of slowing down domestic demand be able to sell off their cement to markets overseas—ofcourse at much more competitive rates, and hence lower margins.