The Competition Commission of Pakistan (CCP) has started an enquiry against suspected cartelization in the cement industry after taking notice of the recent unjustified raise in cement prices despite lower demands and cheaper input costs.
Sources told Business Recorder that the CCP had sought information from all leading cement manufacturers under the competition law.
They said that the collusion between cement companies was not a new phenomenon in Pakistan.
Ten years ago on 27 August 2009, the CCP had passed an order and imposed penalty of over Rs6 billion on All Pakistan Cement Manufacturers Association (APCMA) and its members for cartelization.
The powerful cement cartel blocked the CCP's way, to recover the penalty, and obtained a stay order from the court. Moreover, the penalty is yet to be recovered.
For the last many years, the cement sector, particularly in the north region of the Punjab and the Khyber-Pakhtunkhwa is operational and allegedly taking collective decisions regarding pricing, production quantities, and distribution.
Sources stated that cement prices had recently witnessed an increase despite lower demands and cheaper input costs. In April-May 2020, cement prices in Islamabad have gone up by four percent, in Lahore by 10 percent, and in Peshawar by six percent.
The CCP has written a letter to all the leading cement manufacturers to provide information about the weekly price data from July 2019 to date; weekly production data for the same period; and the objective reasons for each price increase/decrease since 2019.
The CCP has also directed them to provide reasons behind the price hike of cement after the incentivized package announced by the Government of Pakistan for the construction industry.
The cement manufacturers receiving the CCP's letter include Bestway Cement, Attock Cement, Kohat Cement, Pioneer Cement, DG Khan Cement, Gharibwal Cement, Dandot Cement, Fector Cement, Cherat Cement, Lucky Cement, Maple Leafe Cement, Fauji Cement, and Flying Cement, the CCP sources revealed.
Industry sources informed that the APCMA in a recent meeting decided to raise the cement prices between Rs45 to Rs55.
As per media reports, the association was also asked by the Federal Minister for Industries and Production to withdraw the price increase, but they did not agree to reduce the prices.
In 2018, the cement prices witnessed a sharp increase in Islamabad, Lahore and Karachi at 22 percent, 13.5 percent and 4.9 percent, respectively.
However, the prices remained stable in 2019, mainly due to the ban to export the commodity to India.
Data checked with the industry sources revealed that cement dispatches have declined by 23.65 percent to 3.52 million tons in April 2020 as compared to 4.61 million tons in the same month last year due to the Covid-19 pandemic on domestic markets and construction activities in the country.
The decline in domestic consumption is observed both in the North and South regions of the country.
In April 2020, domestic dispatches in the Northern region fell by 12.68 percent to 2.928 million tons (April 2019: 3.353 million tons) and in Southern region it decreased by 49.85 percent to 0.342 million tons (April 2019: 0.683 million tons).
This year the worst-hit year for cement prices as the Covid-19 pandemic pushed the economic activities further down thus lowering the demand for cement in the country.
A package for the construction industry announced by the prime minister in the first week of April 2020 has slightly revived the cement demand in the local market.
However, the recent increase in the cement price seems unjustified in the light of the global decline in coal price, decrease in global oil prices, and reduced interest rates.