Cement prices to shoot as players reach consensus

Will produce according to stipulated quota to ensure higher earnings

KARACHI: Cement manufacturing companies are set to increase prices by Rs15 to Rs20 for a 50-kg bag, a move that comes after they reached a consensus on production according to a stipulated quota.

High supply levels and increased cost of production have resulted in lower profitability for cement companies in recent times, suggest analysts, adding that the move to increase prices is already in motion.

“A consensus has been reached among cement producers to increase prices,” UBL Funds Research Analyst Anjali Rawlani confirmed to The Express Tribune. “Companies have been producing as much as they could sell for around the last eight months, but they have now reached a consensus.”

According to another official, relevant representatives of cement companies recently met in Lahore to discuss the issue of decreasing profitability. Despite higher dispatches, overall earnings have fallen due to lower prices.

“The new capacity formula has now been agreed upon,” the source said.

Prices will increase differently across the country. In Lahore, top-tier companies will sell a 50-kg bag for Rs545, while second-tier cement companies will sell it for Rs530-535. The third category will price it at Rs525-530. Meanwhile, in Khyber-Pakhtunkhwa, prices will increase to a minimum Rs525.

According to the All Pakistan Cement Manufacturing Association (APCMA), the industry’s capacity utilisation has reached 95% in the first 10 months of the ongoing fiscal year.

The industry dispatched 4.24 million tons in April 2018, up 17.46% when compared with 3.58 million tons during the corresponding month of the previous year.

Domestic consumption amounted to 3.77 million, out of which 3.11 million was consumed in north, while 0.66 million were consumed in the southern part of the country.

Pricing mechanism

A research analyst, who requested anonymity, said companies were offering Rs8 per bag to dealers if they managed to sell 10,000 bags a month in an effort to increase sales.

“These methods eroded their profitability. With the consensus, things are going to get better for the industry,” the analyst said.

Last week, the APCMA said the recent increase in federal excise duty (FED) will hurt local consumption as this will have an impact of Rs15 per bag.

However, the recent increase in prices is not the impact of FED increase.

“FED will be passed on to the consumers when it comes into effect,” said another official.

The Association of Builders and Developers (ABAD) has been critical of cement industry and its association, APCMA. The association calls APCMA a cartel, which coerces companies to produce according to an allotted quota in order to maintain high cement prices.

But research analyst Karim Punjani said prices are going up due to strong domestic demand.

“If you analyse data of the last two decades, the industry growth has been 1.3 times the GDP growth. Prices are bound to remain strong amid higher demand,” he said.

Published in The Express Tribune, May 11^th, 2018.

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