KARACHI: Cement companies have increased prices by Rs15-20 per bag in the northern region in the wake of rising international coal prices and falling rupee.
According to JS Research analyst Arsalan Ahmed, coal prices in the global market have surged 35% to $108 per ton, which has jacked up production cost of the cement industry.
“If companies want to reach the previous profit margin (prior to the increase in coal prices and rupee depreciation), they would have to increase prices by Rs100. However, under the present scenario, it doesn’t seem possible,” Ahmed told The Express Tribune.
Price tags were unchanged in the market, but the discount the companies were offering previously had now been adjusted, he said, adding prices had been increased twice in the past couple of weeks in the northern region with a cumulative hike of Rs30-40 per bag.
Farheen Irfan of Elixir Securities said cement companies were readjusting their prices and had increased them by Rs15-20. They have notified dealers about the price hike.
She said cement manufacturers in the north may experience a tough time ahead as Pakistan was potentially going to the International Monetary Fund (IMF) and whenever that happened, spending under the Public Sector Development Programme (PSDP) would start shrinking. The cement industry is sensitive to the reduction in PSDP spending as lower expenditure on infrastructure and other projects leads to a drop in cement demand.
“Exports from the northern region will come under pressure as we have strained relations with Afghanistan whereas Iran has stepped up cement supply to the country,” she added.
However, Irfan pointed out that the southern region may not face a similar situation since cement companies there had started focusing on exports to regions and markets where low-priced cement was in great demand.
“They (southern cement companies) must export as there is not enough demand in the domestic market where they can sell their surplus quantity following aggressive expansion,” she said.
Lucky Cement and Attock Cement have increased their annual capacity by 2.4 million tons and another 2.6 million tons have been added by DG Khan Cement.
The analyst expected a slower growth in cement sales this year compared to the previous year. Growth in sales had been 15% last year, but this year the growth was expected to slow down to 9%, she added.
Published in The Express Tribune, July 11th, 2018.