Amir Khan

Cement prices are escalating despite low demand due to the escalating construction cost in the country with an inter-company price war lurking on the horizon, reports WealthPK. Owing to the low demand factor, the companies are expected to lock in a tough competition on price to grab the market share. “The latest average price of a cement bag reported by the Pakistan Bureau of Statistics (PBS) is Rs1,194. The prices are even higher in the country’s northern markets,” Muhammad Ali Tabba, Chief Executive of the All Pakistan Cement Manufacturers Association (APCMA), told WealthPK. “Several factors leave the industry with no option but to reduce the prices. The escalating cost of construction is hampering the domestic demand; the coal prices have seen a substantial decline, promising improved profit margins and capacity utilization has hit a new low,” he said.

“In just three weeks, the average price of a cement bag has increased by Rs19, with some markets like Islamabad and Lahore experiencing price hikes of Rs32 and Rs24 per bag, respectively, since August,” he pointed out,” he said. He further said since 2019, the price of cement had shown irregular fluctuations, with periods of dips or stability followed by upward trends. However, since 2022, the prices have been more erratic, suggesting that the market was testing the limits of demand. Ali further highlighted that in FY23, the demand declined significantly by 16 percent, and capacity utilization remained at a modest 57 percent. Although there has been a slight improvement in the cement offtake during July and August, marking the start of FY2024, there is insufficient evidence to suggest a substantial demand recovery, he added.

Explaining, he said at first glance, one might attribute this anomaly to the market uncertainty and a lack of insight among the industry observers. However, it could be a matter of strategic decision-making rather than a knowledge gap. Continuing the discussion, the APCMA chief executive said, “The facts include rampant inflation eroding the consumers’ purchasing power, a sharp decline in construction demand, and elevated borrowing costs for all types of borrowers. The skyrocketing petrol prices have also prompted protests among the traders.” While the demand remains weak and capacity utilization lags, it would be unwise for any business to lower prices in the hope of attracting more customers during a drought.

In essence, the cement manufacturers are selling whatever they can to funded projects that are currently ongoing at the already determined prices. Additional demand is unlikely to materialize solely due to price reductions. Other factors come into play, as argued earlier. A multitude of commodities and materials are integral to the construction industry, and their market dynamics are closely interconnected. If steel, bricks, marble, and plastics do not become more affordable, will a drop in cement prices alone stimulate the construction demand?

Credit: INP-WealthPk