Significant journalistic hours have been spent lauding the financial performance of cement companies in this column, celebrating the handful of smaller companies for outshining their larger peers (read: “Cement: Redefining the game”), and congratulating bigger companies to consistently keep making profits even in times of great economic turmoil and demand slumps.
But to assess the performance of the industry from a purely financial standpoint would be unjust to perhaps, the most important economic agent participating in the economy—the consumer. The consumer deserves a free market with competitive prices determined by market forces, and the burden of proof falls on the industry in question. For decades, the cement industry has been suspected and accused of operating under a cartel-like structure, but the domestic anti-trust watchdog has never found definitive evidence of unfair market practices. There are, however, behaviors that could be interpreted as oligopolistic which has raised many an eyebrow over the years.
Perhaps it’s the dominance of a few key players who have consistently held a significant and unusually “stable” market share over time. Or maybe it’s the fact that companies wield substantial pricing power that has contributed to strong profit margins for years. If one were to map a long run time series of coal prices with cement prices, the latter is not always determined by the former. In fact, cement prices remain fairly stable during times of low coal prices, except for the past two years when cement prices have soared. Price rigidity is a prominent strategy in oligopolies.
There is also no doubt that certain brands tend to be popular and perform better in specific regions and not others, reinforcing their local stronghold. In addition, there is a pattern of simultaneous capacity expansions across the industry that happens every few years, essentially ensuring the market share remains intact.
Meanwhile, barriers to entry are high and very few new investments have come into the sector despite a decent ROE for most players. All companies—with no exception to the “smaller” ones—are seasoned players with decades of experience under their belt, many enjoying economies of scale. The scale of operation and capital required to enter the market leaves very limited ability for new investors to challenge the market leaders, thus strengthening the oligopolistic nature of the industry.
Historical market share data shows that market power is certainly concentrated among a few key players. The graph illustrates market share by capacity from 1992 to 2024. A quick caveat: capacity and actual production are not the same, and market share is typically estimated using actual production. Since capacity utilization can vary over time between companies, it makes capacity a less reliable measure of market share and may even overstate market power. That said, we chose to use capacity for three reasons: 1) Limited production data for all companies over such a long period (since 1992), 2) Capacity reflects a company’s competitive strength and long-term market influence, and 3) Capacity avoids short-term factors, such as labor shortages, supply issues, or factory accidents, which may not reflect a company’s true market presence or efficiency.
Coming back to the data, it is evident that immediately after privatization, the market had many similarly sized players, with market share up for grabs and fairly evenly distributed. However with the entry of companies like Lucky and Bestway, along with several acquisitions and takeovers, the market became progressively less fragmented. By Fy11, the majority of the market share was held by five companies—Lucky, Bestway, DG Khan, Mapleleaf, and Fauji.
Between FY11 and FY24, five out of the 18 companies operational dominated 57 percent of the market on average. But for a market to be considered truly oligopolistic, the concentration ratio must fall between 60 and 80 percent—which is not the case here. Another statistic, the Herfindahl-Hirschman Index (HHI), a measure of market dominance, was calculated for the period from 1992 to 2024. The HHI never exceeded a score value of 1100 which is below the minimum threshold of 1800, typically required to indicate an oligopoly. This suggests that despite the presence of large players, there may be competition within the cement market as no single firm holds overwhelming power.
But at the same time, historical price trends and “steady” market shares suggest that dominant companies do not lose significant market share when prices are raised indicative of pricing power above competitive levels. The steadiness of market shares despite price hikes is a strong indicator of an oligopolistic market structure.
In fact, there have been no aggressive price wars in the industry, except during periods of sharply reduced capacity utilization, declining demand, and companies scrambling to sell. Over the past two years, cement prices have soared despite lower capacity utilization and consistently sluggish demand, yet there has been no aggressive price competition. While cement companies may not have explicitly colluded to maintain these price levels, there appears to be a tacit understanding that any major price war would harm the profitability of all market players. It is for this reason that in FY24 when demand plummeted, cement companies still made profits. The industry’s ability to maintain margins and profitability during tough economic times is a testament to its pricing power with no pressure from imports and minimal domestic fight over market share.
Over the years, leading players have maintained steady and strong margin performance over time despite some fluctuations due to international coal prices, fuel, and transportation costs. Lucky Cement leads the pack with average historical margins of 35 percent, peaking at 48 percent in FY16, driven by high-capacity utilization.
The company benefits from a strategic presence in both the northern and southern zones, with proximity to the port and though, Bestway follows Lucky in market share, it doesn’t always do that at the same level of efficiency. Margins averaged 30 percent since FY08; peaking at 46 percent in FY16. The difference in profitability between the two players is often stark with Lucky enjoying the wonders of nifty investments, geographic diversity, and economies of scale. Though Bestway remains a market leader, it has faced challenges. Other players such as DG Khan, Mapleleaf, and Faujithat hold dominant market share and have experienced volatility in margins and profitability but still remain above the fray. The only “smaller” player whose 15-year margin average stands at 28 percent is Kohat which doesn’t have a dominant market share but manages to outperform DGKC, Fauji, and Mapleleaf many times. All the other smaller players follow suit.
Here’s a shorter version of the analysis: It’s unlikely that cement executives are actively conspiring to fix prices or production quotas. The concentration ratio and HHI scores show that market shares are less concentrated than expected. However, a few market leaders clearly signal future actions. Signs of tacit collusion are evident, such as simultaneous price hikes and expansions. With high barriers to entry, tight control over resource licensing, limited import feasibility, and little price competition, free market ideals simply do not apply. But tacit collusion is subtle by design—it’s not written in stone. It works for companies as long as it benefits their bottom line, perhaps not for the rudderless consumer who faces higher prices and fewer choices. That said, despite cartel-like behaviors, cement companies have not given in to complacency having invested in energy and cost efficiencies and expanded into international markets through their exports, and that’s something.
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