The trajectory of cement prices amid lacklustre demand is hard to ignore. Latest numbers from Pakistan Bureau of Statistics (PBS) weekly price indices reveal in many markets a cement bag costs above Rs1200, prices rising every few weeks without fail. But evidently, for those expecting a price war in the domestic market amongst cement manufacturers, there is no good news. Cement prices have not yet seen their peak, and cement is not the only one.
PBS monthly price indices in fact suggest steel bars used in construction have witnessed bigger jumps in prices over the past eight months—very much in consonance with the wholesale price index compared to cement alone. One unfortunate caveat here is that the PBS methodology combines prices of both long steel (rebars and billets) and flat steel (steel sheets) under one heading “steel bars and sheets”. This hinders analysis on prices significantly as both goods are largely unrelated, use different materials and inputs for production and feed into different industries altogether. Predominantly in the construction industry, long steel is utilized.
Now then: the steel index per PBS rose 31 percent since Dec-22 against cement’s increase of 9 percent where WPI rose 24 percent. This is compared to back when both international coal prices (used as a fuel for the production of clinker) and steel scrap prices (used for the production of billets and rebars) began to simmer down. Domestic prices of steel rebars and cement bags however did not show any signs of backing down. One factor here is certainly rupee depreciation that made goods expensive but another more important aspect to consider particularly in the context of steel is the LC restriction that have only just recently been eased. Most rebar manufacturers were finding it harder to import scrap from abroad—irrespective of the price—due to the import restrictions imposed by the government. Cement industry was able to shield itself from the LC mayhem by procuring a mix of domestic and Afghani coal. This also shielded their margins to a great extent when international coal prices were crossing their historic peaks.
Compare these indices now to Feb-22 when the Russian-Ukraine war broke out and commodity prices shot up. This is when international coal prices found their most recent peak and domestic cement manufacturers quickly recalibrated their supplies to alternative sources. Compared to that time (nearly 19 months ago), cement index has risen 51 percent—just slightly behind the WPI surge of 54 percent—but way ahead of steel that rose 40 percent. It looks like the commodities are playing catch up, not only with rupee depreciation (causing their internationally sourced as well as local inputs to become more expensive), but also fuel prices and finally, prices of each other.
In Aug-23, cement demand seems to have slightly improved, certainly up from a very low base of last year but higher on a monthly basis too, as both domestic and export markets signal a recovery. Exports recovery—owing to lower coal prices—would make a lot more sense than a substantial revival in domestic off take as construction industry here at home sputters to a standstill. Local demand blockers are up—borrowing costs are high; inflation is rising that is causing cost overruns for builders, and reducing viability for consumers and investors to purchase built-up properties or build their own constructions whilst facing subdued purchasing power. Peak petrol prices will only ensure these trends will persist as transport and logistics bites a big chunk into the overall cost of business. If cement demand is recovering, there are very few places these dispatches are heading—to ongoing funded large-scale construction projects like hydro power plants that can absorb the cost overrun to a greater ability than smaller projects could. But any major recovery in cement sales will be corroborated by steel rebar production as well.
According to PBS’ Large Scale Manufacturing Index, during FY23, cement production fell 14 percent while the production of steel billets and ingots contracted 16 percent confirming the slowdown in construction during the year. If more steel is reportedly being produced in the upcoming months, perhaps, cement’s August off take would not be a one-off after all.
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