Expectedly, the Budget 2024-25 raised more indirect taxes, of which raising FED on cement is only one of the many measures that have been approved. This set off cement prices across markets, particularly those located in the north. Between the weeks of Jun 13, 2024 and Jun 20, 2024, the average price went up by Rs9 per bag. But cement players have been smart—in anticipation of the FED increase, and in consonance with their costs, cement prices have been raised slowly and persistently for weeks. Illustratively, between the weeks of May 09, 2024 till the last recorded week (Jun 20th), cement prices have surged by Rs65 per bag. But before that, prices had dropped. In fact, the maximum price that the industry reached was Rs1244 in the week of Dec 07, 2023, more than 6 months ago. Between then and now, the net increase in price is Rs29 per bag—which may not be a huge difference in terms of construction.
For instance, in building a 5 Marla home, an average of 600-610 cement bags are used. By that measure, between the two peaks, the total price of cement incurred would have changed by roughly Rs 15,000. In certain markets, such as Islamabad, Rawalpindi, and Gujranwala, it is significantly more—trailing between 33,000 to 50,000. Mind you, this is the price differential in the weeks when cement prices hit their peaks thus far. By accurately estimating usage, and accounting for storage costs, builders and constructors could minimize their construction expense, as far as cement is concerned.
From the producers’ perspective, it seems they have made peace with the existing demand that has remained stagnant for much of the year, not growing much from last year which experienced lower volumes itself compared to FY22. In 11MFY24, domestic offtake is down 4 percent while average domestic offtake is the lowest in 6 years. Reduced demand in the local markets has been compensated somewhat with growing exports, but only slightly. Compared to 11MFY23, total offtake is up only 3 percent this year, and down 12 percent compared to 11MFY22. Prices have formed a steady, yet unlikely resistance against a demand that has been dwindling.
However strong prices have managed to keep revenues floating up, evidenced by the continued profitability of cement companies. In 9MFY24, industry revenues are up 11 percent while earnings post-tax are up 12 percent, despite higher overheads, financial costs, and tax incidence. Demand suppressors have been up and running, and though companies have not seen improved growth, they have seen improved profitability against all the odds stacked against them. A tacit understanding of prices and a strong knowledge of market dynamics have always worked, and it is still working.
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