Analysts have been indicating that cement manufacturers will soon partake in a healthy dose of what they call “price competition” or “price war”to grab a higher market share as demand is scanty and industry capacities are lying idle. There are plenty of reasons for the industry to lower prices—cost of construction is damaging domestic demand; coal prices have declined substantially which should provide adequate margin safeguard. Their own capacity utilization is circling a new low. Except, what has happened since last year is that cement prices have ballooned; rising in nearly every market, inching closer to a new peak every week. The last recorded average price by the Pakistan Bureau of Statistics (PBS) was Rs 1194. Northern markets (such as Lahore, Multan Peshawar) have seen prices move beyond Rs1200. Theaforementioned average price is up Rs19 in just three weeks where some markets such as Islamabad and Lahore witnessed a price hike of Rs32 and Rs24 respectively since August.

Notice the upward ascent of prices since 2019 (graph). Prices fall for certain weeks or maintain periods where they remain stable and unchanged and then, begin their ascent again, except since 2022, prices have grown jerkier. Almost as if they are teasing demand to register a reaction, and react it has. In FY23, cement demand had plunged 16 percent, and capacity utilization was trailing at 57 percent. In Jul and Aug, which officially starts the new fiscal year (FY24) cement offtake has improved but there is not enough evidence that there is a major demand recovery here. Why then have prices continued to increase? Doesn’t a price war which would grab cement makers a higher market share sound titillating enough? What do they know that we don’t?

It is easier to chalk this up to market uncertainty and lack of knowledge on the part of market watchers. But perhaps, it is not a matter of knowledge, but of strategy. The known facts are that inflation is wrecking the buying power of consumers, construction demand is severely depleted, and cost of borrowing for any kind of borrower is high. Petrol prices just went through the roof and traders are on the road protesting. Yes, cement demand is weak and capacity utilization weaker still, but no business in its right mind should lower prices in the hopes that there is more fish they can catch… in a drought. Simply put whatever they can sell to projects that are funded and under construction is being sold at the desired price they set. Additional demand will suddenly not materialize just because manufacturers lowered prices.There is other considerations. As earlier argued, there are a large variety of commodities and goods that feed into construction and as “complimentary” goods, their market dynamics are closely linked. If steel, bricks, marbles and plastic are not becoming cheaper, would demand in construction rebound because of cement alone becoming cheaper?

Perhaps small price wars in certain markets could persuade existing cement procurers to buy from a slightly cheaper company but other considerations such as proximity to construction site, transport costs and ease of logistics can come in the way of that, not to mention, standing contracts if they exist. This is what will happen: cement prices will likely move up, especially as fuel prices increase, and no regular will bat an eye. Meanwhile, cement manufacturers will use their exports to offload excess cement/clinker to markets offshore or cross-border now that lower coal prices is making exporting cement more viable. Suitably cheaper coal will also allow them to pad their margins.