CEMENT CARTEL TAKING THE TOLL
Prices increased by 60 percent during last two years
By AMANULLAH BASHAR
Feb 07 - 13, 2005
The strong cartel of the cement manufacturers, despite enjoying robust growth in sales and exports reflected in the quantum jump with increased capacity utilization to over 90 percent has increased cement prices at least by 60 percent during last two years. Recently, the cement prices have gone up by Rs50 per bag which has given a severe blow to the housing and construction industry, a leading builder observed.
The cement, which is a basic ingredient of the labor-intensive housing and construction industry, was selling at Rs235-245 per bag till December last year. The cement prices, contrary to the hopes of bringing stability in the market, were suddenly increased by Rs40-50 per bag at the retail stage all over the country. Though some of the cement manufacturers have attributed the increase to the disrupted supplies due to bad weather and increasing cost of transportation, yet it seems to be lame excuse of the profiteers as weather or transportation cost cannot be a justification for the exorbitant increase.
Chairman, Association of Builders and Developers (ABAD) while rejecting the increase in cement prices has urged the government to control the cement cartel which in a way flouting the well thought out policy of using the housing and the construction industry as an effective level to accelerate economic activity in Pakistan.
While looking back on the pattern of increase in cement prices during last three years, one comes to know that cement was selling at Rs160 per bag in December 2002 which gradually increased to the level of Rs220 in 2003. A comparative study of the cement prices indicates that prices increased by almost 60 percent during last two years which is a clear negation of the government to provide all possible assistance and support to the construction industry with a view of its diversified impact over 84 allied industries.
ABAD chairman feels that unless corrective measures were taken by the government in the cement sector, which is operating at its whim on the strength of the cartel, it would be counter productive to the agenda of the government for revival of the economy on sound footings.
Meanwhile, figures released by the All Pakistan Cement Manufacturers Association (APCMA) indicates that cement demand growth during January 2005 has slowed down to 7.6 percent as against the 20 percent plus growth witnessed during most of the first six months of 2004-05. According to industry sources, this slowdown is seasonal and mainly attributable to the Eid holidays during the month, which generally leads to a decline in construction activities. Industrial cement sales during January stood at 1.23m tonnes with local sales and exports amounting to 1.17m tonnes and approx. 53,000 tonnes respectively.
Exports to Afghanistan have also decelerated markedly on shipment delays and closure of routes on the back of the winter season. Overall demand growth during July-Jan 2005 is up 21.5 percent to 9.04m tonnes as against 7.43m tonnes during the corresponding period of last year.
DIVERSE DEMAND TREND IN THE NORTH AND SOUTH CEMENT ZONES
Cement demand in the North and South cement zones depicts a diverse trend. During January, sales in the North zone were up 13 percent to 0.974m tonnes. On the other hand, sales in the South zone at 0.249m tonnes depicted an 8.5 percent dip. Taking a look at the year-to-date figures (since July 2004), local cement dispatches have soared 19 percent to 8.2m tonnes and exports are 53 percent higher to 0.83m tonnes.
INDUSTRY CAPACITY UTILIZATION STOOD AT 86.5PC
Industry capacity utilization during FY05 has stood at 86.5 percent, considerably higher compared to approximately 75 percent last year. Among the leaders, the utilization levels of D.G. Khan Cement, Bestway Cement and Lucky Cement surpassed the cent percent levels to respectively 103 percent, 109 percent and 103 percent. The capacity utilization of Fauji Cement and Attock Cement was at 94 percent and 88 percent respectively. Maple Leaf Cement's plant utilization remained at the lower side at 86 percent.
POSITIVE SECTOR OUTLOOK — FAVORABLE DEMAND PROSPECTS
Our outlook on the cement industry is positive on the back of favorable demand prospects and gradual capacity additions by manufacturers. President Musharraf during the last few weeks has repeated mentioned the need for construction of new dams and water reservoirs and for building national consensus towards it. These prospects bode extremely favourably for domestic demand. Going forward, industry gross margins are also to improve on the dual impact of declining international coal prices and slight increase in cement prices.
At the same time, exports to Afghanistan will continue to multiply with UAE also emerging as an important outlet for the country's cement. Following the slowdown during January, we anticipate demand to sharply rebound during the remaining months of FY05 with full year industry sales growth expected around 24 percent. The cement sector financial results for the half-year ended Dec 2004 are also to portray a sanguine picture. We shall be coming out with our earnings expectations in the coming days. Lucky Cement, D.G. Khan Cement and Pioneer Cement are our favorite scrips of the sector.