Cement cartel under threat

The strong cartel operating in Pakistani’s cement industry was saved Thursday from a break-up by last minute intervention on the part of the big players, industry sources said.  The cartel had been threatened early in the day following a dispute that erupted on Wednesday between the Pakistan Cement Manufacturers Association and Lucky Cement, a major player in the Northern region.

Lucky Cement, which had been operating at 80 per cent capacity utilisation last year, had gradually increased capacity up to 100 per cent by October 2004. However, this additional capacity was not recognized by the association, which prevented Lucky Cement from selling the additional cement, an industry source close to the dispute said. The source said the 20 per cent slack in Lucky Cement’s official capacity was being picked up by another major player in the Northern region, D G Khan Cement which has the highest share in the cement market.

On Wednesday, Lucky Cement threatened that it would leave the association and function independently if its actual 100 per cent capacity utilisation was not recognized and it was not permitted to sell the cement it generated by increasing capacity. This led to panic among the industry which feared a price war and lower margins. Following this, major players in the industry, led by association chairman Tariq Saigol, became involved in hectic negotiations aimed at persuading Lucky Cement to remain within the group with the promise that its 100 per cent capacity utilisation level would be recognized in the revision expected by June 2005.

“The issue has been resolved with discussions,” said A. R. Thaplewala, senior executive at Lucky Cement. “Since our fellow companies have recognized the issue, the situation is expected to improve now.”

The association chief Mr Saigol told Daily Times that the issue was “between some members of the association, and included capacity utilization, cement dispatch, and internal consumption matters of the companies.” He said the core reason behind such disputes seems to be the seasonal slowdown in sales. “This put pressure on the manufactures to keep their local market share stable, especially when the export to Afghanistan has also dropped due to snowfall there,” he said. “Fortunately the association has managed to resolve the issue in time and prevented further harm to the balance of the market.”

Cement sources said the members of the association maintain their market share and prices according to a schedule set by the association in order to maintain a balance between the revenue of all the members. In this way, the association functions as a powerful cartel.

Analysts pointed out that the Monopoly Control Authority remained “conspicuously but not surprisingly absent” from the heated dispute. The MCA has not initiated any action over the cartel in the cement industry. Safdar Mahmood, chairman of the MCA in Islamabad refused repeated interview requests by Daily Times made over the course of the last several days. D G Khan is estimated to have a market share of about 14 per cent while Lucky Cement and Maple Leaf each account for about 10 per cent of the industry’s sales.