Pakistani production and prices

Pakistani production and prices
Published: 10 March 2004

Local cement prices increased in the range of Rs5 per bag to Rs10 per bag on Monday because of rising supply-demand gap but the representative body of cement manufacturers said they are prepared to increase production to normalize prices. Cement traders and dealers said prices of all the cement brands have increased on Monday due to high demand and low supply. ³The factory has slashed its supply, which has led up to current price hike,² said a dealer of the recently-privatised Thatta Cement and added that there are slim chances that prices would ease in coming days. He said the prices of cement, produced by Thatta cement, have increased to Rs 225 per bag from Rs 215 per bag earlier.

But M P Gangwani, chairman State Cement, the only public sector cement factory, said his firm is the only cement factory, which has maintained its prices at Rs 212 per bag, and has ignored price increases by other private sector factories. Mr Gangwani said last month company has also increased its capacity to 1,500 tonne per day from 1,000 tonne per day that would help ease some demand pressure. He said the State Cement has handed over Thatta Cement to a private buyer following the latter¹s privatization last month and added that the decision regarding its prices increase is now under the new management.

Tariq Sehgal, chairman All Pakistan Cement Manufacturers Association (APCMA), said the association has initiated an enquiry after receiving information from the market about the price hike. He said current rise in prices was due to increase in demand. ³The association would ask the companies to increase their supply to normalise prices in the market,² Mr Sehgal said. He said the increase or variation in price dose not indicate any price war among the producers and added that the association would keep playing its role to resole concerns regarding any matter from any of its members to ensure stability in the market.

Last month the local cement sector remained under pressure after some companies expressed reservations about capacity utilisation.  The current cartel has been formed in early May, 2003 when all the cement factories slashed their production to around 60 percent in next ten days and once the prices touches the required level, the production would be increased to nearly to 65 percent to maintain the price level. There are 24 cement plants in the country with total production capacity of the cement sector exceeds total demand in the country.

Sector analysts said cost of production for the local cement producers has declined at the average of 30 percent to 40 percent over the previous two years, but their prices have increased 20 percent to 30 percent. It has improved overall margins for the cement producers with help of cartel mechanism, they added.
The Monopoly Control Authority (MCA) has time and gain raised objections about the cartel mechanism and conducted some meetings with the association members to ease prices for the end consumers. But the matter is still unresolved. But APCMA has repeatedly denied that cement firms have established a cartel.