ProPropertyNewsStrategic Pricing Shields Pakistan’s Cement Industry Amidst Challenges

Strategic Pricing Shields Pakistan’s Cement Industry Amidst Challenges

KARACHI: Despite facing an array of obstacles, cement manufacturers in Pakistan have shown impressive resilience. Their survival has been chiefly due to effective domestic market pricing strategies.

Notably, despite an 18% drop in total offtake, pre-tax profits for 12 out of 16 listed cement companies swelled by 17% during the first three quarters of the 2023 fiscal year compared to the previous year.

This astute pricing has culminated in a robust 26% revenue growth. This strong financial performance signifies that the increase in cement prices has effectively counterbalanced the dip in demand from the construction industry.

The current trends reveal that cement prices, as monitored by the weekly price changes from the Pakistan Bureau of Statistics SPI division, are on a steady climb. If this trend persists, they will reflect an average increase of 42% across markets compared to the same period last year.

Interestingly, the industry’s average revenue earned is even higher. In the first nine months of FY23, the revenue per ton sold for the highlighted cement companies increased by 53%, compared to a 51% increase in cost per ton sold.

This upward trend suggests that any cost inflation experienced by cement manufacturers, prompted by surging fuel prices, has been effectively passed on to consumers and beyond. Prices for other construction materials such as steel, marble and tiles, fittings, PVC, and bricks also mirror this general upward trend.

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Despite the current market dynamics, if cement manufacturers were to reduce prices to sell more cement, demand would remain limited due to other construction materials not becoming cheaper. A few months ago, builders protested against steep price hikes in rebars by announcing a ban on steel procurement.

The cement industry capacity utilization in the ten months of FY23 stands around 57%. Further reduction in demand might cause a further dip in utilization, particularly as new capacities are being introduced. Typically, when utilization drops, cement companies tend to compete on prices as they strive to sell to the market and avoid leaving large capacities idle.

Demand, however, is anticipated to remain fairly steady as development spending continues to be subdued and consumer purchasing power is waning. During such times, cement manufacturers are likely to focus on selling as much cement as they can in the domestic market—where they have substantial pricing control—before venturing into export markets, provided they offer favourable margins.

Lowering prices won’t necessarily stimulate demand and some cement companies may not be in a position to make such a move considering their leverage positions.

Despite these challenges, cement manufacturers have successfully navigated their way thanks to effective pricing strategies within the domestic market. Yet, the future of the industry remains uncertain as it contends with the unpredictable fluctuations of demand and supply.

Source: Brecorder

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