Another row may be brewing in Pakistan over capacity expansion and cement prices. Leading players in the industry are reportedly considering expansion plans, which some say could hurt smaller players who have higher production costs. Pakistan’s cement industry is currently operating at around 73% capacity utilisation, equivalent to 33 million t from its installed capacity of 45 million t. A new report from Sherman Securities considers the impact of expansion plans on the industry, saying that the sector may underperform while uncertainty over expansion plans pervades.
In September last year we reported on DG Khan’s plan to build a 2.6 million tpa in the Lasbela district of Pakistan and speculation among analysts that such an expansion would spark a price war among competitors in the region. While the larger companies, such as Lucky Cement, are in a financial position to absorb the additional cost, smaller players would not necessarily have the same advantage. At that time, BMA Capital Management issued a report saying, ‘While we maintain our projections of a healthy demand growth in the next five years (6 – 8% per annum), we would highlight that every player competing for a greater share of this expanding pie may create fissures within APCMA for the time being’.
More recently, All Pakistan Cement Manufacturers Association (APCMA) and Chairman and CEO of Lucky Cement, Muhammad Ali Tabba, has been quoted as saying “No one can stop you if you want to increase your capacity because it is the right of the company”.
The APCMA has experienced discord before, as energy tariffs appeared to give some producers an advantage over others. Those cement companies relying on power from the national grid were subject to a 55% tariff hike last year, while those using captive power plants saw a tariff increase of just 17.5%. Those most affected by the tariff hike called for an increase in cement prices, which other manufacturers disagreed with. At that time, it was reported that if Lucky Cement and DG Khan Cement left the APCMA – which was threatened – it would dismantle the existing pricing arrangement and create a ‘catastrophic’ price war that would allow larger producers to monopolise the industry.
Edited from various sources by Katherine Guenioui
Read the article online at: https://www.worldcement.com/asia-pacific-rim/10042014/apcma_row_brewing_over_cement_prices_29/