Cement industry adapts to budget changes in Pakistan

The recent budget for the fiscal year 2024-25 has brought about significant changes in the cement industry in Pakistan. One of the key outcomes of the budget was an increase in indirect taxes, particularly the Federal Excise Duty (FED) on cement. This rise in taxes has led to a surge in cement prices, especially in the northern markets of the country.

Between June 13, 2024, and June 20, 2024, the average price per cement bag increased by Rs9. Prior to this, cement manufacturers had already been gradually raising prices, with a total increase of Rs65 per bag from May 09, 2024, to June 20, 2024. However, it's worth noting that prices had actually decreased before this upward trend. The highest price recorded in the industry was Rs1244 per bag in the week of December 07, 2023, more than six months ago, showing a net increase of Rs29 per bag since then.

For instance, in the construction of a 5 Marla home, which typically requires 600-610 cement bags, the total cost of cement could have varied by approximately Rs15,000 between the two peak price points. In certain regions like Islamabad, Rawalpindi, and Gujranwala, this price difference is even higher, ranging from Rs33,000 to Rs50,000. Builders can optimize their construction costs related to cement by accurately estimating usage and considering storage expenses.

Despite a stagnant local demand, cement producers have adjusted to the market conditions. Domestic sales have decreased by 4% in the first 11 months of the fiscal year 2024, marking the lowest average domestic off-take in six years. While exports have partially offset the reduced local demand, the overall off-take has only increased by 3% compared to the same period last year and is down by 12% compared to two years ago.

Despite the challenging market environment, cement prices have remained strong, supporting the profitability of cement companies. Industry revenues have seen an 11% increase in the first 9 months of the fiscal year 2024, with post-tax earnings up by 12%, despite facing higher operational costs, financial charges, and tax burdens. Companies have successfully maintained profitability by understanding market dynamics and implementing effective pricing strategies, navigating through a period of subdued demand.

The changes in the budget for the fiscal year 2024-25 have had a notable impact on cement prices in Pakistan, with prices experiencing fluctuations and overall industry dynamics shifting. Despite these challenges, cement companies have managed to sustain their profitability through strategic measures. Builders and consumers alike should stay informed about these market changes to make informed decisions regarding construction projects and purchases.