KARACHI, June 20: The price of cement has shot through the roof, which analysts attribute to demand outstripping supply. Industry sources affirm that cement manufacturers have increased the price per bag by Rs5, and stockists and distributors are making hay while the sun shines. End users complain that the shortage has given rise to ‘black marketing’ and hoarding of cement, and at several places it is being sold at the retail level at a price increase of as high as Rs20 to 30 per bag.

“Cement is being retailed at around Rs300 per bag in a few places in the north zone. This is because some plants are under maintenance shutdowns and there is an acute shortage of which retailers and distributors are taking advantage,” says Khalid Iqbal Siddiqui, head of research at InvestCap.

Abdul Rasheed, analyst at Jahangir Siddiqui Capital Markets, estimates: “The latest price hike of cement is expected to increase earnings of cement companies by 10 per cent annually.” He said that manufacturing costs were expected to remain stable as coal prices had been declining for the last few months. The analyst at InvestCap calculated: “According to our preliminary analysis, a price increase of Rs5 per bag would increase DG Khan Cement’s earning per share (eps) by Re0.51 for FY06, and Lucky’s eps by Re0.38.” Profitability of other companies was also expected to post a similar growth trend.

A chief executive of a cement company, who asked not to be named, admitted that there was an acute shortage of concrete in the market. He said that such a huge demand and supply gap was being witnessed after almost 15 years. “And this being the peak construction season, the price rise is not totally surprising.”

The demand is currently on a higher side because builders are anxious to complete constructions before the monsoon sets in. And more importantly, the projects undertaken by the government under the development programme and for which allocations had been made in the previous budget need to be completed before the end of the current fiscal year. He said: “Just go around any principal city and see the boom in the construction industry, both industrial and residential.”

Demand growth was generally attributed to greater housing and construction activities, higher allocations for infrastructure development and increased export penetration. Overall cement industry sales during the first 11 months of FY05 had depicted a 20 per cent upsurge to 14.7m tons with local sales and exports, respectively, soaring by 18 and 46 per cent.

The recently announced budget had all the ingredients of giving impetus to the construction industry. In their post-budget review, analysts at Arif Habib Securities had pointed out the positives and negatives for the cement sector.

The measures that would go to benefit the sector were: the PSDP size was increased by 34.7 pr cent to Rs272 billion against Rs202 billion last year; the government had allocated Rs35.63 billion for new and ongoing water projects for the current fiscal, indicating an increase of 63.5 per cent against the outgoing fiscal year; in order to encourage construction activities, imports of four raw materials and two components used for manufacturing of composite doors and windows have been allowed at a concessionary rate of five and 15 per cent, respectively, as against the existing rate of 10 to 25 per cent; and the real estate sector has remained outside the tax net.

Cement manufacturers are, nonetheless, displeased with the fact that for the second consecutive year, the government ignored their request for removal of central excise duty. Almost all major industry players are currently in the throes of giant expansions in their capacities, which would hopefully reduce the demand-supply gap, going forward.