KARACHI, March 21: For the first time in five months, prices of cement have started to climb, with retailers booking new orders at Rs180-185 per bag, which is Rs10-15 per bag more than last month, market sources said on Friday.

Admitting that price per ton of cement had seen an increase of Rs200-250 (one ton enough to fill 20 bags of 50 kg each), a head of a cement company, nonetheless, was looking sadly over his shoulders: “Five months ago, the price was Rs245 to Rs250,” he complained.

Cement sector analysts observed that the current upswing in price was due to concrete progress made in the revival of the ‘cement cartel’ — a loose formation of the country’s two dozen cement producers — that set an unwritten production ‘quota’ for each mill. The cartel, also possibly determined the minimum retail price that must be maintained for the commodity.

So long as the cartel remained intact, the cement companies managed to lift out of the red of a staggering Rs2 billion in 2001, to a profit of Rs88 million last year. A major contributing factor in return to profitability was also the large scale conversion from furnace oil to coal firing system of production that enabled the companies to cut cost of fuel by 60-65 per cent.

But towards the end of September 2002, the cement cartel fell by the roadside on disputes about ‘quotas’ and questions whether or not exports to Afghanistan should be considered in determining the quota. Manufacturers, thus, began undercutting each other in order to wrest larger share of the market.

“There are around 24 cement plants, producing 17.85 million tons of cement per year,” says a cement sector analyst, adding that about 40 per cent of that capacity sits idle.

A cement producer in the North rebuffed the suggestion that revival of cement ‘cartel’ was imminent and observed that the increase in price could be due to hoarding by speculators. Abdul Rasheed, stock analyst, who follows the cement sector for brokerage InvestCap, says that in spite of rise in price, there has been no major boost in cement sales. “This is due to the fact that with the reformation of the cartel almost in sight, dealers are stocking up, hoping to see the price shoot past Rs200 per bag.”

Mr Rasheed says that major issues that bedevilled the cartel appears to have been resolved. “For the current fiscal year to end-June 2003, we expect cement industry to post abnormal volume growth of around 12-15 per cent,” says the analyst, but cautions that the growth is likely to drop steeply to around 4-5 per cent, were the companies able to piece together the cartel.

Analysts stated that after having gone through stagnant five years (1998 through 2002), demand for cement (due to lower prices) had shown robust growth during the first half (July-Dec 2002). Demand in the first eight months of the financial year 2003, had risen by around 20 per cent with local sales up to 7.15 million tons, from 6.13 million tons in the same period last year.

Among the 21 companies listed on the cement sector at the stock exchanges, 17 had declared results for the first six months of the year (July-December 2002) and about one-half of them had returned losses. The company chief of a cement plant stated that the second quarter (Oct-December 2002) had witnessed poor results, with November and December causing colossal losses, following the break-up of cartel in October. On a parting positive note, the cement producer conceded that the company results were showing recovery from the middle of the current month (March).