KARACHI, May 9: Cement producers finally managed to put together pieces of their broken ‘cartel’ at a meeting of manufacturers held in Lahore on Thursday.

Market sources affirmed that following several sessions last month, cement manufacturers had reached an agreement on Thursday, on various issues that had led to the break-up of cartel since September 2002.

Cement prices had plunged to Rs 160-170 per bag, from Rs 235-240 in the seven months, since September last, when serious rift appeared among a few major players that led to the break down of the cartel—the third since it was first formed in 1998. That year, the 23 cement producers entered into an unwritten agreement—generally referred to as a ‘cartel’— to control supply through the allocation of production quotas.

The major points of contention that triggered a price war and put an end to the cartel in September, were the treatment of expanded capacities and disagreement on whether or not exports to Afghanistan should be included in determining quotas.

A cement producer confirmed that at the meeting on Thursday, quotas on expanded capacities had been raised and exports were to be included in determination of quotas. “Cement prices have been set at Rs225 per bag and capacity utilization is fixed at 60 per cent,” said a cement sector analyst.

“The chairman of (All Pakistan Cement Manufacturers’ Association) would determine the quota for each mill on monthly basis,” said a cement producer who participated in Thursday’s meeting of manufacturers.

With the retail price of cement now running down to Rs180, the new price would bring an immediate benefit of Rs40-45 per bag to the mills. “Stockists and hoarders who had been piling up the bags in their backyards would get to gain, while consumers would have to pay as much more,” complained one small time builder.

But what is the consumers’ loss is the industry’s gain. With almost 40 per cent of the 17.85 million tons of cement capacity sitting idle, companies had seen their profits erode over the last six months. “All except three companies (Lucky, D.G. Khan and Attock Cement) had either dipped into the red or seen massive plunge in their profitability in third-quarter of the current financial year,” said one manufacturer.

A major contributing factor in profitability of many companies was also the large scale conversion from furnace oil to coal firing system of production that enabled companies to cut cost of fuel by 60-65 per cent.

Due to sharp plunge in cement prices, the demand for the product had soared by 20 per cent in the first nine months of the current financial year (July-March 2003). Some people in the industry are now worried that as prices of cement would rise, its sales in terms of volume would recede, thus mitigating the impact of higher prices. But the industry is comforted by the expectations of reduction in Central Excise Duty (CED), which is to be phased out by FY07 with the first reduction announcement to be made in the upcoming budget.

According to industry estimates, it would give Rs10 per bag relief to manufacturers, but it remains to be seen whether the government pushes producers to pass that on to the consumers.

Market does not expect the benefit of patch up among mills to reflect in the financial results for the current year to end-June 2003. But there are optimist, who disagree: “There are still 40 days left to the current financial year and we expect industries to be able to improve their fourth-quarter earnings on the back of improved pricing,” said one producer.