Cement industry has been facing different kinds of difficulties in Iran during last two years which are mostly caused by oversupply. When there isn’t enough demand for what have been produced, a competition starts between producers to sell their products. On the one hand, it is not economical to turn off the kilns for less than one month and reduce producing capacity in order to balance supply and demand because of the high cost of turning it on back again. On the other hand, this imbalancement causes a dramatic decrease in cement prices. This situation eventually will lead to insolvency. This is what had happened in Iran’s cement industry and led to long term recession. After this circumstance, producers had to sell their products with lower prices to avoid the insolvency. The government’s obligation to follow up the determined prices didn’t work anymore and the pressure of exceeding supply resulted in 10-20 percent decrease in cement prices.
But as those low prices didn’t cover the costs of producing, a review to consider an increase in prices seemed to be necessary. Recently by the intervention of Iran’s Cement Producers Association, it has been decided to cut the discounts that was given to buyers and the prices have raised to the level that was supposed to be two years ago. So, producers have increased prices in a unified manner. Due to the gradual increase in cement prices, the average price of Portland cement with about 20 percent increase, now stands at 100-120 thousand Rial.
In the graphs below, we will compare the Portland cement prices in three chosen cement producers, including Tehran, Hegmatan and Gharb Cement. Then we will review the changes in their Market Cap in Tehran Stock Exchange.
In charts below we can see the Portland cement price for four months from 22nd Sep 2016 to 19th Jan 2017 in three companies.
Tehran Cement Company, supplies the domestic demand and has no share in cement export. Portland cement price in this company has had 7.8% growth from 1,029,951 to 1,110,348 Rials per ton.
Hegmatan Cement Company exported about 40% of its production last year. But its export share has been decreased about 36% during current financial year (based on the last report published by the company in December). Portland cement price from 22nd September 2016 to 19th Jan 2017, has raised about 7% from 935,886 to 942,528 Rial per ton.
Gharb Cement Company had a stable share of export in its sales amount which was around 45%. However, its Portland price has experienced a 10% growth during the same period.
It’s clear that cement price has raised gradually since late September. But it is important to see the effects of this price changes in these companies’ Market Cap.
As this growth has happened in the whole cement industry more or less, we can see a growth of around 21% in industry’s Market Cap as it is shown in the table below. But Tehran, Hegmatan and Gharb Cement has experienced bigger growth than the whole cement industry.
Cement industry has suffered from a long-term recession during last few years. But it seems that a confederation has happened among industry activists to stabilize cement prices at a fair price. But for a sustainable growth in this industry, the demand side needs to be strengthen. It should be considered that there are various factors which can affect the demand side and we will review these factors in another article.