Appropriate product pricing system is an important factor that can play an essential role in industries’ development. If products’ prices don’t be evaluated accurately, the profit margin will be affected and it will have a considerable effect on the whole industry.
As one of the Iran’s important industries, cement industry has faced different challenges in this regard in a negative way recently. Therefore, this sector needs a particular attention.
There are different strategies for cement pricing. In one of these strategies price is derived by the interaction of supply and demand. This is the most logical way of pricing for all products. However, there are lots of other political and economic considerations that needs to be considered. Thus, the necessity of applying other ways of pricing such as “producer’s agreement” or “policy of pricing control” arises.
Back to the history of cement industry in Iran, we face two different situations in cement supply and demand. In years before 2014, because of more infrastructure projects and prosperity in housing market which leads to more constructions, the cement consumption was in its highest historical level. Also, there was a strong demand in the neighborhood countries that resulted in more cement export in those years. This positive atmosphere in cement industry made a great potential for increase in cement price because of the excess demand. But as the government’s policy was to control the price, cement price was determined as a fixed price by the authorities and all of the producers had to sell their products at the determined price. On the other hand, since the export prices were influenced by domestic prices, there was a gap between global cement price and local price in Iran.
Despite the controlled pricing, there was a rational profit margin in cement industry. But as the local and regional demand crashed because of the depression in the housing market and infrastructure plants from one side, and instability in the Middle East region from the other side, the situation changed and supply exceeded the demand after 2014. This situation created a competitive atmosphere among Iranian cement producers for selling their products. Most of them had to slash even that declared price to maintain their market share and this caused a bigger gap between global prices and Iran prices in different types of cement.
This new prices has exposed this industry to insolvency. It seems that considering the cost of production, these new prices which is the result of the supply excess, is not a fair price for producers in comparison with the global prices.
Iran’s Cement Producers Association, which plays an important role in cement price deregulation, has been seeking to reduce regional imbalance in cement price. In order to reach this goal, adopting distributional policy has been applied to ensure an equitable distribution of cement at a fair price. Also, in order to balance the supply and demand, Iran’s cement producers have decreased their production recently.
Altogether, as an increase in local cement demand is not expected, it seems that we won’t have any increase in its domestic price unless by applying the policy of pricing control, the authorities reduce the gap between Iran and other countries’ cement price.