26 June 2004	Saturday	07 Jamadi-ul-Awwal 1425

KARACHI, June 25: Cement prices have increased by Rs5 to Rs15 per 50 kg bag in the last two weeks and producers and dealers are blaming each other for the increase.

A senior executive in a leading cement factory, who declined to be quoted, said that the producers, falling under All Pakistan Cement Manufacturers Association (APCMA), have not increased any prices. Actually dealers are bent upon charging premiums on 50 kg bags on their own as the demand has flared up due to improvement in construction activities.

Further, rumours that producers are eying huge export shipments to Dubai have also caused a stir in the markets, thus giving cement dealers another reason to charge higher prices. He said cement was being exported but not at the high flow.

He said that all producers were now working on 97 per cent capacity-utilization.

Meanwhile, Convener of Karachi Cement Dealer Action Committee, Shaukat Hussain said that manufacturers had increased the prices of cement bags by Rs5 to Rs10 per bag just ahead of 2004-2005 budget announcement and till today it still exists.

For instance, he said Pakland cement is now priced at Rs242- 245 as against Rs230 ahead of budget. He said that Zealpak, Thatta cements, etc., are also selling at Rs5 to Rs10 higher as compared to pre-budget rates.

Another dealer said that Thatta cement is now selling at Rs233-235 as compared to Rs230 per bag.

Dealers said that the market was also in the impression that the government's decision to bring uniformity in the rate of general sales tax (GST) at 15 per cent from 18 per cent on unregistered buyers would definitely result in price fall by Rs7- 7.50 per bag. However, they said, cement makers seem uninterested to pass on the GST cut to the consumers.

Meanwhile, an executive in cement factory said that it is a wrong impression that majority of cement dealers were not registered tax payers. He said his company's 80 per cent dealers are registered with sales tax so it did force the company to cut prices due to GST cut.

The chairman, Association of Builders and Developers (ABAD), Babar Mirza Chughtai also confirmed that cement makers have raised prices ahead of budget announcement by Rs10-15 per bag but reverted back to old rates since the budget has not come out with any relief like cut in excise duty.

He recalled that cement makers had raised the prices of cement bag prior to announcement of last fiscal's budget to Rs240-250 from Rs180-185 in anticipation of cut in excise duty by Rs250 per ton. After raising prices, they brought cement bag prices down to Rs220-230 per bag when the government cut excise duty.

Price hike in cement ultimately results in raising production cost of housing and private sector projects. In housing projects, cement holds the share of 25 per cent while in big construction projects its share ranges between 30-35 per cent.

He urged the government to check whether any incentives announced in budgetary measures were being passed on to the consumers or not. Besides, he said that cement prices were still very high and unless the powerful cartel is not broken, uncertainty in cement prices continues to loom large.

The Monopoly Control Authority (MAC) should now become active to check the cartels and rescue the general public, he said.

According to an analyst at Jahangir Siddiqui Capital Markets, cement sales are soaring on the back of higher local demand because of greater economic and construction activities coupled with exports to Afghanistan. These developments have prompted a recent increase in industry utilization levels to nearly the cent per cent levels.

Cement outlook remains buoyant on the back of 2004-2005 budget's enhanced proposal on infrastructure development (dams, roads, activities in Gwadar, etc.,) coupled with greater participation by banks in the area of housing finance and incentives to construction industry.

Besides, a number of people are now engaged in renovation of their homes in a bid to boost the actual worth of the house for future selling purpose.

An analyst at Invest Cap, Abdul Rasheed said that a number of budgetary measures will positively affect the cement sector. The most significant is a record Rs202 billion Public Sector Development Programme's target (31 per cent up from last fiscal) of which a large portion will be spent on cement related infrastructure.

A uniform sales tax rate of 15 per cent (for registered and un-registered dealers) has increased cement companies' retention price. Cement dispatches to unregistered dealers are around 20-25 per cent of total sales. Cement makers were bearing cost of this three per cent (Rs5-6 per bag) additional GST on unregistered dealers, thus with the withdrawal of this tax, a positive effect of Re1 to Rs2 per bag will come on retention prices, he said.

The equity markets were eagerly awaiting reduction in central excise duty (CED). CED was reduced by Rs250/ton (25 per cent) in 2003-2004 budget and similar action was expected this time also. But the CBR has not provided the relief.

Cement demand will remain strong during 2004-2005 as well. Cement sales to be close to 15 million tons in 2004-2005, despite no reduction in cement prices as CED has not been slashed, he said.

Import duty on iron and steel has been reduced in the budget, besides 10 per cent cut in excise duty on paints and varnishes. The measures would have an impact on construction activity, but not strong enough.